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What changed in Western Digital's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Western Digital's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+394 added−342 removedSource: 10-K (2024-08-20) vs 10-K (2023-08-22)

Top changes in Western Digital's 2024 10-K

394 paragraphs added · 342 removed · 246 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

54 edited+28 added−30 removed24 unchanged
Biggest changeOur vertically integrated, in-house assembly and test operations for our HDD products are concentrated in Prachinburi and Bang Pa-In, Thailand; Penang, Johor Bahru, and Kuching, Malaysia; Laguna, Philippines; Shenzhen, China; San Jose and Fremont, CA, USA. 7 Table of Content s Ventures with Kioxia Substantially all of our flash-based supply requirements for Flash is obtained from our ventures with Kioxia, which provide us with leading-edge, high-quality and low-cost flash memory wafers.
Biggest changeWe believe the use of our in-house manufacturing, assembly and test facilities provides the controls necessary to provide the demanding capabilities, performance and reliability our customers require. 7 Table of Contents Our vertically integrated, in-house assembly and test operations for our HDD products are concentrated in Prachinburi and Bang Pa-In, Thailand; Penang, Johor Bahru, and Kuching, Malaysia; Laguna, Philippines; Shenzhen, China; and San Jose and Fremont, CA, USA.
Through the Client end market, we provide our original equipment manufacturer (“OEM”) and channel customers a broad array of high-performance flash and hard drive solutions across personal computer, mobile, gaming, automotive, virtual reality headsets, at-home entertainment, and industrial spaces.
Through the Client end market, we provide our original equipment manufacturer (“OEM”) and channel customers a broad array of high-performance hard drive and flash solutions across personal computer, mobile, gaming, automotive, virtual reality headsets, at-home entertainment, and industrial spaces.
Through the Client end market, we provide numerous data solutions that we incorporate into our client’s devices, which consist of HDD and SSD desktop and notebook PCs, gaming consoles and set top boxes, as well as flash-based embedded storage products for mobile phones, tablets, notebook PCs and other portable and wearable devices, automotive applications, Internet of Things, industrial and connected home applications.
Through the Client end market, we provide numerous data solutions that we incorporate into our client’s devices, which consist of HDD and SSD desktop and notebook PCs, gaming consoles and set top boxes, as well as flash-based embedded storage products for mobile phones, tablets, notebook PCs and other portable and wearable devices, automotive applications, Internet of Things and industrial and connected home applications.
Manufacturing We believe that we have significant know-how, unique product manufacturing processes, test and tooling, execution skills, human resources and training to continue to be successful and to adjust our manufacturing operations as necessary. We strive to maintain manufacturing flexibility, high manufacturing yields, reliable products and high-quality components.
Manufacturing and Suppliers We believe that we have significant know-how, unique product manufacturing processes, test and tooling, execution skills, human resources and training to continue to be successful and to adjust our manufacturing operations as necessary. We strive to maintain manufacturing flexibility, high manufacturing yields, reliable products and high-quality components.
We continually monitor our manufacturing capabilities to respond to the changing requirements of our customers and maintain our competitiveness and position as a data technology leader. Flash and HDD manufacturing are complex processes involving the production and assembly of precision components with narrow tolerances and rigorous testing.
We continually monitor our manufacturing capabilities to respond to the changing requirements of our customers and maintain our competitiveness and position as a data technology leader. HDD and Flash manufacturing are each complex processes involving the production and assembly of precision components with narrow tolerances and rigorous testing.
The critical elements of our production of Flash and HDD are high volume and utilization, low-cost assembly and testing, strict adherence to quality metrics and maintaining close relationships with our strategic component suppliers to access best-in-class technology and manufacturing capacity.
The critical elements of our production of both HDD and Flash are high volume and utilization, low-cost assembly and testing, strict adherence to quality metrics and maintaining close relationships with our strategic component suppliers to access best-in-class technology and manufacturing capacity.
Our multi-year product roadmap for high-capacity HDD, which combine ePMR, OptiNAND, UltraSMR and triple stage actuators to deliver a cutting-edge portfolio of drives, in commercial volumes, at a wide variety of capacity points, puts Western Digital in a strong position to capitalize on the opportunities presented by the large and growing storage markets.
Our multi-year product roadmap for high-capacity HDD, which combines ePMR, OptiNAND, UltraSMR and triple stage actuators to deliver a cutting-edge portfolio of drives, in commercial volumes, at a wide variety of capacity points, puts Western Digital in a strong position to capitalize on the opportunities presented by the large and growing storage markets.
Our high-performance enterprise class SSD include high-performance flash-based SSD and software solutions that are optimized for performance applications providing a range of capacity and performance levels primarily for use in enterprise servers and supporting high-volume online transactions, data analysis and other enterprise applications. We also provide higher value data storage platforms to the market.
Our high-performance enterprise class SSD include high-performance flash-based SSD and software solutions that are optimized for performance applications providing a range of capacity and performance levels primarily for use in enterprise servers and supporting high-volume online transactions, AI-related workloads, data analysis and other enterprise applications. We also provide higher value data storage platforms to the market.
See Part I, Item 1A, Risk Factors for a discussion of these potential impacts. Corporate Responsibility and Sustainability We believe responsible and sustainable business practices support our long-term success. As a company, we are deeply committed to protecting and supporting our people, our environment, and our communities.
See Part I, Item 1A, Risk Factors for a discussion of these potential impacts. 10 Table of Contents Corporate Responsibility and Sustainability We believe responsible and sustainable business practices support our long-term success. As a company, we are deeply committed to protecting and supporting our people, our environment and our communities.
We help OEMs address storage opportunities and solutions to capture and transform data in a myriad of devices and edge technologies. We have also built strong consumer brands with tools to manage vast libraries of personal content and to push the limits of what’s possible for storage.
We help OEMs address storage opportunities and solutions to capture and transform data in a myriad of devices and edge technologies. We have also built strong consumer brands with tools to manage vast libraries of personal content and to push the limits of what is possible for storage.
Our HDD and SSD are designed for use in devices requiring high performance, reliability and capacity with various attributes such as low cost per gigabyte, quiet acoustics, low power consumption and protection against shocks. 5 Table of Content s The Consumer end market provides consumers with a portfolio of HDD and SSD embedded into external storage products and removable Flash, which include cards, universal serial bus (“USB”) flash drives and wireless drives, through our retail and channel routes to market.
Our HDD and SSD are designed for use in devices requiring high performance, reliability and capacity with various attributes such as low cost per gigabyte, quiet acoustics, low power consumption and protection against shocks. 5 Table of Contents We serve the Consumer end market with a portfolio of HDD and SSD embedded into external storage products and removable Flash, which include cards, universal serial bus (“USB”) flash drives and wireless drives, through our retail and channel routes to market.
Our international sales, which include sales to foreign subsidiaries of U.S. companies but do not include sales to U.S. subsidiaries of foreign companies, represented 69%, 71% and 78% of our net revenue for 2023, 2022 and 2021, respectively.
Our international sales, which include sales to foreign subsidiaries of U.S. companies but do not include sales to U.S. subsidiaries of foreign companies, represented 72%, 69% and 71% of our net revenue for 2024, 2023 and 2022, respectively.
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, including us.
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, including us. 11 Table of Contents
With dedicated flash-based products (“Flash”) and hard disk drives (“HDD”) business units driving advancements in storage technologies, our broad and ever-expanding portfolio delivers powerful Flash and HDD storage solutions for everyone from students, gamers, and home offices, to the largest enterprises and public clouds to capture, preserve, access, and transform an ever-increasing diversity of data.
With a differentiated innovation engine driving advancements in storage and semiconductor technologies, our broad and ever-expanding portfolio delivers powerful hard disk drives (“HDD”) and flash-based products (“Flash”) storage solutions for everyone from students, gamers and home offices, to the largest enterprises and public clouds to capture, preserve, access and transform an ever-increasing diversity of data.
For a discussion of associated risks, see Part I, Item 1A, Risk Factors , of this Annual Report on Form 10-K. 8 Table of Content s Sales and Distribution We sell our products to computer manufacturers and OEMs, cloud service providers, resellers, distributors and retailers throughout the world.
For a discussion of risks associated with our business ventures with Kioxia, see Part I, Item 1A, Risk Factors , of this Annual Report on Form 10-K. Sales and Distribution We sell our products to computer manufacturers and OEMs, cloud service providers, resellers, distributors and retailers throughout the world.
Business Strategy Our overall strategy is to leverage our innovation, technology and execution capabilities to be an industry-leading and broad-based developer, manufacturer and provider of storage devices and solutions that support the infrastructure that has enabled the unabated proliferation of data.
Business Strategy Our overall strategy focuses on leadership, innovation and execution to be an industry-leading and broad-based developer, manufacturer and provider of storage devices and solutions that support the infrastructure that has enabled the unabated proliferation of data.
For additional information regarding our service and warranty policy, see Part II, Item 8, Note 1, Organization and Basis of Presentation, and Note 5, Supplemental Financial Statement Data, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. Human Capital Management In order to support our company’s strategy, a continued emphasis on talent is required.
For additional information regarding our service and warranty policy, see Part II, Item 8, Note 1, Organization and Basis of Presentation, and Note 4, Supplemental Financial Statement Data, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
We provide competitive benefits, including health coverage, life and disability insurance, retirement, paid time off, an employee assistance program and an employee stock purchase plan. In 2023, we continued our multi-year journey to modernize and improve our benefits portfolio with the goal of offering more choice to meet the unique needs of our diverse employees.
We provide competitive benefits (which vary by country/region), including health coverage, life and disability insurance, retirement plans, paid time off, employee assistance program and employee stock purchase plan. In 2024, we continued our multi-year journey to modernize our benefits portfolio to offer more choices to meet the unique needs of our diverse employees.
In Flash, we compete with vertically integrated suppliers such as Kioxia, Micron Technology, Inc., Samsung Electronics Co., Ltd., SK hynix, Inc., Yangtze Memory Technologies Co., Ltd. and numerous smaller companies that assemble flash into products. In HDD, we compete with Seagate Technology Holdings plc and Toshiba Electronic Devices & Storage Corporation.
In Flash, we compete with vertically integrated suppliers such as Kioxia, Micron Technology, Inc., Samsung Electronics Co., Ltd., SK Hynix, Inc., Yangtze Memory Technologies Co., Ltd. and numerous smaller companies that develop and manufacture flash-based products.
Seasonality We have historically experienced seasonal fluctuations in our business with higher levels of demand in the first and second quarters as a result of increased customer spending. Seasonality can also be impacted by cyclicality in the industry and macroeconomic conditions.
For each of 2024, 2023 and 2022, no single customer accounted for 10% or more of our net revenue. Seasonality We have historically experienced seasonal fluctuations in our business with higher levels of demand in the first and second quarters as a result of increased customer spending. Seasonality is also impacted by cyclicality in the industry and macroeconomic conditions.
While we do not unilaterally control the operations of our ventures with Kioxia, we believe that our business venture relationship with Kioxia helps us reduce product costs, increases our ability to control the quality of our products and speeds delivery of our products to our customers.
We jointly control with Kioxia the operations of Flash Ventures, and we believe our participation in Flash Ventures helps us reduce product costs, increases our ability to control the quality of our products and speeds delivery of our products to our customers.
Item 1. Business General Western Digital Corporation (“Western Digital”) is on a mission to unlock the potential of data by harnessing the possibility to use it. We are a leading developer, manufacturer, and provider of data storage devices and solutions based on both NAND flash and hard disk drive technologies.
Item 1. Business General Western Digital is a leading developer, manufacturer and provider of data storage devices and solutions based on both hard disk drive and NAND flash technologies.
As a result, we are more dependent upon our own development and execution efforts for these components and less reliant on recording head and magnetic media technologies developed by other manufacturers. We depend on an external supply base for all remaining components and materials for use in our HDD product design, manufacturing, and testing.
We design and manufacture substantially all of the recording heads and magnetic media required for our products. As a result, we are more dependent upon our own development and execution efforts for these components and less reliant on recording head and magnetic media technologies developed by other manufacturers.
As part of this review, we analyze current pay which takes into consideration various, non-discriminatory factors, such as seniority, experience, skills, performance, location, track and hiring and promotion dates. We use the results to make pay adjustments as needed. In 2023, we expanded our assessment to cover 100% of our employee population globally.
This review analyzes current pay considering various non-discriminatory factors, such as seniority, experience, skills, performance, location, track and hiring and promotion dates. We use the results to make pay adjustments as needed. In 2024, our assessment covered 100% of our global employee population, and we furthered our pay equity efforts by engaging in a living wage analysis.
The Consumer end market is highlighted by our broad range of retail and other end-user products, which capitalize on the strength of our product brand recognition and vast points of presence around the world. Founded in 1970 in Santa Ana, California, Western Digital is now a Standard & Poor’s 500 (“S&P 500”) company headquartered in San Jose, California.
The Consumer end market is highlighted by our broad range of retail and other end-user products, which capitalize on the strength of our product brand recognition and vast points of presence around the world.
Our wireless drive products allow in-field backup of created content, as well as wireless streaming of high-definition movies, photos, music and documents to tablets, smartphones and PCs. Competition Our industry is highly competitive. We compete with manufacturers of Flash and HDD for Cloud, Client, and Consumer end markets.
Our wireless drive products allow in-field backup of created content, as well as wireless streaming of high-definition movies, photos, music and documents to tablets, smartphones and PCs. Competition Our industry is highly competitive. We believe we are well-positioned with our leading product portfolio, premium consumer brand, differentiated semiconductor innovation engine and leadership in driving cost efficiency.
We use an integrated management system to manage health and safety standards at our manufacturing facilities. 10 Table of Content s Government Regulation Our worldwide business activities are subject to various laws, rules, and regulations of the United States as well as of foreign governments.
Government Regulation Our worldwide business activities are subject to various laws, rules and regulations of the United States as well as of foreign governments.
In accordance with standard storage industry practice, we provide distributors and retailers with limited price protection and programs under which we reimburse certain marketing expenditures. We also provide distributors, resellers and OEMs with other sales incentive programs. For each of 2023, 2022 and 2021, no single customer accounted for 10% or more of our net revenue.
We also maintain customer relationships through direct communication and by providing information and support through our website. In accordance with standard storage industry practice, we provide distributors and retailers with limited price protection and programs under which we reimburse certain marketing expenditures. We also provide distributors, resellers and OEMs with other sales incentive programs.
