background image
our overall level of production decreases for any reason, and we are unable to reduce our fixed costs to match sales, our
head or magnetic media manufacturing assets may face underutilization that may impact our operating results. We
are therefore subject to additional risks related to overall asset utilization, including the need to operate at high levels
of utilization to drive competitive costs and the need for assured supply of components that we do not manufacture
ourselves. In addition, as a result of adverse labor rates or availability, we may be required to increase investments in
automation, which may cause our capital expenditures to increase. If we do not adequately address the challenges
related to our head or magnetic media manufacturing operations, our ongoing operations could be disrupted, resulting
in a decrease in our revenue or profit margins and negatively impacting our operating results.
We make significant investments in research and development to improve our technology and develop new technologies, and
unsuccessful investments could materially adversely affect our business, financial condition and results of operations.
Over the past several years, our business strategy has been to derive a competitive advantage by moving from
being a follower of new technologies to being a leader in the innovation and development of new technologies. This
strategy requires us to make significant investments in research and development and, in attempting to remain com-
petitive, we may increase our capital expenditures and expenses above our historical run-rate model. There can be no
assurance that these investments will result in viable technologies or products, or if these investments do result in
viable technologies or products, that they will be profitable or accepted by the market. Significant investments in
unsuccessful research and development efforts could materially adversely affect our business, financial condition and
results of operations. In addition, increased investments in technology could cause our cost structure to fall out of
alignment with demand for our products, which would have a negative impact on our financial results.
Current or future competitors may gain a technology advantage or develop an advantageous cost structure that we cannot match.
It may be possible for our current or future competitors to gain an advantage in product technology, manufactur-
ing technology, or process technology, which may allow them to offer products or services that have a significant
advantage over the products and services that we offer. Advantages could be in capacity, performance, reliability, serv-
iceability, or other attributes. A competitive cost structure for our products, including critical components, labor and
overhead, is also critical to the success of our business. We may be at a competitive disadvantage to any companies
that are able to gain a technological or cost structure advantage.
Industry consolidation could provide competitive advantages to our competitors.
The storage industry has experienced consolidation over the past several years. Consolidation by our competitors
may enhance their capacity, abilities and resources and lower their cost structure, causing us to be at a competitive
disadvantage.
Some of our competitors with diversified business units outside of storage products may over extended periods of time sell storage
products at prices that we cannot profitably match.
Some of our competitors earn a significant portion of their revenue from business units outside of storage prod-
ucts. Because they do not depend solely on sales of storage products to achieve profitability, they may sell storage
products at lower prices and operate their storage business unit at a loss over an extended period of time while still
remaining profitable overall. In addition, if these competitors can increase sales of non-storage products to the same
customers, they may benefit from selling their storage products at lower prices. Our operating results may be
adversely affected if we cannot successfully compete with the pricing by these companies.
If we fail to qualify our products with our customers, it may have a significant adverse impact on our sales and margins.
We regularly engage in new product qualification with our customers. Once a product is accepted for qual-
ification testing, failures or delays in the qualification process can result in delayed or reduced product sales, reduced
product margins caused by having to continue to offer a more costly current generation product, or lost sales to that
customer until the next generation of products is introduced. The effect of missing a product qualification oppor-
tunity is magnified by the limited number of high volume OEMs, which continue to consolidate their share of the
20