Causes of declines in demand for our products in the past have included weakness in macroeconomic environments,In addition, we believe announcements orregarding competitive product introductions of major new operating systems or semiconductor
improvements or changes in consumer preferences, such as the shift to mobile devices. We believe these announcements and introductions have from time to time have caused consumerscustomers to defer or cancel their purchases, and mademaking certain inventory obsolete. Whenever an oversupply of our products in the market causes participants in our industry to have higher than anticipated inventory levels, we experience even more intense price competition from other manufacturers than usual, which may materially adversely affect our financial results.
Increases in the areal density of disk drives may outpace customers’ demand for storage capacity.
The rate of increase in areal density, or storage capacity per square inch on a disk, may be greater than the increase in our customers’ demand for aggregate storage capacity, particularly in certain market applications like client compute. As a result, our customers’ storage capacity needs may be satisfied with lower priced, low capacity disk drives. These factors could decrease our sales, especially when combined with continued price erosion, which could adversely affect our results of operations.
We may not be successful in our efforts to grow our cloud systems and silicon group.
We have made and are continuing to make investments to develop our Cloud Systems and Silicon group. Our Cloud Systems and Silicon group is subject to the following risks:
the cloud systems and solutions market may develop more slowly than we expect;
we may be unable to accurately estimate and predict data center capacity and requirements;
we may not be able to offer compelling solutions to enterprises and consumers;
our Cloud Systems and Silicon group generally has a long and unpredictable sales cycle, and growth in this business is likely to depend on relatively large customer orders, which may increase the variability of our results of operations and the difficulty of matching revenues with expenses; and
the current uncertainty surrounding net neutrality may cause the data center and cloud business to grow at a slower rate than expected.
Our results of operations and share price may be adversely affected if we are not successful in our efforts to grow our cloud computing business as anticipated. In addition, our growth in this sector may bring us into closer competition with some of our customers or potential customers, which may decrease their willingness to do business with us.
Changes in the macroeconomic environment have negatively impacted, and may continue to, negatively impact our results of operations.
Due to the continuing uncertainty about current macroeconomic conditions affecting consumer and enterprise spending, we believe our customers may postpone spending in response to volatility in credit and equity markets, negative financial news and/orexperience seasonal declines in income or asset values, all of which could have a material adverse effect on the demand for our products. Additionally, enterprise spending continues to remain cautious in many regions around the world. Other factors that could influence demand include conditions in the labor market, healthcare costs, access to credit, consumer confidence and other macroeconomic factors affecting consumer spending behavior. These and other economic factors could have a material adverse effect on demand for our products and on our financial condition and operating results.
Macroeconomic developments like the ongoing withdrawal of the United Kingdom from the European Union, the debt crisis in certain countries in the European Union and slowing economies in parts of Asia and South America could negatively affect our business, operating results or financial condition which, in turn, could adversely affect our stock price. A general weakening of, and related declining corporate confidence in, the global economy or the curtailment in government or corporate spending could cause current or potential customers to reduce their IT budgets or be unable to fund hardware systems, which could cause customers to delay, decrease or cancel purchases of our products or cause customers not to pay us or to delay paying us for previously purchased products and services.
Our quarterly results of operations fluctuate, sometimes significantly, from period to period, and may cause our share price to decline.
Our quarterly revenue and results of operations may fluctuate, sometimes significantly, from period to period. These fluctuations, which we expect to continue, may be occasioned by a variety of factors, including:
current uncertainty in global economic conditions may pose a risk to the overall economy;
adverse changes in the level of economic activity in the major regions in which we do business;
competitive pressures resulting in lower selling prices by our competitors targeted to encourage shifting of customer demand;
delays or problems in our introduction of new, more cost-effective products, the inability to achieve high production yields or delays in customer qualification or initial product quality issues;
changes in purchasing patterns by our distributor customers;
application of new or revised industry standards;
disruptions in our supply chain;
increased costs or adverse changes in availability of supplies of raw materials or components;
the impact of corporate restructuring activities that we have and may continue to engage in;
changes in the demand for the computer systems and data storage products that contain our products due to seasonality, economic conditions and other factors;
changes in purchases from period to period by our primary customers;
shifting trends in customer demand which, when combined with overproduction of particular products, particularly when the industry is served by multiple suppliers, results in unfavorable supply/demand imbalances;
our high proportion of fixed costs, including research and development expenses;
any impairments in goodwill or other long-lived assets;
announcements of new products, services or technological innovations by us or our competitors; and
adverse changes in the performance of our products.