Our broad portfolio of technology and products in Flash and HDD address multiple end markets of “Cloud”, “Client” and “Consumer.” Cloud is comprised primarily of products for public or private cloud environments and end customers, which we believe we are uniquely positioned to address as the only provider of both Flash and HDD.
Our broad portfolio of technology and products addresses multiple end markets: “Cloud,” “Client” and “Consumer.” Cloud is comprised primarily of products for public or private cloud environments and end customers.
We are obligated to take our share of the output from these ventures or pay for variable costs incurred in producing our share of Flash Ventures’ flash-based memory wafer supply, based on our three-month forecast, which generally equals 50% of Flash Ventures’ output.
The price for which we and Kioxia pay Flash Ventures for flash memory wafers is cost plus a small markup. We are obligated to pay for variable costs incurred in producing our share of Flash Ventures’ flash-based memory wafer supply, based on a rolling forecast.
In addition, we are obligated to pay for half of Flash Ventures’ fixed costs regardless of the output we choose to purchase. We are also obligated to fund 49.9% to 50.0% of each Flash Ventures entity’s capital investments to the extent that the Flash Ventures entity’s operating cash flow is insufficient to fund these investments.
We have jointly invested, and intend to continue to jointly invest, with Kioxia in the manufacturing equipment needed to support Flash Ventures’ flash manufacturing operations. In addition, we are obligated to fund 49.9% to 50.0% of each Flash Ventures entity’s capital investments to the extent that the Flash Ventures entity’s operating cash flow is insufficient to fund these investments.
We have one of the technology industry’s most valuable patent portfolios with approximately 13,000 active patents worldwide. We have a rich heritage of innovation and operational excellence, a wide range of intellectual property (“IP”) assets, broad research and development (“R&D”) capabilities, and large-scale, efficient manufacturing supply chains.
We have extensive customer, partner and channel relationships across a number of end markets and geography and have a rich heritage of innovation and operational excellence, a wide range of intellectual property (“IP”) assets, broad research and development (“R&D”) capabilities and large-scale, efficient manufacturing supply chains.
We develop and manufacture substantially all of the recording heads and magnetic media used in our HDD products. We have led the industry in innovation to drive increased areal density and high-performance attributes. Our improvements in HDD capacity, which lower product costs over time, have been enabled largely through advancements in magnetic recording head and media technologies.
HDD products provide non-volatile data storage by recording magnetic information on a rotating disk. We develop and manufacture substantially all of the recording heads and magnetic media used in our HDD products. We have led the industry in innovation to drive increased areal density and high-performance attributes.
We provide extensive health and safety resources and training to all of our employees, especially for those who work in our manufacturing and operations.
Health and Safety We are committed to creating a safe work environment everywhere we operate. We provide extensive health and safety resources and training to all of our employees, especially those who work in our manufacturing and operations. We use an integrated management system to manage health and safety standards at our manufacturing facilities.
We benchmark our compensation and benefits programs annually using market data from reputable third-party consultants. We also conduct internal focus groups and employee surveys to inform programs and identify opportunities. We promote a pay-for-performance culture and offer employees competitive compensation consisting of base salary and both short-term and long-term incentives.
We benchmark our compensation and benefits programs annually using market data from reputable third-party consultants. We also conduct internal focus groups and employee surveys to inform programs and identify opportunities. To ensure that our pay practices are fair and equitable, we conduct an annual pay equity assessment to promote equal pay for equal work regardless of gender.
Sales to international customers are subject to certain risks not normally encountered in domestic operations, including exposure to tariffs and various trade regulations. For a discussion of such risks, see Part I, Item 1A, Risk Factors , of this Annual Report on Form 10-K.
Sales to international customers are subject to certain risks not normally encountered in domestic operations, including exposure to tariffs and various trade regulations.
The storage industry is increasingly utilizing tiered architectures with solid state drives (“SSD”), HDD and other non-volatile memory-based storage to address an expanding set of uses and applications. We believe our expertise and innovation across both Flash and HDD technologies enable us to bring powerful solutions to a broader range of applications.
This growth has led to the creation of new form factors for data storage. The storage industry is increasingly utilizing tiered architectures with solid state drives (“SSD”), HDD and other non-volatile memory-based storage to address an expanding set of uses and applications.
Substantially all of our flash-based memory is supplied by our business ventures with Kioxia. Controllers are primarily designed in-house and manufactured by third-party foundries or acquired from third-party suppliers. We believe the use of our in-house assembly and test facilities, as well as contract manufacturers, provides flexibility and gives us access to increased production capacity.
Substantially all of our flash memory supply utilized for our flash-based products is purchased from our joint ventures with Kioxia. From time to time, we also purchase flash memory from other flash manufacturers. Controllers are primarily designed in-house and manufactured by third-party foundries or acquired from third-party suppliers.
Our capacity enterprise hard drives provide high-capacity storage needs and a low total cost of ownership per gigabyte for the growing cloud data center and smart video system markets. These drives are primarily for use in data storage systems, in tiered storage models and where data must be stored reliably for years.
We provide the Cloud end market with an array of high-capacity enterprise HDD, high-performance enterprise SSD and platforms. Our capacity enterprise hard disk drives provide high-capacity storage needs and a low total cost of ownership for the growing cloud data center and smart video system markets.
We have also initiated, defined and developed standards to meet new market needs and to promote wide acceptance of flash storage standards through interoperability and ease of use. Hard Disk Drives. HDD products provide non-volatile data storage by recording magnetic information on a rotating disk.
We are leveraging our expertise, resources and strategic investments in non-volatile memories to explore a wide spectrum of persistent memory and storage class memory technologies. We have also initiated, defined and developed standards to meet new market needs and to promote wide acceptance of flash storage standards through interoperability and ease of use.
Through Flash Partners Ltd., Flash Alliance Ltd., and Flash Forward Ltd., which we collectively refer to as Flash Ventures, we and Kioxia collaborate in the development and manufacture of flash-based memory wafers using semiconductor manufacturing equipment owned or leased by each of the Flash Venture entities. We hold a 49.9% ownership position in each of the Flash Venture entities.
Flash Ventures will begin flash-based manufacturing operations at an eighth facility in Japan in calendar year 2025. Through Flash Ventures, we and Kioxia collaborate in the development and manufacture of flash-based memory wafers using semiconductor manufacturing equipment owned or leased by each of the Flash Ventures entities.
The increase in computing complexity and advancements in artificial intelligence, along with growth in cloud computing applications, connected mobile devices and Internet-connected products, and edge devices is driving unabated growth in the volume of digital content to be stored and used. This growth has led to the creation of new form factors for data storage.
We believe there is tremendous market opportunity flowing from the rapid global adoption of the technology architecture built with cloud infrastructure tied to intelligent endpoints all connected by high-performance networks. 4 Table of Contents The increase in computing complexity and advancements in artificial intelligence (“AI”), along with growth in cloud computing applications, connected mobile devices and Internet-connected products and edge devices is driving unabated growth in the volume of digital content to be stored and used.
We continuously monitor the full array of storage technologies, including reviewing these technologies with our customers, to ensure we are appropriately resourced to meet our customers’ storage needs. 4 Table of Content s Technology Flash Technologies . Flash products provide non-volatile data storage based on flash technology.
We believe our expertise and innovation across both HDD and Flash technologies enable us to bring powerful solutions to a broad range of applications. We continuously monitor the full array of storage technologies, including reviewing these technologies with our customers, to ensure we are appropriately resourced to meet our customers’ storage needs. Technology Hard Disk Drives.
As a result of this focus, in 2023, we were named one of the World’s Most Ethical Companies by Ethisphere Institute for the fifth consecutive year. Our employees regularly engage in philanthropy to support the communities in which they work and live.
We also engage employees by taking action to promote and ground them in our core values and beliefs, and to support our commitment to conducting business in an ethical way. In 2024, we were named one of the World’s Most Ethical Companies by Ethisphere Institute for the sixth consecutive year.
We develop and manufacture solid state storage products for a variety of applications including enterprise or cloud storage, client storage, automotive, mobile devices and removable memory devices. Over time, we have successfully developed and commercialized successive generations of 3-dimensional flash technology with increased numbers of storage bits per cell in an increasingly smaller form factor, further driving cost reductions.
Over time, we have successfully developed and commercialized successive generations of multi-dimensional flash technology with increased numbers of storage bits per cell in an increasingly smaller form factor, further driving cost reductions. We devote significant R&D resources to the development of highly reliable, high-performance, cost-effective flash-based technology and are continually pursuing developments in next-generation flash-based technology capacities.
For example, we have taken aggressive actions to restructure our client HDD manufacturing footprint in light of ongoing trends in the HDD Client market as PCs shift from using HDD to Flash technology. We continually evaluate which steps in the manufacturing process would benefit from automation and how automated manufacturing processes can improve productivity and reduce manufacturing costs.
We continually evaluate which steps in the manufacturing process would benefit from automation and how automated manufacturing processes can improve productivity and reduce manufacturing costs. We also leverage contract manufacturers when strategically advantageous.
This platform strategy also enables our customers to leverage their qualification efforts onto successive product models. Our Data Solutions Our broad portfolio of technology and products address multiple end markets of “Cloud”, “Client” and “Consumer” and are comprised of the Western Digital®, SanDisk® and WD® brands.
Our Data Solutions Our broad portfolio of technology and products addresses multiple end markets of “Cloud,” “Client” and “Consumer” and are comprised of the Western Digital®, SanDisk® and WD® brands. Cloud represents a large and growing end market comprised primarily of products for public or private cloud environments and enterprise customers.
We have developed deep relationships with these vendors and Kioxia to establish a continuous supply of flash-based memory and controllers. HDD consists primarily of recording heads, magnetic media, controllers and firmware, and a printed circuit board assembly. We design and manufacture substantially all of the recording heads and magnetic media required for our products.
We believe the use of our assembly and test facilities, as well as contract manufacturers, provides flexibility and gives us access to increased production capacity. We have developed deep relationships with these vendors and Kioxia to establish a continuous supply of flash-based memory and controllers.
We perform our marketing and advertising functions both internally and through outside firms utilizing both consumer media and trade publications targeting various reseller and end-user markets. We also maintain customer relationships through direct communication and by providing information and support through our website.
For a discussion of such risks, see Part I, Item 1A, Risk Factors , of this Annual Report on Form 10-K. 8 Table of Contents We perform our marketing and advertising functions both internally and through outside firms utilizing both consumer media and trade publications targeting various reseller and end-user markets.
We believe the use of our in-house manufacturing, assembly and test facilities provides the controls necessary to provide the demanding capabilities, performance and reliability our customers require. We generally retain multiple suppliers for our component requirements, but for business or technology reasons, we source some of our components from a limited number of sole or single source providers.
We generally retain multiple suppliers for our component requirements, but for business or technology reasons, we source some of our components from a limited number of sole or single source providers. For a discussion of such risks, see Part I, Item 1A, Risk Factors , of this Annual Report on Form 10-K.
We co-develop flash technologies (including process technology and memory design) with Kioxia and contribute IP for Flash Ventures’ use. The agreements governing the operations of the Flash Venture entities also set out a framework for any investment by the joint venture partners in flash manufacturing capacity. Since its inception, Flash Ventures’ primary manufacturing site has been located in Yokkaichi, Japan.
In addition, we are obligated to pay for half of Flash Ventures’ fixed costs regardless of the output we choose to purchase. The agreements governing the operations of the Flash Ventures entities also set out a framework for any investment by the joint venture partners in flash manufacturing capacity.
Despite the current industry headwinds, we continue to focus on attracting, developing, engaging and retaining the best talent for our company. At the end of 2023, we employed approximately 53,000 people worldwide. Our diverse team spans 38 countries with approximately 85% of our employees in Asia Pacific, 13% in the Americas and 2% in Europe, the Middle East and Africa.
Our diverse team spans 36 countries with approximately 85% of our employees in Asia Pacific, 13% in the Americas and 2% in Europe, the Middle East and Africa. Inclusion To attract and retain the best talent, we strive to cultivate an inclusive environment where every individual can thrive through a sense of belonging, respect and contribution.
As of June 30, 2023, women represented 26% of our management positions and 23% of our technical staff. Additionally, members of Asian, Black/African American, Hispanic/Latino or other racially or ethnically diverse communities, represented 62% of our U.S. management positions, which is a 1.4 percentage point increase compared to 2022.
Additionally, members of Asian, Black/African American, Hispanic/Latino and other racially or ethnically diverse communities, represented 60% of our U.S. management positions. For additional details about our workforce, we encourage you to review our Sustainability Report, published annually and posted on our corporate website.
Nothing on our website shall be deemed incorporated by reference into this Annual Report on Form 10-K. 9 Table of Content s In 2023, we continued the self-identification initiative launched in the previous year by inviting new hires to share more about who they are across dimensions of gender, gender identity, veterans and disabilities.
Nothing on our website shall be deemed incorporated by reference into this Annual Report on Form 10-K. 9 Table of Contents Talent Development and Engagement We believe in supporting our people through learning and development opportunities and our pay for performance philosophy.
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There is tremendous market opportunity flowing from the rapid global adoption of the technology architecture built with cloud infrastructure tied to intelligent endpoints all connected by high-performance networks. The value and urgency of data storage at every point across this architecture have never been clearer.
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On October 30, 2023, we announced that our Board of Directors had completed its strategic review of our business and, after evaluating a comprehensive range of alternatives, authorized us to pursue a plan to separate our HDD and Flash business units to create two independent, public companies.
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We devote significant research and development resources to the development of highly reliable, high-performance, cost-effective flash-based technology and are continually pursuing developments in next-generation flash-based technology capacities. We are leveraging our expertise, resources and strategic investments in non-volatile memories to explore a wide spectrum of persistent memory and storage class memory technologies.
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We believe the separation will better position each business unit to execute innovative technology and product development, capitalize on unique growth opportunities, extend respective leadership positions and operate more efficiently with distinct capital structures. The completion of the planned separation is subject to certain conditions, including final approval by our Board of Directors.
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Cloud represents a large and growing end market comprised primarily of products for public or private cloud environments and enterprise customers, which we believe we are uniquely positioned to address as the only provider of both flash and hard drive products. We provide the Cloud end market with an array of high-capacity enterprise HDD and high-performance enterprise SSD, and platforms.
