Western Digital Corp.

Market position and competition · Market cyclicality and demand volatility

We have historically experienced variability in our sales and cyclicality in our industry, which could cause our operating results to fluctuate. Our business is subject to variability of sales because it is largely dependent on the buying patterns of our large Cloud customers, driven by their needs for deploying our technology in their data center buildouts.

Innovation and product development · Intellectual property protection and infringement

Our success depends, in significant part, on the proprietary nature of our technology, including non-patentable IP such as our process technology. If we fail to protect our technology, IP or contract rights, our customers and others may seek to use our technology and IP without the payment of license fees and royalties, which could weaken our competitive position, reduce our operating results and increase the likelihood of costly litigation.

Market position and competition · Pricing pressure and margin compression

The storage market has in the past experienced, and may in the future experience, periods of excess capacity leading to our factories running below the desired utilization levels, resulting in us taking underutilization charges, inventory write-downs and reductions in average selling prices ('ASPs'), all of which lead to negative impacts on our revenue and gross margins.

Strategic execution · Strategic transformation and turnaround risks

Cost saving measures, restructurings and divestitures have had and may in the future result in workforce reduction and consolidation of our facilities. As a result of these actions, we have experienced and may in the future experience a loss of continuity, loss of accumulated knowledge, disruptions to our operations and inefficiency during transitional periods.

Strategic execution · Geographic expansion and market entry

Additionally, as we attempt to expand our OEM and distribution channel sales into emerging economies, the customers with the most success in these regions may have relatively short operating histories, making it more difficult for us to accurately assess the associated credit risks.

Customer and revenue · Changing customer preferences and behavior

The impact of generative AI on the storage and data management markets and regulation thereof is still unfolding and could evolve unpredictably, and it could be difficult to accurately forecast related demands. As it evolves, our hyperscale customers could lower their investment in AI infrastructure.

Innovation and product development · Product development and randd investment risks

If we fail to adapt to or implement new technologies (including the transition to areal density recording technologies that use HAMR technology to increase HDD capacities), if we fail to quickly and cost-effectively develop new products that meet the specifications and requirements intended or desired by our customers or if technology transitions negatively impact our existing product roadmaps, our business may be harmed.

Market position and competition · Competitive pressure and market share loss

We expect that competition will continue to be intense, and our competitors may be able to gain a product offering or cost structure advantage over us, which would harm our business. Some of our competitors offer products that we do not offer, which may allow them to win sales from us.

Industry regulation · Regulatory compliance and changes

We are subject to, and may become subject to, additional, state, federal and international laws and regulations governing our environmental, labor, trade, health and safety practices and public company reporting and disclosures requirements. These laws and regulations, particularly those applicable to our international operations, are or may be complex, extensive and subject to change.

Legal and litigation · Intellectual property disputes

We are frequently involved in disputes regarding patent and other IP rights, and we and our customers have in the past received, and we and our customers may in the future receive, communications from third parties asserting that certain of our products, processes or technologies infringe upon their patent rights, copyrights, trademark rights or other IP rights.

Reputation and brand · Esg environmental social governance performance

There is an increased focus from investors, customers, associates, business partners and other stakeholders concerning ESG matters, and we announce initiatives and goals related to ESG matters from time to time, including renewable energy and net zero emissions commitments. Our failure to accomplish or accurately track and report on these goals on a timely basis, or at all, and the potential added costs involved, could adversely affect our reputation; financial performance and growth.

Core operations · Capacity utilization and efficiency

Our gross margin may face downward pressure if we are unable to migrate our product mix to the higher capacity needs of our customers and/or to reach the desired manufacturing yield in our production.

Core operations · Operational disruption and business continuity

The facilities of many of our customers, our suppliers and our customers' suppliers are also concentrated in certain geographic locations throughout Asia and elsewhere. If a fire, flood, earthquake, tsunami or other natural disaster, condition or event such as a power outage, contamination event, terrorist attack, cybersecurity incident, physical security breach, political instability, civil unrest, localized labor unrest or other employment issues or a health epidemic or pandemic negatively affects any of these facilities, it would significantly affect our ability to manufacture or sell our products and source components.

Supply chain and procurement · Supplier operation and dependance

We depend on an external supply base for technologies, software (including firmware), preamps, controllers, dynamic random-access memory, components, equipment and other materials used in our product design and manufacturing. Many of the components and much of the equipment we acquire must be specifically designed for use in our products or for developing and manufacturing our products and are only available from a limited number of suppliers, some of whom are our sole-source suppliers.

Supply chain and procurement · Raw material availability and cost volatility

Trade restrictions (including tariffs, quotas and embargoes), demand from other high-volume industries for materials or components used in our products, disruptions in supplier relationships or shortages in other components and materials used in our customers' products could result in increased costs to us, which could negatively impact our business.

Project and contract management · Service level and performance guarantees

If we are unable to deliver products in the quantities, at the times, or meeting the specifications required under these agreements, we may be subject to pricing or volume reductions, contractual damages, other financial losses, or early termination.

Core operations · Quality control and product defects

We warrant the majority of our products for periods of one to five years. However, our testing may fail to reveal defects in our products that may not become apparent until after the products have been sold into the market. Accordingly, there is a risk that product defects will occur, including as a result of third-party components or applications that we incorporate in our products, which could require a product recall.

Technology infrastructure · Technology systems and infrastructure failure

We may also experience disruptions or outages of our information systems due to internal or third-party mistakes or technical errors, including due to software updates, which could disrupt our business operations.

Digital transformation and innovation · Technology obsolescence and evolution

New products could substitute for our current products and make them obsolete, each of which would harm our business. We also develop products to meet certain industry and technical standards, which may change and cause us to incur substantial costs as we adapt to new standards or invest in different manufacturing processes to remain competitive.

Economic and market conditions · Market volatility and financial crises

Tariff actions by the U.S. and retaliatory actions by other countries have caused, and may in the future cause, significant disruption and volatility in the financial markets, which could adversely affect the availability, terms and cost of capital, including to refinance our existing debt.