Western Digital (WDC)

logical track and sector locations. Guided by instructions from the controller, the HSA pivots in an arc, across the disk until it reaches the selected track of a disk, where the data is recorded or retrieved.

 

Industry standard interfaces allow the hard drive to communicate with the computer. Currently, the primary interfaces for PCs are EIDE and SATA, and the primary interfaces for enterprise systems are SCSI, SATA, SAS and FCAL. As computer performance continues to improve, the hard drive will need to deliver information faster. We believe this will continue to drive the PC industry transition to higher speed interfaces, such as SATA and SAS, to facilitate the higher data transfer rates. We currently offer the SATA interface on our WD Caviar^®, WD Scorpio^®, WD^® RE, WD VelociRaptor^tm and WD^® AV hard drive families; and EIDE on WD Caviar^®, WD Scorpio^® and WD^® AV families.

 

The number of disks and each disk’s areal density, which is a measure of the amount of data that can be stored on the recording surface of the disk, determines storage capacity of the hard drive. The higher the areal density, the more information can be stored on a single platter. Achieving a given drive capacity requires fewer disks and heads as the areal density increases, potentially reducing product costs over time through reduced component requirements. Beginning in June 2007, we began shipping 3.5-inch hard drives with 188 GB per platter areal density and 2.5-inch hard drives with 125 GB per platter areal density. In July 2007, we introduced the WD Caviar^® GreenPower^tm 3.5-inch hard drive which has 250 GB per platter areal density. In October 2007, we introduced WD Scorpio^® 2.5-inch drives that employ 160 GB per platter technology. In January 2008, we began shipping a 3.5-inch hard drive platform with 320 GB per platter areal density and in June 2008, we began shipping our WD Caviar^® family of drives at 333 GB per platter areal density. In April 2008, we began shipping WD VelociRaptor^tm hard drives, 2.5-inch 300 GB drives employing the highest shipping areal density in the industry at 290 gigabits per square inch.

 

Head technology is one of the key components affecting areal density. Historically, there have been rapid technological changes resulting in several generations of head technology in a relatively short time. However, in recent years the time has lengthened between changes in generations of head technology. The hard drive industry has essentially transitioned from the use of longitudinal magnetic recording (“LMR”) head technology for the head writer function to perpendicular magnetic recording (“PMR”) technology, which allows for significantly higher storage capacities. In addition, the industry has made the transition to tunnel-junction magneto resistive (“TMR”) technology for the head reader function. We have completed the transition to PMR and TMR in our 2.5-inch products and in the majority of our 3.5-inch products.

 

With the transition to PMR, media plays a much more important role in achieving higher areal density. PMR demands a much tighter interaction and matching between head and media designs. The acquisition of Komag has enabled us to be vertically integrated in the two most important technology components of hard drives (heads and media), and has enabled us to achieve a more optimum design and utilization of these components.

 

We invest considerable resources in research and development, manufacturing infrastructure and capital equipment of head and media components, in order to secure our competitive position and cost structure.

 

The WD^® product line generally leverages a common platform for various products within product families with different capacities to serve differing market needs. This platform strategy results in commonality of components across different products within product families and, in some cases, across product families, which reduces exposure to changes in demand, facilitates inventory management and allows us to achieve lower costs through purchasing economies. This platform strategy also enables our customers to leverage their qualification efforts onto successive product models.

 

Fiscal 2008 represented the sixth consecutive year of substantial growth in our research and development and capital spending to support our significant broadening of our product and technology portfolios. Over that six-year period, we have grown our investment spending 173% from $170 million in fiscal 2002 to $464 million in fiscal 2008. As a result of this investment activity, we continue to expand our business beyond the desktop PC market into newer markets or markets in which we have not previously participated. Such investments have allowed us to execute against our strategic objective of revenue diversification to address the growth of new applications for hard drives and fast-growing new market opportunities.