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Significant effort is underway and extensive progress has been made with respect to the separation as we continue to drive towards completing the work required to separate the businesses by the end of calendar year 2024. Founded in 1970 in Santa Ana, California, Western Digital is now a Standard & Poor’s 500 (“S&P 500”) company headquartered in San Jose, California.
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We believe we are the only company in the world with large-scale capabilities to develop and manufacture a portfolio of integrated data storage solutions that are based on both Flash and HDD technologies.
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We have valuable patent portfolios containing approximately 13,000 active patents , covering groundbreaking memory technologies and beyond.
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We strive to successfully execute our strategy through the following foundational elements in order to create long-term value for our customers, partners, investors and employees: • Innovation and Cost Leadership: We continue to innovate and develop advanced technologies across platforms for both Flash and HDD to deliver timely new products and solutions to meet growing demands for scale, performance and cost efficiency in the market. • Broad Product Portfolio: We leverage our capabilities in firmware, software and systems in both Flash and HDD to deliver compelling and differentiated integrated storage solutions to our customers that offer the best combinations of performance, cost, power consumption, form factor, quality and reliability, while creating new use cases for our solutions in emerging markets. • Operational Excellence: We are focused on delivering the best value for our customers in Cloud, Client and Consumer end markets through a relentless focus on appropriately scaling our operations across both Flash and HDD technologies to efficiently support business growth; achieving best in class cost, quality and cycle-time; maintaining industry leading manufacturing capabilities; and having a competitive advantage in supply-chain management.
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Our improvements in HDD capacity, which lower product costs over time, have been enabled largely through advancements in magnetic recording head and media technologies.
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Our strategy provides the following benefits, which distinguish us in the dynamic and competitive data storage industry: • a broad product portfolio that differentiates us as a leading developer and manufacturer of integrated products and solutions based on both Flash and HDD, making us a more strategic supply partner to our large-scale customers who have storage needs across the data infrastructure ecosystem; • efficient and flexible manufacturing capabilities, allowing us to leverage our Flash and HDD R&D and capital expenditures to deliver innovative and cost-effective storage solutions to multiple markets; • deep relationships with industry leaders across the data ecosystems that give us the broadest routes to market; and • industry leading consumer brand awareness and global retail distribution presence.
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This platform strategy also enables our customers to leverage their qualification efforts onto successive product models. Flash Technologies . Flash-based products provide non-volatile data storage based on flash technology. We develop and manufacture solid state storage products for a variety of applications including enterprise or cloud, client, automotive, mobile devices and removable memory devices.
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In June 2022, we announced that we are reviewing potential strategic alternatives aimed at further optimizing long-term value for our stockholders.
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These drives are primarily for use in data storage systems, in tiered storage models and where data must be stored reliably for years.
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The Executive Committee of our Board, chaired by our CEO, is overseeing the assessment process, and the potential strategic alternatives include, among other things, options for separating our Flash and HDD business units. 6 Table of Content s Research and Development We devote substantial resources to the development of new products and the improvement of existing products.
Added
Nevertheless, we face strong competition from other manufacturers of HDD and Flash in the Cloud, Client and Consumer end markets. In HDD, we compete with Seagate Technology Holdings plc and Toshiba Electronic Devices & Storage Corporation.
Removed
We also leverage contract manufacturers when strategically advantageous.
Added
Our strategy reflects the following foundational elements that we strive to meet: • Drive Leadership in HDD ▪ Provide reliable capacity growth and improved total cost of ownership ▪ Enhance customers’ ability to generate value from data ▪ Develop new technologies across the storage landscape • Drive Differentiated Leadership in Flash ▪ Capitalize on market transition to solid state drives ▪ Focus on gross margin leadership ▪ Leverage consumer brand strength • Lead in Storage Innovation ▪ Lead in areal density ▪ Invest in leading HDD technologies to enable future drive capacity transition ▪ Drive capital-efficient bit growth in flash ▪ Explore tailored storage solutions to address the evolving workload requirements of generative AI • Deliver Customer Value ▪ Increase long-term engagement and through-cycle agreements with key hyperscalers ▪ Maintain and expand strategic relationships with customers while transitioning into two market-leading companies • Accelerate Operational Excellence ▪ Achieve operational excellence to translate technology into stockholder value ▪ Meet cost reduction targets to improve gross margin ▪ Focus on sustainability and digital innovation of our manufacturing processes 6 Table of Contents Research and Development We devote substantial resources to the development of new products and the improvement of existing products.
Removed
While substantially all of our flash memory supply utilized for our products is purchased from these ventures, from time to time, we also purchase flash memory from other flash manufacturers.
Added
For more information on our agreement to sell a majority interest in one of our manufacturing facilities, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Developments . HDD consists primarily of recording heads, magnetic media, controllers and firmware and a printed circuit board assembly.
Removed
Our business ventures with Kioxia are located primarily in Yokkaichi and Kitakami, Japan, and our in-house assembly and test operations are located in Shanghai, China and Penang, Malaysia. We and Kioxia currently operate three business ventures in 300-millimeter flash-based manufacturing facilities in Japan, which provide us leading-edge, cost-competitive flash-based memory wafers for our end products.
Added
We depend on an external supply base for all remaining components and materials for use in our HDD design, manufacturing and testing.
Removed
Each Flash Venture entity purchases wafers from Kioxia at cost and then resells those wafers to us and Kioxia at cost plus a small markup.
Added
Ventures with Kioxia Our flash-based products consist of flash-based memory, controllers and firmware and other components. Substantially all of our flash-based memory is obtained from our joint ventures with Kioxia, which provide us with leading-edge, high-quality and low-cost flash memory wafers.
Removed
The Yokkaichi site, which is owned and operated by Kioxia, currently includes six wafer fabrication facilities. We have jointly invested, and intend to continue to jointly invest, with Kioxia in manufacturing equipment for the Yokkaichi fabrication facilities.
Added
We and Kioxia currently operate three business ventures, Flash Partners Ltd., Flash Alliance Ltd. and Flash Forward Ltd., (collectively “Flash Ventures”) across seven flash-based manufacturing facilities in Japan, six of which are located in Yokkaichi, Japan and one of which is located in Kitakami, Japan.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe effects of public health crises are uncertain and difficult to predict, but may include: • Disruptions to our supply chain, our operations or those of our strategic partners, customers or suppliers caused by employees or others contracting infectious diseases, or by governmental orders to contain the spread of infectious disease, such as travel restrictions, quarantines, shelter in place orders, trade controls and business shutdowns; • Deterioration of worldwide credit markets that may limit our ability or increase our cost to obtain external financing to fund our operations and capital expenditures and result in a higher rate of losses on our accounts receivables due to customer credit defaults; • Extreme volatility in financial markets, which may harm our ability to access the financial markets on acceptable terms; • Increased data security and technology risk as some employees work from home, including possible outages to systems and technologies critical to remote work and increased data privacy risk with cybercriminals attempting to take advantage of the disruption; and • Reduced productivity or other disruptions of our operations if workers in our factories or our other worksites are exposed to or spread infectious diseases to other employees.
Biggest changeThe effects of public health crises are uncertain and difficult to predict, but may also include disruptions to our supply chain, our operations or those of our strategic partners, customers or suppliers; deterioration of worldwide credit markets, which may limit our ability or increase our cost to obtain external financing and result in a higher rate of losses on our accounts receivable; volatility in financial markets, which may be extreme and could harm our ability to access the financial markets on acceptable terms or at all; increased data security and technology risks related to increased remote work; and reduced productivity or other disruptions of our operations.
Any occurrence of counterfeiting, imitation or confusion with our brands could negatively affect our reputation and impair the value of our brands, which in turn could negatively impact sales of our branded products, our share and our gross margin, as well as increase our administrative costs related to brand protection and counterfeit detection and prosecution.
Any occurrence of counterfeiting, imitation or confusion with our brands could negatively affect our reputation and impair the value of our brands, which in turn could negatively impact sales and pricing of our branded products, our share and our gross margin, as well as increase our administrative costs related to brand protection and counterfeit detection and prosecution.
We may also be subject to restrictions on cross-border data transfers and requirements for localized storage of data that could increase our compliance costs and risks and affect the ability of our global operations to coordinate activities and respond to customers.
We may also be subject to restrictions on cross-border data transfers and requirements for localized storage of data that could increase our compliance costs and risks and affect the ability of our global operations to coordinate activities and respond to customers and individuals.
The success of our branded products depends in part on the positive image that consumers have of our brands. We believe the popularity of our brands makes them a target of counterfeiting or imitation, with third parties attempting to pass off counterfeit products as our products.
The success of our brands depends in part on the positive image that consumers have of our brands. We believe the popularity of our brands makes them a target of counterfeiting or imitation, with third parties attempting to pass off counterfeit products as our products.
We evaluate notices of alleged patent infringement and notices of patents from patent holders that we receive from time to time. We may decide to settle a claim or action against us, which settlement could be costly. We may also be liable for any past infringement.
We evaluate notices of alleged patent infringement and notices of patents from patent holders that we receive from time to time. We may decide to settle a claim or action against us, which settlement could be costly. We may also be liable for past infringement.
We are contractually obligated to pay for 50% of the fixed costs of Flash Ventures regardless of whether we order any flash-based memory, and our orders placed with Flash Ventures on a three-month rolling basis are binding.
For example, we are contractually obligated to pay for 50% of the fixed costs of Flash Ventures regardless of whether we order any flash-based memory, and our orders placed with Flash Ventures on a three-month rolling basis are binding.
Cyber incidents can be caused by ransomware, computer denial-of-service attacks, worms, and other malicious software programs or other attacks, including the covert introduction of malware to computers and networks, and the use of techniques or processes that change frequently, may be disguised or difficult to detect, or are designed to remain dormant until a triggering event, and may continue undetected for an extended period of time.
Cybersecurity incidents can be caused by ransomware, computer denial-of-service attacks, worms and other malicious software programs or other attacks, including the covert introduction of malware to computers and networks, and the use of techniques or processes that change frequently, may be disguised or difficult to detect, or are designed to remain dormant until a triggering event, and may continue undetected for an extended period of time.
In addition, the technology infrastructure and systems of some of our suppliers, vendors, service providers, cloud solution providers and partners have in the past experienced, and may in the future experience, such incidents.
In addition, the technology infrastructure and information systems of some of our suppliers, vendors, service providers, cloud solution providers and partners have in the past experienced, and may in the future experience, such incidents.
If we do not have sufficient funds available to repay indebtedness when due, whether at maturity or by acceleration, we may be required to sell important strategic assets; refinance our existing debt; incur additional debt or issue common stock or other equity securities, which we may not be able to do on terms acceptable to us, in amounts sufficient to meet our needs or at all.
If we do not have sufficient funds available to repay indebtedness when due, whether at maturity, by acceleration or upon conversion, we may be required to sell important strategic assets; refinance our existing debt; incur additional debt or issue common stock or other equity securities, which we may not be able to do on terms acceptable to us, in amounts sufficient to meet our needs or at all.
Cyber incidents have in the past resulted from, and may in the future result from, social engineering or impersonation of authorized users, and may also result from efforts to discover and exploit any design flaws, bugs, security vulnerabilities or security weaknesses, intentional or unintentional acts by employees or other insiders with access privileges, intentional acts of vandalism or fraud by third parties and sabotage.
Cybersecurity incidents have in the past resulted from, and may in the future result from, social engineering or impersonation of authorized users, and may also result from efforts to discover and exploit any design flaws, bugs, security vulnerabilities or security weaknesses, intentional or unintentional acts by employees or other insiders with access privileges, intentional acts of vandalism or fraud by third parties and sabotage.
For example, as disclosed in Part I, Item 1, Note 14, Income Tax Expense , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K, we are under examination by the Internal Revenue Service for certain fiscal years.
For example, as disclosed in Part I, Item 1, Note 13, Income Tax Expense , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K, we are under examination by the Internal Revenue Service for certain fiscal years.
In addition, accurately forecasting demand has become more difficult, which could harm our business. Sales of many of our products tend to be seasonal and subject to supply-demand cycles. Changes in seasonal and cyclical supply and demand patterns have made it, and could continue to make it, more difficult for us to forecast demand.
In addition, accurately forecasting demand has become more difficult, which could harm our business. Sales of many of our products tend to be seasonal and subject to volatile and irregular supply-demand cycles. Changes in seasonal and cyclical supply and demand patterns have made it, and could continue to make it, more difficult for us to forecast demand.
These events have impacted, and may in the future impact, our operating results and financial condition. Further, government authorities may implement laws or regulations or take other actions that could result in significant changes to the business or operating models of our customers.
These events have impacted, and may in the future impact, our operating results and financial condition. Further, government authorities may implement laws or regulations or take other actions that could result in significant changes to the business or operating models of our customers. Such changes could negatively impact our operating results.
Our success depends upon the continued contributions of our talent. Changes in our key management team can result in loss of continuity, loss of accumulated knowledge, departure of other key employees, disruptions to our operations and inefficiency during transitional periods.
Our success depends upon the continued contributions of our talent. Changes in our key management team may result in loss of continuity, loss of accumulated knowledge, departure of other key employees, disruptions to our operations and inefficiency during transitional periods.
If a fire (including a climate change-related 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 13 Table of Content s negatively affects any of these facilities, it would significantly affect our ability to manufacture or sell our products and source components and would harm our business.
If a fire (including a climate change-related 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 negatively affects any of these facilities, it would significantly affect our ability to manufacture or sell our products and source components and would harm our business.
We primarily rely on patent, copyright, trademark and trade secret laws, as well as nondisclosure agreements and other methods, to protect our proprietary technologies and processes. There can be no assurance that our existing patents will continue to be held valid, if challenged, or that they will have sufficient scope or strength to protect us.
We primarily rely on patent, copyright, trademark and trade secret laws, as well as non-disclosure agreements and other methods, to protect our proprietary technologies and processes. There can be no assurance that our existing patents will continue to be held valid, if challenged, or that they will have sufficient scope or strength to protect us.
In some instances, efforts to correct vulnerabilities or prevent incidents have in the past and may in the future reduce the functionality or performance of our computer systems and networks, which could negatively impact our business.
In some instances, efforts to correct vulnerabilities or prevent incidents have in the past, and may in the future, reduce the functionality or performance of our information systems and networks, which could negatively impact our business.
