Seagate 2008 Annual Report Download - page 22

Table of Contents
competitive with our recently introduced products, our customers may quickly diversify their sources of supply. Any significant decline in our
market share in any of our principal market applications would adversely affect our results of operations.
Principal Competitors
—We compete with both independent manufacturers, whose primary focus is producing technologically advanced disk
drives, and captive manufacturers, who do not depend solely on sales of disk drives to maintain their profitability.
We have experienced and expect to continue to experience intense competition from a number of domestic and foreign companies,
including other independent disk drive manufacturers, and large captive manufacturers. The term "independent" in this context refers to
manufacturers that primarily produce disk drives as a stand-alone product, such as Western Digital Corporation, and the term "captive" in this
context refers to manufacturers who themselves or through affiliated entities produce complete computer or other systems that contain disk
drives or other electronic data storage products, such as Fujitsu Limited, Hitachi Global Storage Technologies, Samsung Electronics
Incorporated and Toshiba Corporation.
Captive manufacturers are formidable competitors because they have the ability to determine pricing for complete systems without regard
to the margins on individual components. As components other than disk drives generally contribute a greater portion of the operating margin on
a complete computer system than do disk drives, captive manufacturers do not necessarily need to realize a profit on the disk drives included in a
complete computer system and, as a result, may be willing to sell disk drives to third parties at very low margins. Captive manufacturers are also
formidable competitors because they have more substantial resources than we do. Samsung and Hitachi (together with affiliated entities) also sell
other products to our customers, including critical components like flash memory, ASICs and flat panel displays, and may be willing to sell their
disk drives at a lower margin to advance their overall business strategy. One of our captive manufacturer competitors, Toshiba Corporation
recently announced that it will buy Fujitsu Limited's hard disk drive business in order to increase market share, cut costs and improve their
ability to compete in the market. To the extent we are not successful competing with captive or independent disk drive manufacturers, our results
of operations will be adversely affected.
In response to customer demand for high-quality, high-volume and low-cost disk drives, manufacturers of disk drives have had to develop
large, and in some cases global, production facilities with highly developed technological capabilities and internal controls. The development of
these large production facilities combined with industry consolidation can further increase the intensity of competition.
We also face indirect competition from present and potential customers who evaluate from time to time whether to manufacture their own
disk drives or other electronic data storage products.
We also experience competition from other companies that produce alternative storage technologies like flash memory, where increasing
capacity, decreasing cost, lower power consumption and improvements in performance ruggedness have resulted in competition with our lower
capacity, smaller form factor disk drives. While this competition has traditionally been in the markets for handheld consumer electronics
applications, these competitors have recently announced solid state drives (SSDs) for notebook and enterprise compute applications. Some of
these companies, like Samsung, also sell disk drives. Certain customers for both notebook and enterprise compute applications are evaluating
and adopting SSDs as alternatives to hard drives in certain applications.
20