As a result, we believe thatquarter-to-quarter and year-over-year comparisons of our revenue and results of operations may not be meaningful, and that these comparisons may not be an accurate indicator of our future performance. Our results of operations in one or more future quarters may fail to meet the expectations of investment research analysts or investors, which could cause an immediate and significant decline in the trading price of our ordinary shares.
Because we experience seasonality in the sales of our consumer products our results of operations will generally be adversely impacted during the second half of our fiscal year.year which may adversely affect our results of operations.
SalesIn certain end markets, sales of computer systems,computers, storage subsystems and consumer electronicselectronic devices tend to be seasonal, and therefore, we expect to continue to experience seasonality in our business as we respond to variations in our customers’ demand for our products. In particular, we anticipate that sales of our products will continue to be lower during the second half of our fiscal year. In the client compute and clientnon-compute market applicationsRetail sales of our disk drive business, this seasonality is partially attributable tolegacy markets solutions traditionally experience higher demand in the historical trendfirst half of our fiscal year driven by consumer spending in our results derived from our customers’ increased sales of desktop computers, notebook computers, and consumer electronics during theback-to-school season from late summer to fall and winterthe traditional holiday season. Inshopping season from fall to winter. We experience seasonal reductions in the enterprise market our sales are seasonal because of the capital budgeting and purchasing cyclessecond half of our end users.fiscal year in the business activities of our customers during international holidays like Lunar New Year, as well as in the summer months (particularly in Europe), which typically result in lower sales during those periods. Since our working capital needs peak during periods in which we are increasing production in anticipation of orders that have not yet been received, our results of operations will fluctuate seasonally even if the forecasted demand for our products proves accurate. Failure to anticipate consumer demand for our branded solutions as well as an inability to maintain effective working relationships with retail and online distributors may also adversely impact our future results of operations. Furthermore, it is difficult for us to evaluate the degree to which this seasonality may affect our business in future periods because of the rate and unpredictability of product transitions and new product introductions, particularly in the clientnon-compute market, as well as macroeconomic conditions.
We have a long and unpredictable sales cycle for enterprise data storage solutions.
Our enterprise data storage solutions are technically complex and we typically supply them in high quantities to a small number of customers. Many of our products are also tailored to meet the specific requirements of individual customers, and are often integrated by our customers into the systems and products that they sell. Factors that affect the length of our sales cycle include:
the time required for testing and evaluating our products before they are deployed;
the size of the deployment; and
the degree of system configuration necessary to deploy our products.
As a result, our sales cycle for enterprise data storage solutions is often in excess of one year, and the length of our sales cycle is frequently unpredictable. In addition, the emerging and evolving nature of the market for the products that we sell may lead prospective customers to postpone their purchasing decisions. We invest resources and incur costs during this cycle that may not be recovered if successful in our efforts to grow our systems, SSD and Lyve revenues.
We have made and continue to make investments to grow our systems, SSD and Lyve platform revenues. Our ability to grow systems, SSD and Lyve revenues is subject to the following risks:
we domay be unable to accurately estimate and predict data center capacity and requirements;
we may not successfully conclude sales. These factors leadbe able to offer compelling solutions or services to enterprises, subscribers, or consumers;
we may be unable to obtain cost effective supply of NAND flash memory in order to offer competitive SSD solutions; and
our cloud systems revenues generally have a longer sales cycle, and growth is likely to depend on relatively large customer orders, which may increase the variability of our results of operations and the difficulty inof matching revenues with expenses, and to increased expenditures which together may adversely impact ourexpenses.
Our results of operations.
Weoperations and share price may be adversely affected by the loss of, or reduced, delayed or canceled purchases by, one or more ofif we are not successful in our major customers.