Therefore, as a substantial portion of our sales are from countries outside the U.S., fluctuations in currency exchanges rates, most notably the strengthening of the U.S. dollar against other foreign currencies, contribute to variations in sales of products in impacted jurisdictions and could negatively impact demand and revenue growth.
Therefore, as a substantial portion of our sales are from countries outside the U.S., fluctuations in currency exchanges 22 Table of Contents rates, most notably the strengthening of the U.S. dollar against other foreign currencies, contribute to variations in sales of products in impacted jurisdictions and could negatively impact demand and revenue growth.
Beginning in our fiscal year 2023, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures in the year incurred, requiring amortization in accordance with IRC Section 174. Depending on our operating results, this requirement could materially increase our effective tax rate and reduce our operating cash flows.
The Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures in the year incurred, requiring amortization in accordance with IRC Section 174. Depending on our operating results, this requirement could materially increase our effective tax rate and reduce our operating cash flows.
We are subject to risks associated with our global manufacturing operations and global sales efforts, as well as risks associated with our utilization of contract manufacturers, including: • obtaining governmental approvals and compliance with evolving foreign regulations; • the need to comply with regulations on international business, including the Foreign Corrupt Practices Act, the United Kingdom Bribery Act 2010, the anti-bribery laws of other countries and rules regarding conflict minerals; • exchange, currency and tax controls and reallocations; • weaker protection of IP rights; • policies and financial incentives by governments in China, the United States, and countries in Europe and Asia designed to reduce dependence on foreign semiconductor manufacturing capabilities; • trade restrictions, such as export controls, export bans, import restrictions, embargoes, sanctions, license and certification requirements (including semiconductor, encryption and other technology), tariffs and complex customs regulations; and • difficulties in managing international operations, including appropriate internal controls.
We are also subject to risks that could harm our business associated with our global manufacturing operations, global sales efforts and our utilization of contract manufacturers, including: the need to obtain governmental approvals and compliance with evolving foreign regulations; the need to comply with regulations on international business, including the Foreign Corrupt Practices Act, the United Kingdom Bribery Act 2010, the anti-bribery laws of other countries and rules regarding conflict minerals; exchange, currency and tax controls and reallocations; weaker protection of IP rights; policies and financial incentives by governments in China, the United States, and countries in Europe and Asia designed to reduce dependence on foreign semiconductor manufacturing capabilities; trade restrictions, such as export controls, export bans, import restrictions, embargoes, sanctions, license and certification requirements (including semiconductor, encryption and other technology), tariffs and complex customs regulations; and difficulties in managing international operations, including appropriate internal controls.
Failing to successfully integrate or realign our business to take advantage of efficiencies or reduce redundancies of an acquisition may result in not realizing all or any of the anticipated benefits of the acquisition.
Failing to successfully integrate or realign our business to take advantage of efficiencies or reduce redundancies of an acquisition or divestiture may result in not realizing all or any of the anticipated benefits of the transaction.
Our suppliers have in the past been, and may in the future be, unable or unwilling to meet our requirements, including as a result of events outside of their control such as trade restrictions (including tariffs, quotas and embargoes), geopolitical conflicts, public health emergencies, or natural disasters.
Our suppliers have in the past been, and may in the future be, unable or unwilling to meet our requirements, including as a result of events outside of their control such as trade restrictions (including tariffs, quotas and embargoes), geopolitical conflicts, terrorism, public health crises or natural disasters.
We face significant competition in this channel as a result of limited product qualification programs and a significant focus on price and availability of product. As a result of the shift to mobile devices, more computing devices are being delivered to the market as complete systems, which could weaken the distribution market.
We face significant competition in this channel as a result of limited product qualification programs and a significant focus on price and availability of product. As a result of the shift to mobile devices, more computing devices are being delivered to the 20 Table of Contents market as complete systems, which could weaken the distribution market.
We are subject to notice and privacy policy requirements, as well as obligations to respond to requests to know and access personal information, correct personal information, delete personal information and say no to the sale of personal information.
We are subject to notice and privacy statement requirements, as well as obligations to respond to requests to know and access personal information, correct personal information, delete personal information and say no to the sale of personal information.
Adverse changes in global or regional economic conditions, including, but not limited to, volatility in the financial markets, tighter credit, recession, inflation, rising interest rates, slower growth in certain geographic regions, political uncertainty, geopolitical tensions or conflicts, other macroeconomic factors, changes to social conditions and regulations, could significantly harm demand for our products, increase credit and collectability risks, result in revenue reductions, reduce profitability as a result of underutilization of our assets, cause us to change our business practices, increase manufacturing and operating costs or result in impairment charges or other expenses.
Adverse changes in global or regional economic and social conditions, including, but not limited to, volatility in the financial markets, reduced access to credit, recession, inflation, rising interest rates, slower growth in certain geographic regions, political uncertainty, geopolitical tensions or conflicts, terrorism, other macroeconomic factors and new or changed regulations, could significantly harm demand for our products, increase credit and collectability risks, result in revenue reductions, reduce profitability as a result of underutilization of our assets, cause us to change our business practices, increase manufacturing and operating costs or result in impairment charges or other expenses.
We experience cyber incidents of varying degrees on our technology infrastructure and systems and, as a result, unauthorized parties have obtained in the past, and may obtain in the future, access to our computer systems and networks, including cloud-based platforms.
We experience cybersecurity incidents of varying degrees on our technology infrastructure and information systems and, as a result, unauthorized parties have obtained in the past, and may obtain in the future, access to our computer systems and networks, including cloud-based platforms.
Additional risks not presently known to us or that we currently deem immaterial may also negatively affect our business. OPERATIONAL RISKS Adverse global or regional conditions could harm our business. 11 Table of Content s A large portion of our revenue is derived from our international operations, and many of our products and components are produced overseas.
Additional risks not presently known to us or that we currently deem immaterial may also negatively affect our business. OPERATIONAL RISKS Adverse global or regional conditions could harm our business. A large portion of our revenue is derived from our international operations, and many of our products and components are produced overseas.
In addition, if our customers choose to delay transition to new technologies, if demand for the products that we develop is lower than expected or if the supporting technologies to implement these new technologies are not available, we may be unable to achieve the cost structure required to support our profit objectives or may be unable to grow or maintain our market position.
In addition, if our customers choose to delay transition to new technologies, if demand for the products that we develop is lower than expected or if the supporting 18 Table of Contents technologies to implement these new technologies are not available, we may be unable to achieve the cost structure required to support our profit objectives or may be unable to grow or maintain our market position.
Although we believe our tax positions are properly supported, the final timing and resolution of any tax examinations are subject to significant uncertainty and could result in litigation or the payment of significant amounts to the 21 Table of Content s applicable tax authority in order to resolve examination of our tax positions, which could result in an increase of our current estimate of unrecognized tax benefits and may harm our business.
Although we believe our tax positions are properly supported, the final timing and resolution of any tax examinations are subject to significant uncertainty and could result in litigation or the payment of significant amounts to the applicable tax authority in order to resolve examination of our tax positions, which could result in an increase of our current estimate of unrecognized tax benefits and may harm our business.
Compromises of our infrastructure, systems or products could also cause our customers and other affected third parties to suffer loss or misuse of proprietary or confidential information, IP, or sensitive or personal information, and could harm our relationships with customers and other third parties and subject us to liability.
Compromises of our infrastructure, information systems or products could also cause our customers and other affected third parties to suffer loss or misuse of proprietary or confidential information, IP, or sensitive or personal information, and could harm our relationships 14 Table of Contents with customers and other third parties and subject us to liability.
If we bring a patent infringement action and are not successful, our competitors would be able to use similar technology to compete with us. Moreover, the defendant in such an action may successfully countersue us for infringement of their patents or assert a counterclaim that our patents are invalid or unenforceable.
If we bring a patent infringement 25 Table of Contents action and are not successful, our competitors may be able to use similar technology to compete with us. Moreover, the defendant in such an action may successfully countersue us for infringement of their patents or assert a counterclaim that our patents are invalid or unenforceable.
In many cases, these laws apply not only to third-party transactions, but also to transfers of information between us and our subsidiaries, and among us, our subsidiaries and other parties with which we have commercial relations.
In many cases, these requirements apply not only to third-party transactions, but also to transfers of information between our information systems and our subsidiaries, and among us, our subsidiaries and other parties with which we have commercial relations.
As a result of the above or other factors, our forecast of financial results for a given quarter may differ materially from our actual financial results. The variety and volume of products we manufacture are based in part on accurately forecasting market and customer demand for our products.
As a result of the above or other factors, our forecast of financial results for a given quarter may differ materially from our actual financial results. The variety and volume of products we manufacture are based in part on accurately forecasting market and customer demand for our products, which are influenced by a wide variety of factors.
There have been and may continue to be difficulties with implementing new systems and processes or with integrating systems and processes of companies with complex operations, which can result in inconsistencies in standards, controls, procedures and policies and may increase the risk that our internal controls are found to be ineffective.
There have been and may continue to be difficulties with implementing new systems and processes or with integrating systems and processes of companies with complex operations, which may result in inconsistencies in standards, controls, procedures and policies and may increase our vulnerability to cybersecurity attacks or the risk that our internal controls are found to be ineffective.
If we do not properly manage technology transitions and product development and introduction, our competitiveness and operating results may be negatively affected. 17 Table of Content s The markets for our products continuously undergo technology transitions that can impact our product roadmaps and that we must anticipate in order to adapt our existing products or develop new products effectively.
If we do not properly manage technology transitions and product development and introduction, our competitiveness and operating results may be negatively affected. The markets for our products continuously undergo technology transitions that can impact our product roadmaps and that we must anticipate in order to adapt our existing products or develop new products effectively.
A failure to accurately forecast supply and demand could cause us to over-invest or under-invest in technology transitions or the expansion of Flash Ventures’ capacity.
As a result, a failure to accurately forecast supply and demand could cause us to over-invest or under-invest in inventory, technology transitions or the expansion of Flash Ventures’ capacity.
The compromise, damage or interruption of our technology infrastructure, systems or products by cyber incidents, data security breaches, other security problems, design defects or system failures could have a material negative impact on our business.
The compromise, damage or interruption of our technology infrastructure, information systems or products by cybersecurity incidents, data security breaches, other security problems, design defects, information system failures or other events could have a material negative impact on our business.
Further, our ASPs and gross margins tend to decline when there is a shift in the mix of product sales to lower priced products. We face potential gross margin pressures resulting from our ASPs declining more rapidly than our cost of revenue.
Further, our ASPs and gross margins tend to decline when there is a shift in the mix of product sales to lower priced products. We have faced declining gross margins in the past, and may face potential gross margin pressures in the future, resulting from our ASPs declining more rapidly than our cost of revenue.
Our possession and use of third-party data, including personal data and 22 Table of Content s employee data in conducting our business, subjects us to legal and regulatory burdens that require us to notify vendors, customers or employees or other parties with which we have commercial relations of a data security breach and to respond to regulatory inquiries and to enforcement proceedings.
Our possession and use of third-party data, including personal data and employee data in conducting our business, subjects us to legal and regulatory obligations that require us to notify vendors, customers or employees or other parties with which we have commercial relations of a data security breach and to respond to regulatory inquiries and to enforcement proceedings.
Our strategic relationships are subject to additional risks that could harm our business, including, but not limited to, the following: • failure by our strategic partners to comply with applicable laws or employ effective internal controls; • difficulties and delays in product and technology development at, ramping production at, and transferring technology to, our strategic partners; • declining financial performance of our strategic partners, including failure by our strategic partners to timely fund capital investments with us or otherwise meet their commitments, including paying amounts owed to us or third parties when due; • we may lose the rights to, or ability to independently manufacture, certain technology or products being developed or manufactured by strategic partners, including if any of them is acquired by another company, files for bankruptcy or experiences financial or other losses; • a bankruptcy event involving a strategic partner could result in structural changes to or termination of the strategic partnership; and • changes in tax or regulatory requirements may necessitate changes to the agreements governing our strategic partnerships.
Our strategic relationships are subject to additional risks that could harm our business, including, but not limited to, the following: failure by our strategic partners to comply with applicable laws or employ effective internal controls; difficulties and delays in product and technology development at, ramping production at, and transferring technology to, our strategic partners; declining financial performance of our strategic partners, including failure by our strategic partners to timely fund capital investments with us or otherwise meet their commitments, including the payment of amounts owed to us or third parties when due; losing the rights to, or ability to independently manufacture, certain technology or products being developed or manufactured by strategic partners, including as a result of any of them being acquired by another company, filing for bankruptcy or experiencing financial or other losses; a bankruptcy event involving a strategic partner, which could result in 17 Table of Contents structural changes to or termination of the strategic partnership; and changes in tax or regulatory requirements, which may necessitate changes to the agreements governing our strategic partnerships.
We have entered into and expect to continue to enter into strategic relationships with various partners for product development, manufacturing, sales growth and the supply of technologies, components, equipment and materials for use in our product design and manufacturing, including our business ventures with Kioxia. We depend on Flash Ventures for the development and manufacture of flash-based memory.
We have entered into and expect to continue to enter into strategic relationships with various partners for product development, manufacturing, sales growth and the supply of technologies, components, equipment and materials for use in our product design and manufacturing, including our business ventures with Kioxia.
We have historically been involved in frequent disputes regarding patent and other IP rights, and we have in the past received, and we 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.
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.
Demand for and prices of our products are influenced by, among other factors, actual and projected data growth, the balance between supply and demand in the storage market, including the effects of new fab capacity, macroeconomic factors, business conditions, technology transitions and other actions taken by us or our competitors.
Demand for and prices of our products are influenced by, among other factors, the actual and projected growth of data to be stored, the balance between supply and demand in the storage market, including the effects of new fab capacity, macroeconomic factors, business conditions, the emergence or growth of new or existing technologies (including AI), technology transitions and other actions taken by us or our competitors.
Continued availability of lease financings for Flash Ventures is not guaranteed and could be limited by several factors, including investor capacity and risk allocation policies, our or Kioxia’s financial performance and changes to our or Kioxia’s 16 Table of Content s business, ownership or corporate structure.
Continued availability of lease financings for Flash Ventures is not guaranteed and could be limited by several factors, including availability of tools qualified for leasing, investor capacity and risk allocation policies, our or Kioxia’s financial performance and changes to our or Kioxia’s business, ownership or corporate structure.