 

We are currently expanding our existing head wafer fabrication facilities in Fremont, California to accommodate our anticipated growth. The expansion will involve a process change to utilize 8-inch wafers from 6-inch wafers and will cost an estimated $280 million in the fiscal 2009 to 2010 timeframe. This will be in addition to our ongoing capital expenditures for hard drive and head assembly, and our anticipated capital expenditures for media development and manufacturing following our planned acquisition of Komag.

For an additional discussion of risks related to technological innovations, see Item 1A of this Annual Report on Form 10-K.

 

 

Hard drives record, store and retrieve digital data. Performance
attributes of hard drives, such as their ability to access and
transmit data and storage capacity, are currently better than
removable or floppy disks, optical hard drives and tapes, and
they are more cost effective than semiconductor technology. The
primary measures of hard drive performance include:

 

 

All of our hard drive products employ similar technology. The
main components of the hard drive are a Head-Disk-Assembly
(“HDA”) and a Printed Circuit Board Assembly
(“PCBA”). The HDA includes heads, media
(“disks”), head positioning mechanism
(“actuator”) and spindle motor. A rigid base and top
cover contain these components in a contamination-controlled
environment. The PCBA includes both standard and custom
integrated circuits, an interface connector to the host computer
and a power connector.

 

HDA: One or more disks positioned around a motor-driven spindle
hub that rotates the disks comprise the disk-pack assembly. The
disk is made up of a smooth substrate on which thin layers of
magnetic materials are deposited. The HSA is comprised of a
magnetic positioner, a pivot-arm module, on which the individual
heads are mounted. Each disk has a head suspended directly above
it, which can read data from or write data to the spinning disk.

 

PCBA: The integrated circuits on the printed circuit board
typically include a drive interface and a controller. The drive
interface receives instructions from the host computer, while
the controller directs the flow of data to or from the disks and
controls the heads. The location of data on each disk is
logically maintained in concentric tracks divided into sectors.
The host computer sends instructions to the controller to read
data from or write data to the disks, based on

logical track and sector locations. Guided by instructions from
the controller, the HSA pivots in an arc, across the disk until
it reaches the selected track of a disk, where the data is
recorded or retrieved.

 

Industry standard interfaces allow the hard drive to communicate
with the computer. Currently, the primary interfaces for PCs are
EIDE and SATA, and the primary interfaces for enterprise systems
are SCSI, SATA, SAS and FCAL. As computer performance continues
to improve, the hard drive will need to deliver information
faster. We believe this will continue to drive the PC industry
transition to higher speed interfaces, such as SATA and SAS, to
facilitate the higher data transfer rates. We currently offer
the SATA interface on our WD
Caviar^®,
WD
Scorpio^®,
WD^®
RE, WD
VelociRaptor^tm
and
WD^®
AV hard drive families; and EIDE on WD
Caviar^®,
WD
Scorpio^®
and
WD^®
AV families.

 

The number of disks and each disk’s areal density, which is
a measure of the amount of data that can be stored on the
recording surface of the disk, determines storage capacity of
the hard drive. The higher the areal density, the more
information can be stored on a single platter. Achieving a given
drive capacity requires fewer disks and heads as the areal
density increases, potentially reducing product costs over time
through reduced component requirements. Beginning in June 2007,
we began shipping 3.5-inch hard drives with 188 GB per platter
areal density and 2.5-inch hard drives with 125 GB per platter
areal density. In July 2007, we introduced the WD
Caviar^®
GreenPower^tm
3.5-inch hard drive which has 250 GB per platter areal density.
In October 2007, we introduced WD
Scorpio^®
2.5-inch drives that employ 160 GB per platter technology. In
January 2008, we began shipping a 3.5-inch hard drive platform
with 320 GB per platter areal density and in June 2008, we began
shipping our WD
Caviar^®
family of drives at 333 GB per platter areal density. In April
2008, we began shipping WD
VelociRaptor^tm
hard drives, 2.5-inch 300 GB drives employing the highest
shipping areal density in the industry at 290 gigabits per
square inch.

