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the combination of the hard drive businesses of International Business Machines Corporation, the inventor of the hard
drive, and Hitachi, Ltd ("Hitachi"). For a further description of our acquisition of HGST in March 2012, see Part II,
Item 8, Note 14 in our Notes to Consolidated Financial Statements.
HGST and WD have relationships with a full range of customers currently addressing storage opportunities.
These include storage subsystem suppliers, Internet and social media infrastructure players, and personal computer
("PC") and MacTM providers. Through HGST and WD, we sell our products to original equipment manufacturers
("OEMs"), distributors, resellers and consumers. WD has a strong brand and heritage with consumers with its WD
Branded Products business; HGST enjoys the same with its G-Technology branded products.
We believe we are at the forefront of helping our customers meet the evolving storage needs of end users through
innovation and value creation. Examples of these efforts include our multi-platter high capacity drives and solid-state
drives for the fast growing cloud computing storage market, our low-profile hard drives to address the emerging thin
and light Ultrabook
TM
PC and tablet markets, and our Connected Life innovations for the home and small-to-medium
sized businesses ("SMBs").
The storage market in which we operate is rapidly changing and evolving. To address these dynamics, we regu-
larly review opportunities to apply our knowledge of data storage technology to markets that we do not currently
serve or in markets where we seek to broaden our participation and augment our resources and capabilities. Examples
include our recent actions to strengthen our solid state drive business with the pending acquisition of sTec, Inc.
("sTec"), our acquisition of Velobit, Inc. and our investment in Skyera, Inc., as well as our acquisition of Arkeia Soft-
ware Solutions, Inc. to strengthen our SMBs solutions in our branded products business.
Through our investments and acquisitions, we seek to develop strategic relationships with technology innovators
in the broader storage market to enable our customers to develop highly optimized storage solutions that meet their
changing data management needs. We believe we have the technology building blocks to increase our overall market
participation and be a full-line data storage solutions supplier. Consistent with our measured and deliberate approach
to new market entries in the recent past, our approach to additional new markets will be based on a careful assessment
of the risks, rewards, requirements and profit potential of such actions.
Industry
Storage is increasingly critical to the large amount of digital content being created and utilized. We believe the
growth in the number of computing users and connected mobile devices in the world is unabated, creating more usage
and more digital content to be stored. Cloud computing applications are especially noteworthy given that they create
multiple copies of photos, videos and other content to ensure efficient distribution and security. We believe unit
volumes in the hard drive industry were down 9% in fiscal 2013 from fiscal 2012, reflecting continued soft industry
demand driven by macroeconomic uncertainty and weak PC demand.
Client: Desktop and Notebook PCs
The PC market, which includes notebook and desktop PCs, comprises the client market and has declined in fis-
cal 2013 from fiscal 2012 due to weak global macroeconomic conditions and the popularity of tablet devices. We are
encouraged by recent signs of innovation in the PC space, such as new ultraportable PC designs that are thinner,
lighter and faster than prior generation notebook PCs. This remains a significant market for us; however, our reliance
on the PC market is declining, with cloud, traditional enterprise, branded and other solutions accounting for 50% of
our net revenue in fiscal 2013 as compared to 36% in fiscal 2012.
Client storage devices consist of internal hard drives and solid-state drives for desktop and mobile PCs. We
believe industry unit shipments of mobile hard drives into the client space declined 14% in fiscal 2013 from fiscal
2012, while volumes of desktop hard drives declined 11% in fiscal 2013 from fiscal 2012.
Desktop PCs are intended for regular use at single locations in homes and businesses, as well as in multi-user
educational and government networks. Mobile PCs, primarily notebook computers, are used both in and away from
homes and businesses. We believe that the demand for client computer hard drives and solid-state drives will continue
primarily due to demand in emerging countries, corporate refreshes, the proliferation of digital content and changing
requirements for increasing performance and thinner and lighter devices with lower power consumption.
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