If we fail to adapt to or implement new technologies or develop new products desired by our customers quickly and cost-effectively, or if technology transitions negatively impact our existing product roadmaps, our business may be harmed.
If we fail to adapt to or implement new technologies, 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.
In addition, currency variations can adversely affect margins on sales of our products in countries outside the U.S. We attempt to manage the impact of foreign currency exchange rate changes by, among other things, entering into short-term foreign exchange contracts.
In addition, currency variations may adversely affect, and from time to time have adversely affected, margins on sales of our products in countries outside the U.S. We attempt to manage the impact of foreign currency exchange rate changes by, among other things, entering into short-term foreign exchange contracts.
Over-investment by us or our competitors could result in excess supply, which could cause significant decreases in our product prices, significant excess, obsolete inventory or inventory write-downs or underutilization charges, and the potential impairment of our investments in Flash Ventures.
Over-investment by us or our competitors can result in excess supply and lead to significant decreases in our product prices, significant excess, obsolete inventory or inventory write-downs or underutilization charges, and the potential impairment of our investments in Flash Ventures.
As a result of actual or perceived breaches, we have in the past experienced and may in the future experience additional costs, notification requirements, civil and administrative fines and penalties, indemnification claims, litigation, or damage to our brand and reputation.
As a result of actual or perceived cybersecurity incidents or other information system disruptions, we have in the past experienced and may in the future experience additional costs, notification requirements, civil and administrative fines and penalties, indemnification claims, litigation or damage to our brand and reputation.
We test our products in our manufacturing facilities through a variety of means. 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.
We warrant the majority of our products for periods of one to five years. We test our products in our manufacturing facilities through a variety of means. 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.
Our level of debt could have significant consequences, which include, but are not limited to, the following: • limiting our ability to obtain additional financing for working capital, capital expenditures, acquisitions or other general corporate purposes; • requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes; • imposing financial and other restrictive covenants on our operations, including minimum liquidity and free cash flow requirements and limitations on our ability to (i) declare or pay dividends or repurchase shares of our common stock; (ii) purchase assets, make investments, complete acquisitions, consolidate or merge with or into, or sell all or substantially all of our assets to, another person; (iii) enter into sale/leaseback transactions or certain transactions with affiliates; (iv) incur additional indebtedness and (v) incur liens; and • making us more vulnerable to economic downturns and limiting our ability to withstand competitive pressures or take advantage of new opportunities to grow our business. 20 Table of Content s Our ability to meet our debt service obligations, comply with our debt covenants and deleverage depends on our cash flows and financial performance, which are affected by financial, business, economic and other factors.
Our level of debt could have significant consequences, including limiting our ability to obtain additional financing for working capital, capital expenditures, acquisitions or other general corporate purposes; requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes; imposing financial and other restrictive covenants on our operations, including minimum liquidity requirements and limitations on our ability to (i) declare or pay dividends or repurchase shares of our common stock; (ii) purchase assets, make investments, complete acquisitions, consolidate or merge with or into, or sell all or substantially all of our assets to, another person; (iii) enter into sale/leaseback transactions or certain transactions with affiliates; (iv) incur additional indebtedness; and (v) incur liens, making us more vulnerable to economic downturns and limiting our ability to withstand competitive pressures or take advantage of new opportunities to grow our business.
Such changes could negatively impact our operating results. 19 Table of Content s Additionally, if there is consolidation among our customer base, our customers may be able to command increased leverage in negotiating prices and other terms of sale, which could negatively impact our profitability.
Additionally, if there is consolidation among our customer base, our customers may be able to command increased leverage in negotiating prices and other terms of sale, which could negatively impact our profitability.
We conduct our operations at large, high-volume, purpose-built facilities in California and throughout Asia. The facilities of many of our customers, our suppliers and our customers’ suppliers are also concentrated in certain geographic locations throughout Asia and elsewhere.
Our operations, and those of certain of our suppliers and customers, are subject to substantial risk of damage or disruption. We conduct our operations at large, high-volume, purpose-built facilities in California and throughout Asia. The facilities of many of our customers, our suppliers and our customers’ suppliers are also concentrated in certain geographic locations throughout Asia and elsewhere.
While some of our products contain encryption or security algorithms to protect third-party content or user-generated data stored on our products, these products could still be hacked or the encryption schemes could be compromised, breached, or circumvented by motivated and sophisticated attackers.
While some of our products contain encryption or security algorithms to protect third-party content or user-generated data stored on our products, these products could still be hacked or the encryption schemes could be compromised, breached or circumvented by motivated and sophisticated attackers, which could harm our business by exposing us to litigation and indemnification claims and hurting our reputation.
Global competition for skilled employees in the technology industry is intense, and our business success is increasingly dependent on our ability to attract, develop and retain top talent; implement succession plans for key management and staff and replace aging skilled employees.
Global competition for skilled employees in the technology industry is intense, and our business success is increasingly dependent on our ability to attract, develop and retain top talent, implement succession plans for key management and staff and replace aging skilled employees. Changes in immigration policies may also impair our ability to recruit and hire technical and professional talent.
We are subject to laws, rules, and regulations relating to the collection, use, and security and privacy of third-party data including data that relates to or identifies an individual person.
We are subject to laws, rules and regulations relating to the collection, use, security and privacy of third-party data, including data that relates to or identifies an individual person. We are also subject to the terms of our privacy policies and obligations to third parties related to privacy, data protection and security.
Litigation can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of litigation are inherently uncertain and may result in adverse rulings or decisions. We may be subject to injunctions, enter into settlements or be subject to judgments that may harm our business.
Moreover, the results of litigation are inherently uncertain and have resulted in, and may in the future result in, adverse rulings or decisions. We may be subject to injunctions, enter into settlements or be subject to judgments that may harm our business.
We believe malicious cyber acts are increasing in number and that cyber threat actors are increasingly organized and well-financed or supported by state actors, and are developing increasingly sophisticated systems and means to not only infiltrate systems, but also to evade detection or to obscure their activities.
We believe malicious cybersecurity acts are increasing in number and that cybersecurity threat actors are increasingly organized and well-financed or supported by state actors, and are developing increasingly sophisticated systems and means to not only infiltrate information systems, but also to evade detection or to obscure their activities. Geopolitical tensions or conflicts may create heightened risk of cybersecurity incidents.
If a court were to find all or any part of our exclusive forum provisions to be inapplicable or unenforceable in an action, we might incur additional costs associated with resolving such action in other jurisdictions. 25 Table of Content s
If a court were to find all or any part of our exclusive forum provisions to be inapplicable or unenforceable in an action, we might incur additional costs associated with resolving such action in other jurisdictions. 26 Table of Contents Item 1B. Unresolved Staff Comments Not applicable.
Our strategic relationships, including Flash Ventures, are subject to various risks that could harm the value of our investments, our revenue and costs, our future rate of spending, our technology plans and our future growth opportunities.
We depend on Flash Ventures for the 16 Table of Contents development and manufacture of flash-based memory. Our strategic relationships, including Flash Ventures, are subject to various risks that could harm the value of our investments, our revenue and costs, our future rate of spending, our technology plans and our future growth opportunities.
In order to pursue this part of our growth strategy successfully, we must continue to identify attractive acquisition or investment opportunities, successfully complete the transactions, some of which may be large and complex, and manage post-closing issues such as integration of the acquired company or employees and integration of processes and systems.
In order to successfully execute on strategic initiatives, we must continue to identify and successfully complete attractive transactions, some of which may be large and complex, and manage post-closing issues such as integration of the acquired company or employees and integration of processes and systems.
If efforts to breach our infrastructure, systems or products are successful or we are unable to protect against these risks, we could suffer interruptions, delays, or cessation of operations of our systems, and loss or misuse of proprietary or confidential information, IP, or sensitive or personal information.
When efforts to breach our infrastructure, information systems or products are successful or we are unable to protect against such attacks, we have in the past suffered, and could in the future suffer, interruptions, delays or cessation of operations of our information systems, and loss or misuse of proprietary or confidential information, IP, or sensitive or personal information.
This has caused, and may in the future cause, our forecasts to exceed actual market demand, resulting in periods of product oversupply, excess inventory, asset underutilization and price decreases, which has impacted and could further impact our sales, ASPs and gross 18 Table of Content s margin, thereby negatively affecting our operating results and our financial condition.
This has caused, and may in the future cause, our forecasts to exceed actual market demand, resulting in periods of product oversupply, excess inventory, underutilization of manufacturing capacity and price decreases, which has impacted and could further impact our sales, ASPs and gross margin or require us to incur additional inventory write-downs or additional charges for unabsorbed manufacturing overhead, thereby negatively affecting our operating results and our financial condition.
Litigation is subject to inherent risks and uncertainties that may cause actual results to differ materially from our expectations. In the event of an adverse outcome in any litigation, investigation or governmental proceeding, we could be required to pay substantial damages, fines or penalties and cease certain practices or activities, including the manufacture, use and sale of products.
In the event of an adverse outcome in any litigation, investigation or governmental proceeding, we could be required to pay substantial damages, fines or penalties and cease certain practices or activities, including the manufacture, use and sale of products.
We are subject to state, federal and international legal and regulatory requirements, such as environmental, labor, health and safety, trade and public-company reporting and disclosure regulations, customers’ standards of corporate citizenship, and industry and coalition standards, such as those established by the Responsible Business Alliance (“RBA”), and compliance with those regulations and requirements could cause an increase in our operating costs and failure to comply may harm our business.
Compliance requirements or even our inadvertent failure to comply with applicable laws may cause us to incur substantial costs, subject us to proceedings by governmental entities or others, and cause us to incur penalties or other significant legal liability or lead us to change our business practices. 23 Table of Contents We are and may in the future be subject to state, federal and international legal and regulatory requirements, such as environmental, labor, health and safety, trade and public-company reporting and disclosure regulations, customers’ standards of corporate citizenship and industry and coalition standards, such as those established by the Responsible Business Alliance (“RBA”), and compliance with those regulations and requirements could cause an increase in our operating costs and failure to comply may harm our business.
The exclusive forum provisions in our Bylaws could limit our stockholders' ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or its directors, officers or other employees.
We have not filed trademark registrations in all jurisdictions where our brands or logos may be used. The exclusive forum provisions in our Bylaws could limit our stockholders' ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or its directors, officers or other employees.
Substantially all of our flash-based memory is supplied by Flash Ventures, which limits our ability to respond to market demand and supply changes and makes our financial results particularly susceptible to variations from our forecasts and expectations.
This could also impair our ability to consolidate with other industry participants who manufacture flash-based memory. Substantially all of our flash-based memory is obtained from Flash Ventures, which limits our ability to respond to market demand and supply changes and makes our financial results particularly susceptible to variations from our forecasts and expectations.
We may be unable to cure, or obtain a waiver of, an event of default or otherwise amend our debt agreements to prevent an event of default thereunder on terms acceptable to us or at all.
Failure to meet our debt service obligations or comply with our debt covenants could result in an event of default under the applicable indebtedness. We may be unable to cure, or obtain a waiver of, an event of default or otherwise amend our debt agreements to prevent an event of default thereunder on terms acceptable to us or at all.
Public health crises, including the COVID-19 pandemic, have had, and could in the future have, a negative effect on our business. The COVID-19 pandemic has negatively impacted and future public health crises, including resurgences of COVID-19 may negatively impact our workforce and operations in the future, as well as those of our strategic partners, customers, suppliers and logistics providers.
Public health crises have in the past negatively impacted, and may in the future negatively impact, our workforce and operations, as well as those of our strategic partners, customers, suppliers and logistics providers.
We and certain of our officers are at times involved in litigation, investigations and governmental proceedings, which may be costly, may divert the efforts of our key personnel and could result in adverse court rulings, fines or penalties, which could materially harm our business. 23 Table of Content s From time to time, we are involved in litigation, including antitrust and commercial matters, putative securities class action suits and other actions.
We and certain of our officers are and may continue to be involved in litigation, investigations and governmental proceedings, which may be costly, may divert the efforts of our key personnel and could result in adverse court rulings, fines or penalties, which could materially harm our business.
In addition, failing to achieve the financial model projections for an acquisition or changes in technology development and related roadmaps following an acquisition may result in the incurrence of impairment charges (including goodwill impairments or other asset write-downs) and other expenses, both of which could negatively impact our results of operations or financial condition.
In addition, failing to achieve the financial model projections for an acquisition or changes in technology development and related roadmaps following an acquisition may result in the incurrence of impairment charges (including goodwill impairments or other asset write-downs) and other expenses, both of which could negatively impact our results of operations or financial condition. 19 Table of Contents Acquisitions and investments may also result in the issuance of equity securities that may be dilutive to our stockholders as well as earn-out or other contingent consideration payments and the issuance of additional indebtedness that would put additional pressure on liquidity.
There can be no assurance that we will achieve a particular rating or maintain a particular rating in the future. We also guarantee a significant amount of lease obligations of Flash Ventures owed to third parties. Flash Ventures sells to and leases back a portion of its equipment from a consortium of financial institutions.
Our ratings reflect the opinions of the ratings agencies as to our financial strength, operating performance and ability to meet our debt obligations. There can be no assurance that we will achieve a particular rating or maintain a particular rating in the future. We also guarantee a significant amount of lease obligations of Flash Ventures owed to third parties.
We may also receive claims of potential infringement if we attempt to license IP to others. IP risks increase when we enter into new markets where we have little or no IP protection as a defense against litigation. The complexity of the technology involved and the uncertainty of IP litigation increase the IP risks we face.
IP risks increase when we enter into new markets where we have little or no IP protection as a deterrent against litigation. The complexity of the technology involved and the uncertainty of IP litigation increase the IP risks we face. Litigation can be expensive, lengthy and disruptive to normal business operations.
Our cloud services have in the past and may in the future be taken offline as a result of or in order to prevent or mitigate cyber incidents.
Our products are also targets for malicious cybersecurity acts, including those products utilized in cloud-based environments as well as our cloud service offerings. Our cloud services have in the past and may in the future be taken offline as a result of or in order to prevent or mitigate cybersecurity incidents.
Laws and regulations relating to the collection, use, security and privacy of third-party data change over time and new laws and regulations become effective from time to time.