Some ofefforts to grow our key customers account for a large portion ofrevenues as anticipated. In addition, our disk drive revenue. While we have longstanding relationshipsgrowth in these markets may bring us into closer competition with manysome of our customers if any of our keyor potential customers, were to significantly reduce their purchases from us, our results of operations would be adversely affected. While sales to major customers may vary from period to period, a major customer that permanently discontinues or significantly reduces its relationship with us could be difficult to replace. In line with industry practice, new customers usually require that we pass a lengthy and rigorous qualification process at the customer’s cost. Accordingly, it may be difficult or costly for us to attract new major customers. Additionally, mergers, acquisitions, consolidations or other significant transactions involving our customers generally entail risks to our business. If a significant transaction involving any of our key customers results in the loss of or reduction in purchases by these key customers, it could have a materially adverse effect on our business, results of operations, financial condition and prospects.
We are dependent on sales to distributors and retailers, which may increase price erosion and the volatility of our sales.
A substantial portion of our sales has been to distributors of disk drive products. Certain of our distributors may also market other products that compete with our products. Product qualification programs in this distribution channel are limited, which increases the number of competing products that are available to satisfy demand, particularly in times of lengthening product cycles. As a result, purchasing decisions in this channel are based largely on price, terms and product availability. Sales volumes through this channel are also less predictable and subject to greater volatility than sales to our OEM customers. In addition, deterioration in business and economic conditions could exacerbate price erosion and volatility as distributors lower prices to compensate for lower demand and higher inventory levels. Our distributors’ ability to access credit for purposes of fundingdecrease their operations may also affect purchases of our products by these customers.
If distributors reduce their purchases of our products or prices decline significantly in the distribution channel or if distributors experience financial difficulties or terminate their relationships with us, our revenues and results of operations would be adversely affected.
We believe that industry demand for storage products in the long-term is increasing due to the proliferation of media-rich digital content in consumer applications and is fueling increased consumer demand
for storage. This has led to the expansion of our branded solutions such as external storage products to provide additional storage capacity and to secure data in case of disaster or system failure, or to provide independent storage solutions for multiple users in home or small business environments. Consumer spending on retail sales of our branded solutions has deteriorated in some markets and may continuewillingness to do so if poor global economic conditions continue and higher levels of unemployment persist. This could have a material adverse effect on demand for our products and services and on our financial condition and results of operations.
In addition, such retail sales of our branded solutions traditionally experience seasonal variability in demandbusiness with higher levels of demand in the first half of our fiscal year driven by consumer spending in theback-to-school season from late summer to fall and the traditional holiday shopping season from fall to winter. Additionally, our ability to reach such consumers depends on us maintaining effective working relationships with major retailers and distributors. Failure to anticipate consumer demand for our branded solutions as well as an inability to maintain effective working relationships with retail and online distributors may adversely impact our future results of operations.us.
Our internationalworldwide sales and manufacturing operations subject us to risks that may adversely affect our business related to disruptions in foreigninternational markets, currency exchange fluctuations, longer payment cycles, seasonality, limitations imposed by a variety of legal and regulatory regimes, potential adverse tax consequences, increased costs, our customers’ credit and access to capital, health-related risks, and access to personnel.global health outbreaks.
We are a global company and have significant sales and manufacturing operations in foreign countries,outside of the United States, including manufacturing facilities, sales personnel and customer support operations. We have manufacturing facilities in China, Malaysia, Northern Ireland, Singapore and Thailand, in addition to those in the United States. Additionally, the manufacturing of somealso generate a significant portion of our products is concentrated in certain geographical locations. The production of certain drive subassemblies are limited to Thailand andrevenue from sales outside the production of media is limited to Singapore.U.S. Disruptions in the economic, environmental, political, legal or regulatory landscape in thesethe countries where we operate may have a material adverse impact on our manufacturing and sales operations. Disruptions in financial markets and the deterioration of global economic conditions have had and may continue to have an impact on our sales to customers located in, or whose end-user customers are located in such countries.
Our international operationsPrices for our products are subjectdenominated predominantly in dollars, even when sold to economic risks inherentcustomers that are located outside the US. An increase in doing businessthe value of the dollar could increase the real cost to our customers of our products in those markets outside of the US where we sell in dollars. This could adversely impact our sales and market share in such areas or increase
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