 

Head technology is one of the key components affecting areal
density. Historically, there have been rapid technological
changes resulting in several generations of head technology in a
relatively short time. However, in recent years the time has
lengthened between changes in generations of head technology.
The hard drive industry has essentially transitioned from the
use of longitudinal magnetic recording (“LMR”) head
technology for the head writer function to perpendicular
magnetic recording (“PMR”) technology, which allows
for significantly higher storage capacities. In addition, the
industry has made the transition to tunnel-junction magneto
resistive (“TMR”) technology for the head reader
function. We have completed the transition to PMR and TMR in our
2.5-inch products and in the majority of our 3.5-inch products.

 

With the transition to PMR, media plays a much more important
role in achieving higher areal density. PMR demands a much
tighter interaction and matching between head and media designs.
The acquisition of Komag has enabled us to be vertically
integrated in the two most important technology components of
hard drives (heads and media), and has enabled us to achieve a
more optimum design and utilization of these components.

 

We invest considerable resources in research and development,
manufacturing infrastructure and capital equipment of head and
media components, in order to secure our competitive position
and cost structure.

 

The
WD^®
product line generally leverages a common platform for various
products within product families with different capacities to
serve differing market needs. This platform strategy results in
commonality of components across different products within
product families and, in some cases, across product families,
which reduces exposure to changes in demand, facilitates
inventory management and allows us to achieve lower costs
through purchasing economies. This platform strategy also
enables our customers to leverage their qualification efforts
onto successive product models.

 

Fiscal 2008 represented the sixth consecutive year of
substantial growth in our research and development and capital
spending to support our significant broadening of our product
and technology portfolios. Over that six-year period, we have
grown our investment spending 173% from $170 million in
fiscal 2002 to $464 million in fiscal 2008. As a result of
this investment activity, we continue to expand our business
beyond the desktop PC market into newer markets or markets in
which we have not previously participated. Such investments have
allowed us to execute against our strategic objective of revenue
diversification to address the growth of new applications for
hard drives and fast-growing new market opportunities.

 

We are currently expanding our existing head wafer fabrication
facilities in Fremont, California to accommodate our anticipated
growth. The expansion will involve a process change to utilize
8-inch
wafers from
6-inch
wafers and will cost an estimated $280 million in the
fiscal 2009 to 2010 timeframe. This will be in addition to our
ongoing capital expenditures for hard drive and head assembly,
and our anticipated capital expenditures for media development
and manufacturing following our planned acquisition of Komag.

For an additional discussion of risks related to technological
innovations, see Item 1A of this Annual Report on
Form 10-K.

 

2007, we began shipping 3.5-inch hard drives with 188 GB per platter areal density and 2.5-inch hard drives with 125 GB per platter areal density. In July 2007, we introduced the WD Cavier^® GP 3.5-inch hard drive which has 250 GB per platter areal density.

 

Head technology is one of the variables affecting areal density. Historically, there have been rapid technological changes resulting in several generations of head technology in a relatively short time. However, in recent years the time has lengthened between changes in generations of head technology. The hard drive industry is in the midst of a transition from the use of giant magnetoresistive head technology for the head writer function to perpendicular recording (“PMR”) technology, which allows for significantly higher storage capacities. In addition, the industry is making the transition to tunnel injunctive magneto resistive (“TMR”) technology for the head reader function. We have essentially completed the transition to PMR and TMR in our 2.5-inch products and we are in the midst of these transitions in our 3.5-inch products.

 

The WD product line generally leverages a common platform for various products within product families with different capacities to serve differing market needs. This platform strategy results in commonality of components across different products within product families and, in some cases, across product families, which reduces exposure to changes in demand, facilitates inventory management and allows us to achieve lower costs through purchasing economies. This platform strategy also enables our customers to leverage their qualification efforts onto successive product models.