Managing these notifications, especially in large volumes, can lead to significant expenses, even with cybersecurity insurance coverage. Laws and regulations relating to the collection, use, security and privacy of third-party data change over time and new laws and regulations become effective from time to time.
Additionally, uncertainty about business realignment actions or the structure and organization of our business as a result of our ongoing strategic review could negatively impact our ability to recruit and retain key staff and skilled employees. Changes in immigration policies may also impair our ability to recruit and hire technical and professional talent.
Additionally, uncertainty about business realignment actions or the structure and organization of our business as a result of our ongoing separation of our HDD and Flash business units into two independent public companies could negatively impact our ability to recruit and retain key staff and skilled employees.
With or without merit, such matters can be complex, can extend for a protracted period of time, can be very expensive and the expense can be unpredictable. Litigation initiated by us could also result in counter-claims against us, which could increase the costs associated with the litigation and result in our payment of damages or other judgments against us.
Litigation initiated by us could also result in counter-claims against us, 24 Table of Contents which could increase the costs associated with the litigation and result in our payment of damages or other judgments against us.
We are the plaintiff in some of these actions and the defendant in others. Some of the actions seek injunctive relief, including injunctions against the sale of our products, and substantial monetary damages, which if granted or awarded, could materially harm our business.
Some of the actions seek injunctive relief, including injunctions against the sale of our products, and substantial monetary damages, which if granted or awarded, could materially harm our business. We have in the past been and may in the future be the subject of inquiries, requests for information, investigations and actions by government and regulatory agencies regarding our businesses.
Third party claims for patent infringement are excluded from coverage under our insurance policies. A future obligation to indemnify our customers or suppliers may harm our business.
Third party claims for patent infringement are excluded from coverage under our insurance policies. A future obligation to indemnify our customers or suppliers may harm our business. Our reliance on IP and other proprietary information subjects us to the risk that these key components of our business could be copied by competitors.
Delays, shortages or cost increases experienced by our suppliers in developing or sourcing materials and components for use in our products or incompatibility or quality issues relating to our products, could also harm our business. 12 Table of Content s We do not have long-term contracts with some of our existing suppliers, nor do we always have guaranteed manufacturing capacity with our suppliers, so we cannot guarantee that they will devote sufficient resources or capacity to manufacturing our products.
We do not have long-term contracts with some of our existing suppliers, nor do we always have guaranteed manufacturing capacity with our suppliers, so we cannot guarantee that they will devote sufficient resources or capacity to manufacturing our 12 Table of Contents products. Any significant problems that occur at our suppliers could lead to product shortages or quality assurance problems.
Our control over the operations of our business ventures may be limited, and our interests could diverge from our strategic partners’ interests regarding ongoing and future activities. For example, under the Flash Ventures agreements, we cannot unilaterally direct most of Flash Ventures’ activities, and we have limited ability to source or fabricate flash outside of Flash Ventures.
Additionally, under the Flash Ventures agreements, we cannot unilaterally direct most of Flash Ventures’ activities, and we have limited ability to source or fabricate flash outside of Flash Ventures.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn general, new manufacturing facilities can be developed and become operational within approximately 12 to 24 months should we require such additional facilities. 27 Table of Content s Substantially all of our flash-based memory wafers are manufactured by Kioxia in purpose-built, wafer fabrication facilities located in Yokkaichi and Kitakami, Japan. 28 Table of Content s
Biggest changeWe continuously update our facilities from time to time to meet technological and market requirements. 29 Table of Contents Substantially all of our flash-based memory wafers are manufactured by Kioxia in purpose-built, wafer fabrication facilities located in Yokkaichi and Kitakami, Japan. 30 Table of Contents
Item 2. Properties Our principal executive offices are located in San Jose, California. Our leased facilities have contracts expiring at various times through 2034.
Item 2. Properties Our principal executive offices are located in San Jose, California. Our leased facilities have contracts expiring at various times through 2039.
Our principal manufacturing, R&D, marketing and administrative facilities as of June 30, 2023 were as follows: Location Buildings Owned or Leased Approximate Square Footage Description United States California Fremont Leased 295,000 HDD manufacturing of head wafers and R&D Irvine Leased 458,000 HDD R&D, administrative, marketing and sales Milpitas Owned 578,000 Flash R&D, marketing and sales, and administrative San Jose Owned 2,205,000 Manufacturing of head wafers, head, media and product development, R&D for Flash and HDD, administrative, marketing and sales Colorado Longmont Leased 62,000 Flash R&D Colorado Springs Leased 54,000 HDD R&D Minnesota Rochester Leased 156,000 Flash and HDD product development Asia China Shanghai Owned 914,000 Flash assembly and test of SSD Shenzhen Owned and Leased 563,000 HDD manufacturing of media Japan Fujisawa Owned 661,000 HDD product development Malaysia Johor Owned 277,000 HDD manufacturing of substrates Kuala Lumpur Owned 145,000 HDD R&D and administrative Kuching Owned 529,000 HDD manufacturing and development of substrates Penang Owned 1,889,000 Assembly and test of SSD, manufacturing of media, and R&D for Flash and HDD Philippines Laguna Owned 632,000 HDD manufacturing of HGAs and slider fabrication Thailand Bang Pa-In Owned and Leased 1,595,000 HDD slider fabrication, manufacturing of HDDs and HGAs, and R&D Prachinburi Owned 1,568,000 HDD manufacturing India Bangalore Owned and Leased 1,260,000 Flash R&D and administrative Middle East Israel Kfar Saba Owned 167,000 Flash R&D Tefen Owned 72,000 Flash R&D We also lease office space in various other locations throughout the world primarily for R&D, sales, operations, manufacturing, administration and technical support.
Our principal manufacturing, R&D, marketing and administrative facilities as of June 28, 2024 were as follows: Location Buildings Owned or Leased Approximate Square Footage Description United States California Fremont Leased 295,000 HDD manufacturing of head wafers and R&D Irvine Leased 408,000 HDD R&D, administrative, marketing and sales Milpitas Leased 578,000 Flash R&D, marketing and sales, and administrative San Jose Owned 2,205,000 Manufacturing of head wafers, head, media and product development, R&D for Flash and HDD, administrative, marketing and sales Colorado Longmont Leased 62,000 Flash R&D Colorado Springs Leased 54,000 HDD R&D Minnesota Rochester Leased 156,000 Flash and HDD product development Asia China Shanghai Owned 917,000 Flash assembly and test of SSD Shenzhen Owned and Leased 614,000 HDD manufacturing of media and sales Japan Fujisawa Owned 661,000 HDD product development Malaysia Johor Owned 277,000 HDD manufacturing of substrates Kuala Lumpur Owned 145,000 HDD R&D and administrative Kuching Owned 529,000 HDD manufacturing and development of substrates Penang Owned 2,420,000 Assembly and test of SSD, manufacturing of media, and R&D for Flash and HDD Philippines Laguna Owned 632,000 HDD manufacturing of HGAs and slider fabrication Thailand Bang Pa-In Owned and Leased 1,595,000 HDD slider fabrication, manufacturing of HDDs and HGAs, and R&D Prachinburi Owned 1,568,000 HDD manufacturing India Bangalore Owned and Leased 1,317,000 Flash R&D and administrative Middle East Israel Kfar Saba Owned 167,000 Flash R&D Tefen Owned 72,000 Flash R&D We also lease office space in various other locations worldwide primarily for R&D, sales, operations, manufacturing, administration and technical support.
Removed
We believe our present facilities are adequate for our current needs, although we update our facilities from time to time to meet anticipated future technological and market requirements.
Added
During the year ended June 28, 2024, we completed a sale and leaseback of our facility in Milpitas, California. We believe our present facilities are adequate for our current needs.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings See Part II, Item 8, Note 14, Income Tax Expense , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for disclosures regarding statutory notices of deficiency issued by the Internal Revenue Service (“IRS”) in June 2018 and December 2018, petitions filed by the Company with the U.S.
Biggest changeLegal Proceedings See Part II, Item 8, Note 17, Legal Proceedings and Note 13, Income Tax Expense of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for disclosures regarding certain legal proceedings and the status of statutory notices of deficiency issued by the IRS with regards to tax years 2008 through 2015, respectively, which are incorporated by reference herein.
Removed
Tax Court in September 2018 and March 2019, additional penalties asserted by the IRS in March 2021 and further Amendments to Answers filed by the IRS in June 2021 and January 2022, and a tentative resolution with respect to such matters.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeTOTAL RETURN TO STOCKHOLDERS (Assumes $100 investment at market close on June 29, 2018) 30 Table of Content s Total Return Analysis June 29, 2018 June 28, 2019 July 3, 2020 July 2, 2021 July 1, 2022 June 30, 2023 Western Digital Corporation $ 100.00 $ 64.19 $ 58.99 $ 97.59 $ 60.35 $ 52.72 S&P 500 Index $ 100.00 $ 110.42 $ 118.70 $ 167.13 $ 149.39 $ 178.66 Dow Jones U.S.
Biggest changeTOTAL RETURN TO STOCKHOLDERS (Assumes $100 investment at market close on June 28, 2019) 32 Table of Contents Total Return Analysis June 28, 2019 July 3, 2020 July 2, 2021 July 1, 2022 June 30, 2023 June 28, 2024 Western Digital Corporation $ 100.00 $ 89.25 $ 147.66 $ 91.31 $ 79.77 $ 159.35 S&P 500 Index $ 100.00 $ 107.51 $ 151.36 $ 135.29 $ 161.80 $ 201.53 Dow Jones U.S.
Dividends In April 2020, we suspended our quarterly cash dividend. For more information about our dividend policy. see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Short- and Long-term Liquidity.
Dividends In April 2020, we suspended our quarterly cash dividend. For more information about our dividends, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Short- and Long-term Liquidity.
The graph assumes that $100 was invested in our common stock at the close of market on June 29, 2018 and that all dividends were reinvested. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns.
The graph assumes that $100 was invested in our common stock at the close of market on June 28, 2019 and that all dividends were reinvested. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns.
Stock Performance Graph The following graph compares the cumulative total stockholder return of our common stock with the cumulative total return of the S&P 500 Index and the Dow Jones U.S. Technology Hardware & Equipment Index for the five years ended June 30, 2023.
Stock Performance Graph The following graph compares the cumulative total stockholder return of our common stock with the cumulative total return of the S&P 500 Index and the Dow Jones U.S. Technology Hardware & Equipment Index for the five years ended June 28, 2024.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock Our common stock is listed on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “WDC.” The approximate number of holders of record of our common stock as of August 4, 2023 was 855.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock Our common stock is listed on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “WDC”. The approximate number of holders of record of our common stock as of August 7, 2024 was 802.
Technology Hardware & Equipment Index $ 100.00 $ 107.82 $ 156.84 $ 242.39 $ 216.40 $ 324.28 The stock performance graph shall not be deemed soliciting material or to be filed with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Securities Exchange Act of 1934, nor shall it be incorporated by reference into any past or future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically request that it be treated as soliciting material or specifically incorporate it by reference into a filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. 31 Table of Content s
Technology Hardware & Equipment Index $ 100.00 $ 145.46 $ 224.80 $ 200.70 $ 300.76 $ 457.57 The stock performance graph shall not be deemed soliciting material or to be filed with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Securities Exchange Act of 1934, nor shall it be incorporated by reference into any past or future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically request that it be treated as soliciting material or specifically incorporate it by reference into a filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeSee Part I, Item 1A, Risk Factors , of this Annual Report on Form 10-K for more information regarding the risks we face as a result of macroeconomic conditions, and supply chain disruptions. 35 Table of Content s Results of Operations Summary Comparison of 2023, 2022 and 2021 The following table sets forth, for the periods presented, selected summary information from our Consolidated Statements of Operations by dollars and percentage of net revenue (1) : 2023 2022 2021 (in millions, except percentages) Revenue, net $ 12,318 100.0 % $ 18,793 100.0 % $ 16,922 100.0 % Cost of revenue 10,431 84.7 12,919 68.7 12,401 73.3 Gross profit 1,887 15.3 5,874 31.3 4,521 26.7 Operating expenses: Research and development 2,009 16.3 2,323 12.4 2,243 13.3 Selling, general and administrative 970 7.9 1,117 5.9 1,105 6.5 Employee termination, asset impairment, and other charges 193 1.6 43 0.2 (47) (0.3) Total operating expenses 3,172 25.8 3,483 18.5 3,301 19.5 Operating income (loss) (1,285) (10.4) 2,391 12.7 1,220 7.2 Interest and other income: Interest income 24 0.2 6 — 7 — Interest expense (312) (2.5) (304) (1.6) (326) (1.9) Other income, net 13 0.1 30 0.2 26 0.2 Total interest and other income, net (275) (2.2) (268) (1.4) (293) (1.7) Income (loss) before taxes (1,560) (12.7) 2,123 11.3 927 5.5 Income tax expense 146 1.2 623 3.3 106 0.6 Net income (loss) (1,706) (13.8) 1,500 8.0 821 4.9 Less: cumulative dividends allocated to preferred shareholders 24 0.2 — — — — Net income (loss) attributable to common shareholders $ (1,730) (14.0) % $ 1,500 8.0 % $ 821 4.9 % (1) Percentage may not total due to rounding. 36 Table of Content s The following table sets forth, for the periods presented, a summary of our segment information: 2023 2022 2021 (in millions, except percentages) Net revenue: Flash $ 6,063 $ 9,753 $ 8,706 HDD 6,255 9,040 8,216 Total net revenue $ 12,318 $ 18,793 $ 16,922 Gross profit: Flash $ 433 $ 3,527 $ 2,611 HDD 1,505 2,661 2,221 Unallocated corporate items: Stock-based compensation expense (49) (48) (55) Amortization of acquired intangible assets — (66) (331) Contamination related charges — (207) — Recoveries from a power outage incident — 7 75 Other (2) — — Total unallocated corporate items (51) (314) (311) Consolidated gross profit $ 1,887 $ 5,874 $ 4,521 Gross margin: Flash 7.1% 36.2% 30.0% HDD 24.1% 29.4% 27.0% Consolidated gross margin 15.3% 31.3% 26.7% The following table sets forth, for the periods presented, summary information regarding our disaggregated revenue: 2023 2022 2021 (in millions) Revenue by End Market Cloud $ 5,252 $ 8,017 $ 5,723 Client 4,328 7,076 7,281 Consumer 2,738 3,700 3,918 Total Revenue $ 12,318 $ 18,793 $ 16,922 Revenue by Geography Asia $ 6,046 $ 10,054 $ 9,455 Americas 4,172 5,867 4,406 Europe, Middle East and Africa 2,100 2,872 3,061 Total Revenue $ 12,318 $ 18,793 $ 16,922 Exabytes Shipped 501 645 541 Net Revenue Net revenue decrease d 34% in 2023 compared to 2022, primarily reflecting the supply-demand imbalance and macroeconomic pressures described in the “Operational Update” above.
