We are a leading provider of electronic data storage products. Our principal
products are hard disk drives, commonly referred to as disk drives, hard drives
or HDDs. Hard disk drives are devices that store digitally encoded data on rapidly
rotating disks with magnetic surfaces. Disk drives continue to be the primary
medium of mass data storage due to their performance attributes, high quality
and cost effectiveness.
We produce a broad range of electronic data storage products including HDDs,
solid state hybrid drives (SSHD) and solid state drives (SSD), which address
enterprise applications, where our products are designed for enterprise servers,
mainframes and workstations; client compute applications, where our products
are designed for desktop and notebook computers; and client non-compute applications,
where our products are designed for a wide variety of end user devices such
as digital video recorders (DVRs), gaming consoles, personal data backup systems,
portable external storage systems and digital media systems. In addition to
manufacturing and selling data storage products, we provide data storage services
for small to medium-sized businesses, including online backup, data protection
and recovery solutions.
Disk Drive Technology
The design and manufacturing of disk drives depends on highly advanced technology
and manufacturing techniques and therefore requires high levels of research
and development spending and capital equipment investments. Manufacturing our
disk drives is a complex process that begins with the production of individual
components and ends with a fully assembled disk drive. We design, fabricate
and assemble a number of the most important components found in our disk drives,
including read/write heads and recording media. Our design and manufacturing
operations are based on technology platforms that are used to produce various
disk drive products that serve multiple data storage applications and markets.
Our core technology platforms are focused around the areal density of media
and read/write head technologies. Using an integrated platform design and manufacturing
leverage approach allows us to deliver a portfolio of disk drive products to
service a wide range of electronic data storage applications and a wide range
of industries.
Disk drives that we manufacture are commonly differentiated by the following
key characteristics:
storage capacity, commonly expressed in gigabytes (GB) or terabytes (TB), which
is the amount of data that can be stored on the disk drive;
spindle rotation speed, commonly expressed in revolutions per minute (RPM),
which has an effect on speed of access to data;
interface transfer rate, commonly expressed in megabytes per second, which is
the rate at which data moves between the disk drive and the computer controller;
average seek time, commonly expressed in milliseconds, which is the time needed
to position the heads over a selected track on the disk surface;
data transfer rate, commonly expressed in megabytes per second, which is the
rate at which data is transferred to and from the disk drive;
input/output operations per second (IOPS), commonly expressed in megabytes per
second, which is the maximum number of reads and writes to a storage location;
product quality and reliability, commonly expressed in annualized return rates;
and
energy efficiency, commonly measured by the power output necessary to operate
the disk drive.
Areal density is a measure of storage capacity per square inch on the recording
surface of a disk. The storage capacity of a disk drive is determined by the
number of disks it contains as well as the areal density capability of these
disks. We have been pursuing, and will continue to pursue, a number of technologies
to increase areal densities across the entire range of our products for expanding
disk drive capacities and reducing the number of disks and heads per drive to
further reduce product costs.
Enterprise Storage. We define enterprise storage as those solutions which
are designed for mission critical and nearline applications.
Mission critical applications are defined as those that are vital to the operation
of enterprises, requiring high performance and high reliability solutions. We
expect the market for mission critical enterprise storage solutions to continue
to be driven by enterprises moving network traffic to dedicated storage area
networks in an effort to reduce network complexity and increase energy savings.
We believe that this transition will lead to an increased demand for more energy
efficient, smaller form factor solutions. These solutions are comprised principally
of high performance enterprise class disk drives with sophisticated firmware
and communications technologies.
Nearline applications are defined as those which require high capacity and
energy efficient solutions featuring low costs per gigabyte. We expect such
applications, which include storage for cloud computing, content delivery and
backup services, will continue to grow and drive demand for solutions designed
with these attributes. With the increased consumption of media rich content
streamed from the cloud, we expect increased petabyte demand for high capacity
nearline devices.
Client Compute. We define client compute applications as solutions designed
for desktop and mobile compute applications. We believe that the demand resulting
from growing economies of certain countries and the continued proliferation
of digital content will continue to drive demand for the client compute market.
As the storage of digital content in the cloud becomes more prominent, some
client compute applications require less built-in storage, and therefore alternative
storage solutions are becoming more prevalent within the client compute market.