 

In addition to the development of hard drives, we invest considerable resources in the development of head technology used in the majority of our hard drive products and we anticipate investing considerable resources in the development of media technology following our planned acquisition of Komag. The design and manufacturing of WD heads consists of engineering and fabricating a read element for reading data from media, a write element for writing data to media, and slider. The slider functions like an airplane wing and allows the read and write elements to fly over the surface of media and to land, on either the media or a special ramp, when power is not applied to the hard drive.

 

Fiscal 2007 represented the fifth consecutive year of substantial growth in our research and development and capital spending to support our significant broadening of our product and technology portfolios. Over that five-year period, we have grown our investment spending over 270% from $170 million in fiscal 2002 to approximately $630 million in fiscal 2007. As a result of this investment activity, we continue to expand our business beyond the desktop market into newer markets or markets in which we have not previously participated. Such investments have allowed us to execute against our strategic objective of revenue diversification to address the growth of new applications for hard drives and fast-growing new market opportunities.

 

We are currently expanding our existing head wafer fabrication facilities to accommodate our anticipated growth. The expansion will involve a process change to utilize 8.0-inch wafers from 6.0-inch wafers and will cost an estimated $400 million in the fiscal 2008 to 2010 timeframe. This will be in addition to our ongoing capital expenditures for hard drive and head assembly, and our anticipated capital expenditures for media development and manufacturing following our planned acquisition of Komag.

 

For an additional discussion of risks related to technological innovations, see Item 1A of this Annual Report on Form 10-K.

 

The number of disks and each disk’s areal density, which is a measure of the amount of data that can be stored on the recording surface of the disk, determines storage capacity of the hard drive. The higher the areal density, the more information can be stored on a single platter. Achieving a given drive capacity requires fewer disks as the areal density increases, potentially reducing product costs over time through reduced component requirements. Beginning in July 2006, we began shipping 3.5-inch hard drives with 160 GB per platter areal density and 2.5-inch hard drives with 80 GB per platter areal density.

 

Head technology is one of the variables affecting areal density. Historically, there have been rapid technological changes resulting in several generations of head technology in a relatively short time. However, in recent years the time has lengthened between changes in generations of head technology. Currently, the desktop hard drive industry uses giant magnetoresistive (including tunneling magnetoresistive) head technology, which allows significantly higher storage capacities than the previously utilized thin-film head technology. Most of our hard drive product offerings currently employ giant magnetoresistive head technology. Additionally, we have undertaken significant development efforts to implement perpendicular recording technology and we began using perpendicular recording heads in certain products beginning in July 2006.

 

The WD product line generally leverages a common platform for various products within product families with different capacities to serve differing market needs. This platform strategy results in commonality of components across different products within product families and, in some cases, across product families, which reduces exposure to changes in demand, facilitates inventory management and allows us to achieve lower costs through purchasing economies. This platform strategy also enables our customers to leverage their qualification efforts onto successive product models.

 

In addition to the development of hard drives, we also invest considerable resources in the development of WD head technology used in the majority of our hard drive products. The design and manufacturing of WD heads consists of engineering and fabricating a read element for reading data from a disk, a write element for writing data to a disk, and slider. The slider functions similar to an airplane wing and allows the read and write elements to fly over the surface of the disk and to land, on either the disk or a special ramp, when power is not applied to the hard drive.

 

Fiscal 2006 represented the fourth consecutive year of substantial growth in our research and development and capital spending to support our significant broadening of our product and technology portfolios. Over that four-year period, we have grown our investment spending over 250% from $168 million in fiscal 2002 to approximately $600 million in fiscal 2006. As a result of this investment activity, we continue to expand our business beyond the desktop market into newer markets or markets in which we have not previously participated. Such investments have allowed us to execute against our strategic objective of revenue diversification to address the growth of new applications for hard drives and fast-growing new market opportunities.

 

For an additional discussion of risks related to technological innovations, see Item 1A of this Annual Report on Form 10-K.