Biggest changeThis resulted in a $146 million impairment of existing construction in progress and other assets and recognition of $34 million for certain contract termination costs during the year ended June 28, 2024. 36 Table of Contents Results of Operations Summary Comparison of 2024, 2023 and 2022 The following table sets forth, for the periods presented, selected summary information from our Consolidated Statements of Operations by dollars and percentage of net revenue (1) : 2024 2023 2022 (in millions, except percentages) Revenue, net $ 13,003 100.0 % $ 12,318 100.0 % $ 18,793 100.0 % Cost of revenue 10,058 77.4 10,431 84.7 12,919 68.7 Gross profit 2,945 22.6 1,887 15.3 5,874 31.3 Operating expenses: Research and development 1,907 14.7 2,009 16.3 2,323 12.4 Selling, general and administrative 828 6.4 970 7.9 1,117 5.9 Litigation matter 291 2.2 — — — — Employee termination, asset impairment, and other 139 1.1 193 1.6 43 0.2 Business separation costs 97 0.7 — — — — Total operating expenses 3,262 25.1 3,172 25.8 3,483 18.5 Operating income (loss) (317) (2.4) (1,285) (10.4) 2,391 12.7 Interest and other income: Interest income 39 0.3 24 0.2 6 — Interest expense (417) (3.2) (312) (2.5) (304) (1.6) Other income, net 34 0.3 23 0.2 78 0.4 Total interest and other income, net (344) (2.6) (265) (2.2) (220) (1.2) Income (loss) before taxes (661) (5.1) (1,550) (12.6) 2,171 11.6 Income tax expense 137 1.1 134 1.1 625 3.3 Net income (loss) (798) (6.1) (1,684) (13.7) 1,546 8.2 Less: cumulative dividends allocated to preferred shareholders 54 0.4 24 0.2 — — Net income (loss) attributable to common shareholders $ (852) (6.6) % $ (1,708) (13.9) % $ 1,546 8.2 % (1) Percentage may not total due to rounding. 37 Table of Contents The following table sets forth, for the periods presented, a summary of our segment information: 2024 2023 2022 (in millions, except percentages) Net revenue: Flash $ 6,687 $ 6,063 $ 9,753 HDD 6,316 6,255 9,040 Total net revenue $ 13,003 $ 12,318 $ 18,793 Gross profit: Flash $ 1,079 $ 433 $ 3,527 HDD 1,881 1,505 2,661 Unallocated corporate items: Stock-based compensation expense (49) (49) (48) Amortization of acquired intangible assets (3) — (66) Recovery from contamination incident 37 — — Contamination related charges — — (207) Recoveries from a power outage incident — — 7 Other — (2) — Total unallocated corporate items (15) (51) (314) Consolidated gross profit $ 2,945 $ 1,887 $ 5,874 Gross margin: Flash 16.1% 7.1% 36.2% HDD 29.8% 24.1% 29.4% Consolidated gross margin 22.6% 15.3% 31.3% The following table sets forth, for the periods presented, summary information regarding our disaggregated revenue: 2024 2023 2022 (in millions) Revenue by end market Cloud $ 5,378 $ 5,252 $ 8,017 Client 4,647 4,328 7,076 Consumer 2,978 2,738 3,700 Total revenue $ 13,003 $ 12,318 $ 18,793 Revenue by geography Asia $ 6,902 $ 6,046 $ 10,054 Americas 3,971 4,172 5,867 Europe, Middle East and Africa 2,130 2,100 2,872 Total revenue $ 13,003 $ 12,318 $ 18,793 Exabytes shipped 550 501 645 Net Revenue Net revenue increased 6% in 2024 compared to 2023, primarily due to increased exabytes sold, and improved supply-demand balance conditions in the second half of the year as described in the “Key Developments – Operational Update ” section above and as discussed in more detail by business units below. 38 Table of Contents Flash revenue increased 10% in 2024 compared to 2023, primarily driven by a 21% increase in exabytes sold, partially offset by an 8% decline in ASPs per gigabyte.
If a position meets the more-likely-than-not level of certainty, it is recognized in the financial statements at the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. Interest and penalties related to unrecognized tax benefits are recognized on liabilities recorded for uncertain tax positions and are recorded in our provision for income taxes.
If a position meets the more-likely-than-not level of certainty, it is recognized in the Consolidated Financial Statements at the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. Interest and penalties related to unrecognized tax benefits are recognized on liabilities recorded for uncertain tax positions and are recorded in our provision for income taxes.
Additional information regarding our indebtedness, including information about availability under our revolving credit facility and the principal repayment terms, interest rates, covenants and other key terms of our outstanding indebtedness, is included in Part II, Item 8, Note 8, Debt , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Additional information regarding our indebtedness, including information about availability under our revolving credit facility and the principal repayment terms, interest rates, covenants and other key terms of our outstanding indebtedness, is included in Part II, Item 8, Note 7, Debt , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
The assessment of valuation allowances against our deferred tax assets requires estimations and significant judgment. We continue to assess and adjust its valuation allowance based on operating results and market conditions. We account for interest and penalties related to income taxes as a component of the provision for income taxes.
The assessment of valuation allowances against our deferred tax assets requires estimations and significant judgment. We continue to assess and adjust our valuation allowance based on operating results and market conditions. We account for interest and penalties related to income taxes as a component of the provision for income taxes.
We recognize liabilities for uncertain tax positions based on a two-step process. To the extent a tax position does not meet a more-likely-than-not level of certainty, no benefit is recognized in the financial statements.
We recognize liabilities for uncertain tax positions based on a two-step process. To the extent a tax position does not meet a more-likely-than-not level of certainty, no benefit is recognized in the Consolidated Financial Statements.
Changes in our operating assets and liabilities are largely affected by our working capital requirements, which are dependent on the effective management of our cash conversion cycle as well as timing of payments for taxes. Our cash conversion cycle measures how quickly we can convert our products into cash through sales.
Changes in our operating assets and liabilities are largely affected by our working capital requirements, which are dependent on our volume of business and the effective management of our cash conversion cycle as well as timing of payments for taxes. Our cash conversion cycle measures how quickly we can convert our products into cash through sales.
Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the deduction for foreign derived intangible income, credits, and tax holidays in Malaysia, the Philippines and Thailand that will expire at various dates during years 2024 through 2031.
Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the deduction for foreign derived intangible income, credits, and tax holidays in Malaysia, the Philippines and Thailand that will expire at various dates during years 2025 through 2031.
Financing Activities During 2023, net cash provided by financing activities primarily consisted of $881 million from the issuance of Series A Preferred Stock and $93 million from issuance of stock under employee stock plans, partially offset by $80 million used for taxes paid on vested stock awards under employee stock plans.
Net cash provided by financing activities in 2023 primarily consisted of $881 million from the issuance of Series A Preferred Stock and $93 million from issuance of stock under employee stock plans, partially offset by $80 million used for taxes paid on vested stock awards under employee stock plans.
As disclosed, we are required to use judgment when applying the goodwill impairment test, including in the identification of our reporting units. We also make judgments and assumptions in the assignment of assets and liabilities to our reporting units, assignment of goodwill to reporting units and determination of the fair value of each reporting unit.
We are required to use judgment when applying the goodwill impairment test, including in the identification of our reporting units. We also make judgments and assumptions in the assignment of assets and liabilities to our reporting units, assignment of goodwill to reporting units and determination of the fair value of each reporting unit.
The agreements governing these credit facilities each include limits on secured indebtedness and certain types of unsecured subsidiary indebtedness and require certain of our subsidiaries to provide guarantees and collateral to the extent the conditions providing for such guarantees and collateral are met.
The agreements governing our credit facilities each include limits on secured indebtedness and certain types of unsecured subsidiary indebtedness and require us and certain of our subsidiaries to provide guarantees and collateral to the extent the conditions providing for such guarantees and collateral are met.
Revenue We provide distributors and retailers (collectively referred to as “resellers”) with limited price protection for inventories held by resellers at the time of published list price reductions. We also provide resellers and OEMs with other sales incentive programs. The Company records estimated variable consideration related to these items as a reduction to revenue at the time of revenue recognition.
Revenue We provide distributors and retailers (collectively referred to as “resellers”) with limited price protection for inventories held by resellers at the time of published list price reductions. We also provide resellers and OEMs with other sales incentive programs. We record estimated variable consideration related to these items as a reduction to revenue at the time of revenue recognition.
In addition, from time to time, we also invest directly in certificates of deposit, asset-backed securities and corporate and municipal notes and bonds. Operating Activities Net cash provided by or used in operating activities primarily consists of net income or loss, adjusted for non-cash charges, plus or minus changes in operating assets and liabilities.
In addition, from time to time, we also invest directly in certificates of deposit, asset-backed securities and corporate and municipal notes and bonds. 42 Table of Contents Operating Activities Net cash provided by or used in operating activities primarily consists of net income or loss, adjusted for non-cash charges, plus or minus changes in operating assets and liabilities.
In addition, the estimates used to determine the fair value of each of our reporting units may change based on results of operations, macroeconomic conditions or other factors. Changes in these estimates could materially affect our assessment of the fair value and go odwill impairment for each reporting unit.
In addition, the estimates used to determine the fair value of each of our reporting units may change based on results of operations, macroeconomic conditions or other factors. Changes in these estimates could materially affect our assessment of the fair value and goodwill impairment for each reporting unit.
The Company constrains variable consideration until the likelihood of a significant revenue reversal is not probable and believes that the expected value method is the appropriate estimate of the amount of variable consideration based on the fact that we have a large number of contracts with similar characteristics.
We constrain variable consideration until the likelihood of a significant revenue reversal is not probable and believes that the expected value method is the appropriate estimate of the amount of variable consideration based on the fact that we have a large number of contracts with similar characteristics.
The leases are subject to customary covenants and cancellation events that relate to Flash Ventures and each of the guarantors. The occurrence of a cancellation event could result in an acceleration of the lease obligations and a call on our guarantees. As of June 30, 2023, we were in compliance with all covenants under these Japanese lease facilities.
The leases are subject to customary covenants and cancellation events that relate to Flash Ventures and each of the guarantors. The occurrence of a cancellation event could result in an acceleration of the lease obligations and a call on our guarantees. As of June 28, 2024, we were in compliance with all covenants under these Japanese lease facilities.
Approximately every five to six years, we report a 53-week fiscal year to align the fiscal year with the foregoing policy. Fiscal years 2023, 2022, and 2021, which ended on June 30, 2023, July 1, 2022, and July 2, 2021, respectively, each comprised 52 weeks, with all quarters presented consisting of 13 weeks.
Approximately every five to six years, we report a 53-week fiscal year to align the fiscal year with the foregoing policy. Fiscal years 2024, 2023, and 2022, which ended on June 28, 2024, June 30, 2023, and July 1, 2022, respectively, each comprised 52 weeks, with all quarters presented consisting of 13 weeks.
Additional information regarding our indebtedness, including the principal repayment terms, interest rates, covenants and other key terms of our outstanding indebtedness, and additional information on the terms of our convertible preferred shares is included in Part II, Item 8, Note 8, Debt , and Note 13, Shareholders’ Equity and Convertible Preferred Stock , of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
Additional information regarding our indebtedness, including the principal repayment terms, interest rates, covenants and other key terms of our outstanding indebtedness, and additional information on the terms of our convertible preferred shares is included in Part II, Item 8, Note 7, Debt, of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
For sales to OEMs, the Company’s methodology for estimating variable consideration is based on the amount of consideration expected to be earned based on the OEMs’ volume of purchases from the Company or other agreed upon sales incentive programs.
For sales to OEMs, our methodology for estimating variable consideration is based on the amount of consideration expected to be earned based on the OEMs’ volume of purchases from us or other agreed-upon sales incentive programs.
Any such additional financing will be subject to market conditions and may not be available on terms acceptable to us or at all. As noted previously, we have been scaling back on capital expenditures, consolidating production lines and reducing bit growth to align with market demand.
Any such additional financing will be subject to market conditions and may not be available on terms acceptable to us or at all. As noted previously, in 2024, we had scaled back on capital expenditures, consolidating production lines and reducing bit growth to align with market demand.
Instead, it is tested for impairment on an annual basis or more frequently if events or changes in circumstances indicate that goodwill may be impaired. We perform our annual impairment test as of the first day of our fourth quarter for each reporting unit. As disclosed in Part II, Item 8.
Instead, it is tested for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate that goodwill may be impaired. We perform our annual impairment test as of the first day of our fourth quarter for each reporting unit.
After consideration of the Flash Ventures’ lease financing of its capital expenditures and net operating cash flow, we reduced our net cash used for our purchases of property, plant and equipment and net activity in notes receivable relating to Flash Ventures to $793 million in 2023 from $1.2 billion in 2022.
After consideration of the Flash Ventures’ lease financing of its capital expenditures and net operating cash flow, we reduced our net cash used for our purchases of property, plant and equipment and net activity in notes receivable relating to Flash Ventures to $53 million in 2024 from $794 million in 2023.
Through the Client end market, we provide our original equipment manufacturer (“OEM”) and channel customers a broad array of high-performance flash and hard drive solutions across personal computer, mobile, gaming, automotive, virtual reality headsets, at-home entertainment, and industrial spaces.
Through the Client end market, we provide our OEM and channel customers a broad array of high-performance HDD and Flash solutions across personal computer, mobile, gaming, automotive, virtual reality headsets, at-home entertainment, and industrial spaces.
A discussion of our cash flows for the year ended July 2, 2021 is included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources , included in our Annual Report on Form 10-K for the year ended July 1, 2022 filed with the Securities and Exchange Commission on August 25, 2022. 42 Table of Content s Off-Balance Sheet Arrangements Other than the commitments related to Flash Ventures incurred in the normal course of business and certain indemnification provisions (see “Short- and Long-term Liquidity - Indemnifications” below), we do not have any other material off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any other obligation arising out of a material variable interest in an unconsolidated entity.