Client Non-Compute. We define client non-compute applications as solutions
designed for consumer electronic devices and disk drives used for external storage
and network-attached storage (NAS). Disk drives designed for consumer electronic
devices are primarily used in applications such as DVRs and gaming consoles
that require a higher capacity, low cost-per-gigabyte storage solution. Disk
drives for external and NAS devices are designed for purposes such as personal
data backup and portable external storage, and to augment storage capacity in
the consumers current desktop, notebook, tablet or DVR disk drive capacities.
Client non-compute applications also include devices designed to display digital
media in the home theater. We believe the proliferation and personal creation
of high definition and media-rich digital content will continue to create increasing
consumer demand for higher storage solutions.
Participants in the electronic data storage industry include:
Major subcomponent manufacturers. Companies that manufacture components or
subcomponents used in electronic data storage devices or solutions include companies
that supply spindle motors, heads and media, application specific integrated
circuits (ASICs) and glass substrates.
Hardware storage solutions manufacturers. Companies that transform components
into storage products include disk drive manufacturers and semiconductor storage
manufacturers which include integrating flash memory into storage products such
as SSDs.
System integrators. Companies that bundle and package storage solutions into
client compute, client non-compute or enterprise applications as well as enterprise
storage solutions. Distributors that integrate storage hardware and software
into end-user applications are also included in this category.
Storage services. Companies that provide services and solutions related to
the backup, archiving, recovery and discovery of electronic data.
Competition
We compete primarily with manufacturers of hard drives used in the enterprise,
client compute and client non-compute applications, but have in the past few
years also competed with manufacturers of solid-state drives. The markets that
we compete in are intensely competitive. Disk drive manufacturers not only compete
for a limited number of major disk drive customers but also compete with other
companies in the electronic data storage industry that provide alternative storage
solutions, such as flash memory and SSDs. Some of the principal factors used
by customers to differentiate among electronic data storage solutions manufacturers
are storage capacity, product performance, product quality and reliability,
price per unit and price per gigabyte, time-to-market and time-to-volume leadership,
storage/retrieval access times, data transfer rates, form factor, product warranty
and support capabilities, supply continuity and flexibility, warranty and brand.
While different markets and customers place varying levels of emphasis on these
factors, we believe that our products are competitive with respect to each of
these factors in the markets that we currently address.
Principal Disk Drive Competitors. Following industry consolidation, three
disk drive companies remain:
• Seagate, selling the Seagate and Samsung brands;
• Western Digital Corporation, operating the Western Digital and Hitachi
Global Storage Technologies subsidiaries; and
• Toshiba Corporation
Other Competitors. We also are experiencing competition from companies that
provide alternative storage technologies such as flash memory and SSDs used
in mobile applications such as tablets, notebooks and lower capacity hand held
devices in addition to SSDs used in enterprise applications for rapid processing
and high volume transactions. Additionally, we may in the future face indirect
competition from customers who from time to time evaluate whether to offer electronic
data storage products that may compete with our products.
Price Erosion. Historically, our industry has been characterized by price
declines for disk drive products with comparable capacity, performance and feature
sets ("like-for-like products"). Price declines for like-for-like
products ("price erosion") have been more pronounced during periods
of:
• economic contraction in which competitors may use discounted pricing
to attempt to maintain or gain market share;
• few new product introductions when competitors have comparable or
alternative product offerings; and
• industry supply exceeding demand.
Disk drive manufacturers typically attempt to offset price erosion with an
improved mix of disk drive products characterized by higher capacity, better
performance and additional feature sets and/or product cost reductions.
Product Life Cycles and Changing Technology. Success in our industry has been
dependent to a large extent on the ability to balance the introduction and transition
of new products with time-to-volume, performance, capacity and quality metrics
at a competitive price, level of service and support that our customers expect.
Generally those disk drive manufactures that are able to introduce new products
first benefit from improved product mix, favorable profit margins and less pricing
pressure until comparable products are introduced. Changing technology also
necessitates on-going investments in research and development, which may be
difficult to recover due to rapid product life cycles and economic declines.
Further, there is a continued need to successfully execute product transitions
and new product introductions, as factors such as quality, reliability and manufacturing
yields become of increasing competitive importance.