A discussion of our cash flows for 2022, including a comparison of such cash flows to 2023, is included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources , included in our Annual Report on Form 10-K for the year ended June 30, 2023 filed with the SEC on August 22, 2023. 43 Table of Contents Off-Balance Sheet Arrangements Other than the commitments related to Flash Ventures incurred in the normal course of business and certain indemnification provisions (see “Short- and Long-term Liquidity – Indemnifications ” below), we do not have any other material off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any other obligation arising out of a material variable interest in an unconsolidated entity.
The tax measures include, among other things, a corporate alternative minimum tax (“CAMT”) of 15% on corporations with three-year average annual adjusted financial statement income (“AFSI”) exceeding $1.00 billion. The CAMT will be effective for us beginning with fiscal year 2024. We are currently evaluating the potential effects of these legislative changes.
The tax measures include, among other things, a corporate alternative minimum tax (“CAMT”) of 15% on corporations with three-year average annual adjusted financial statement income (“AFSI”) exceeding $1.00 billion. The CAMT is effective for us beginning with fiscal year 2024.
Operational Update Macroeconomic factors such as inflation, higher interest rates and recession concerns have softened demand for our products, with certain customers reducing purchases as they adjust their production levels and right-size their inventories. As a result, we and our industry are experiencing a supply-demand imbalance, which has resulted in reduced shipments and negatively impacted pricing, particularly in Flash.
Operational Update Macroeconomic factors such as inflation, higher interest rates and recession concerns had softened demand for our products in recent years, with certain customers reducing purchases as they adjusted their production levels and right-sized their inventories. As a result, we and our industry experienced a supply-demand imbalance, which resulted in reduced shipments and negatively impacted pricing.
Investing Activities N et cash used in investing activities in 2023 primarily consisted of $821 million in capital expenditures, partially offset by a $14 million net decrease in notes receivable issuance to Flash Ventures and $14 million in net proceeds from the sale of property, plant, and equipment.
Investing Activities N et cash used in investing activities in 2024 primarily consisted of $487 million in capital expenditures, partially offset by $239 million in net notes receivable proceeds from (issuances to) Flash Ventures and $195 million in proceeds from the sale of property, plant and equipment.
The following table sets forth Income tax information from our Consolidated Statement of Operations by dollar and effective tax rate: 2023 2022 2021 (in millions, except percentages) Income (loss) before taxes $ (1,560) $ 2,123 $ 927 Income tax expense 146 623 106 Effective tax rate (9) % 29 % 11 % Beginning in 2023, the 2017 Act requires us to capitalize and amortize R&D expenses rather than expensing them in the year incurred.
The following table sets forth Income tax information from our Consolidated Statements of Operations by dollar and effective tax rate: 2024 2023 2022 (in millions, except percentages) Income (loss) before taxes $ (661) $ (1,550) $ 2,171 Income tax expense 137 134 625 Effective tax rate (21) % (9) % 29 % Beginning in 2023, the 2017 Act requires us to capitalize and amortize R&D expenses rather than expensing them in the year incurred.
Recent Accounting Pronouncements For a description of recently issued and adopted accounting pronouncements, including the respective dates of adoption and expected effects on our results of operations and financial condition, see Part II, Item 8, Note 2, Recent Accounting Pronouncements , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Historically, we have not incurred material costs as a result of obligations under these agreements. 47 Table of Contents Recent Accounting Pronouncements For a description of recently issued and adopted accounting pronouncements, including the respective dates of adoption and expected effects on our results of operations and financial condition, see Part II, Item 8, Note 2, Recent Accounting Pronouncements , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
At the end of the respective fourth quarters, the cash conversion cycles were as follows (in days): 2023 2022 2021 (in days) Days sales outstanding 54 56 42 Days in inventory 130 107 98 Days payables outstanding (56) (66) (63) Cash conversion cycle 128 97 77 Changes in days sales outstanding (“DSO”) are generally due to the timing of shipments.
At the end of the respective fourth quarters, the cash conversion cycles were as follows (in days): 2024 2023 2022 (in days) Days sales outstanding 52 54 56 Days in inventory 126 130 107 Days payables outstanding (65) (56) (66) Cash conversion cycle 113 128 97 Changes in days sales outstanding (“DSO”) are generally due to the timing of shipments to and collections from customers.
Flash Ventures Flash Ventures sells to, and leases back from, a consortium of financial institutions a portion of its tools and has entered into equipment lease agreements, of which we guarantee half or all of the outstanding obligations under each lease agreement.
As of June 28, 2024, we were in compliance with these financial covenants. 46 Table of Contents Flash Ventures Flash Ventures sells to, and leases back from, a consortium of financial institutions a portion of its tools and has entered into equipment lease agreements, of which we guarantee half or all of the outstanding obligations under each lease agreement.
With dedicated flash-based products (“Flash”) and hard disk drives (“HDD”) business units driving advancements in storage technologies, our broad and ever-expanding portfolio delivers powerful Flash and HDD storage solutions for everyone from students, gamers, and home offices to the largest enterprises and public clouds to capture, preserve, access, and transform an ever-increasing diversity of data.
With a differentiated innovation engine driving advancements in storage and semiconductor technologies, our broad and ever-expanding portfolio delivers powerful HDD and Flash storage solutions for everyone from students, gamers, and home offices to the largest enterprises and public clouds to capture, preserve, access, and transform an ever-increasing diversity of data.
As noted above, we reached a final agreement with the IRS and received notices of deficiency with respect to years 2008 through 2012. In addition, we have tentatively reached a basis for resolving the notices of proposed adjustments with respect to years 2013 through 2015.
As noted above, we had previously reached a final agreement with the IRS regarding notices of deficiency with respect to years 2008 through 2012 and in February 2024, we also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015.
Changes in days in inventory (“DIO”) are generally related to the timing of inventory builds. Changes in days payables outstanding (“DPO”) are generally related to production volume and the timing of purchases during the period. From time to time, we modify the timing of payments to our vendors.
Changes in days in inventory (“DIO”) are generally related to the timing of inventory builds and shipments to customers. Changes in days payables outstanding (“DPO”) are generally related to production volume and the timing of purchases during the period.
Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the deduction for foreign derived intangible income, credits, and tax holidays in Malaysia, the Philippines and Thailand that will expire at various dates during years 2024 through 2031. The primary drivers of the difference between the effective tax rate for 2022 and the U.S.
Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the deduction for foreign derived intangible income, credits, and tax holidays in Malaysia, the Philippines and Thailand that will expire at various dates during years 2025 through 2031. On November 1, 2023, one of our tax holidays in Malaysia expired.
Consistent with standard industry practice, we have sales incentive and marketing programs that provide customers with price protection and other incentives or reimbursements that are recorded as a reduction to gross revenue.
For each of 2024, 2023 and 2022, no single customer accounted for 10% or more of our net revenue. Consistent with standard industry practice, we have sales incentive and marketing programs that provide customers with price protection and other incentives or reimbursements that are recorded as a reduction to gross revenue.
For sales to resellers, the methodology for estimating variable consideration is based on several factors including historical pricing information, current pricing trends and channel inventory levels.
For sales to resellers, the methodology for estimating variable consideration is based on several factors including historical pricing information, current pricing trends and channel inventory levels. Estimating the impact of these factors requires significant judgement and the estimated amount of variable consideration can differ from the actual amount.
Additional information is provided in our discussion of Income tax expense in our results of operations below, as well as in Part II, Item 8, Note 14, Income Tax Expense , of the Notes to the Consolidated Financial Statements, and in the “Short- and Long-Term Liquidity - Unrecognized Tax Benefits” section below.
Additional information is provided in our discussion in our “Results of Operations – Income Tax Expense, ” and the “Short- and Long-term Liquidity – Unrecognized Tax Benefits ” section below, and in Part II, Item 8, Note 13, Income Tax Expense , of the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
To estimate the average selling prices and selling expenses of inventory, we review historical sales, future demand, economic conditions, contract prices and other information. We periodically perform an excess and obsolete analysis of our inventory based on assumptions, which includes changes in business and economic conditions, changes in technology and projected demand of our products.
We periodically perform an excess and obsolete analysis of our inventory based on assumptions, which includes changes in business and economic conditions, changes in technology and projected demand of our products.
For additional information regarding Income tax expense, see Part II, Item 8, Note 14, Income Tax Expense , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. 39 Table of Content s A discussion of our results of operations for 2021, including a comparison of such results of operations to 2022, is included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , included in our Annual Report on Form 10-K for the year ended July 1, 2022 filed with the Securities and Exchange Commission on August 25, 2022. 40 Table of Content s Liquidity and Capital Resources The following table summarizes our statements of cash flows: 2023 2022 2021 (in millions) Net cash provided by (used in): Operating activities $ (408) $ 1,880 $ 1,898 Investing activities (762) (1,192) (765) Financing activities 875 (1,718) (817) Effect of exchange rate changes on cash (9) (13) 6 Net increase (decrease) in cash and cash equivalents $ (304) $ (1,043) $ 322 We reached a final agreement with the IRS and received notices of deficiency with respect to years 2008 through 2012.
A discussion of our results of operations for 2022, including a comparison of such results of operations to 2023, is included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , included in our Annual Report on Form 10-K for the year ended June 30, 2023 filed with the SEC on August 22, 2023. 41 Table of Contents Liquidity and Capital Resources The following table summarizes our statements of cash flows: 2024 2023 2022 (in millions) Net cash provided by (used in): Operating activities $ (294) $ (408) $ 1,880 Investing activities (27) (762) (1,192) Financing activities 187 875 (1,718) Effect of exchange rate changes on cash (10) (9) (13) Net decrease in cash and cash equivalents $ (144) $ (304) $ (1,043) We had previously reached a final agreement with the IRS and received notices of deficiency with respect to years 2008 through 2012 and in February 2024, we also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015.
Our delayed draw term loan agreement and the loan agreement governing our revolving credit facility and our term loan A-2 due 2027 require us to comply with certain financial covenants, consisting of a leverage ratio, a minimum liquidity and a free cash flow requirements. As of June 30, 2023, we were in compliance with these financial covenants.
The loan agreement governing our revolving credit facility and our Term Loan A-2 due 2027 require us to comply with certain financial covenants, consisting of a minimum leverage ratio covenant and a minimum liquidity covenant.
See Part II, Item 8, Note 13, Shareholders’ Equity and Convertible Preferred Stock , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information regarding the dividend provisions.
These shares are entitled to cumulative preferred dividends and will also participate in any dividends declared for common shareholders on an as-converted equivalent basis. See Part II, Item 8, Note 12, Shareholders’ Equity and Convertible Preferred Stock , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information regarding these dividend provisions.
We believe these transactions will provide us with greater financial flexibility to manage our business. We have an existing shelf registration statement (the “Shelf Registration Statement”) filed with the Securities and Exchange Commission that expires in August 2024, which allows us to offer and sell shares of common stock, preferred stock, warrants, and debt securities.
We have an existing shelf registration statement (the “Shelf Registration Statement”) filed with the SEC, which allows us to offer and sell shares of common stock, preferred stock, warrants, and debt securities. The Shelf Registration Statement expires in late August 2024, and we plan to renew the Shelf Registration Statement at that time.
Debt In addition to our existing debt, as of June 30, 2023 , we had $2.25 billion available for borrowing under our revolving credit facility until January 2027, subject to customary conditions under the loan agreement. Furthermore, we drew the Delayed Draw Term Loan in the amount of $600 million as noted in “Key Developments - Financing Activities”.
In addition to our existing debt, as of June 28, 2024 , we had $2.22 billion available for borrowing under our revolving credit facility until January 2027, subject to customary conditions under the loan agreement.
For a description of our current foreign exchange contract commitments, see Part II, Item 8, Note 7, Derivative Instruments and Hedging Activities , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. 45 Table of Content s Indemnifications In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of agreements, products or services to be provided by us, environmental compliance, or from intellectual property infringement claims made by third parties.
Indemnifications In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of agreements, products or services to be provided by us, environmental compliance, or from intellectual property infringement claims made by third parties.
See Part II, Item 8, Note 10, Related Parties and Related Commitments and Contingencies , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for information regarding Flash Ventures. 44 Table of Content s Purchase Obligations and Other Commitments In the normal course of business, we enter into purchase orders with suppliers for the purchase of components used to manufacture our products.
See Part II, Item 8, Note 9, Related Parties and Related Commitments and Contingencies , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for information regarding Flash Ventures.
We make modifications primarily to manage our vendor relationships and to manage our cash flows, including our cash balances. Generally, we make the payment term modifications through negotiations with our vendors or by granting to, or receiving from, our vendors’ payment term accommodations. DSO decreased by 2 days over the prior year, reflecting timing of shipments and customer collections.
From time to time, we make payment term modifications with vendors through negotiations with them or by granting to, or receiving from, our vendors payment term accommodations. We make modifications primarily to manage our vendor relationships and to manage our cash flows, including our cash balances.
Unrecognized Tax Benefits As of June 30, 2023, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was approximately $1.02 billion. Accrued interest and penalties related to unrecognized tax benefits as of June 30, 2023, were approximately $289 million. Of these amounts, approximately $1.14 billion could result in potential cash payments.
Accrued interest and penalties related to unrecognized tax benefits as of June 28, 2024, were approximately $181 million. Of these amounts, approximately $736 million could result in potential cash payments.
Our Company We are on a mission to unlock the potential of data by harnessing the possibility to use it. We are a leading developer, manufacturer, and provider of data storage devices based on both NAND flash and hard disk drive technologies.
Our Company We are a leading developer, manufacturer, and provider of data storage devices based on both HDD and NAND flash technologies.
The tax effects related to the capitalization of R&D expenses are included in Income tax expense, but did not have a material impact on our effective tax rate. The primary drivers of the difference between the effective tax rate for 2023 and the U.S.
The tax effects related to the capitalization of R&D expenses are included in the effective tax rate for fiscal years 2023 and 2024. 40 Table of Contents The primary drivers of the difference between the effective tax rate for 2024 and the U.S.
The amounts attributed to our sales incentive and marketing programs generally vary according to several factors including industry conditions, list pricing strategies, seasonal demand, competitor actions, channel mix and overall availability of products. Changes in future customer demand and market conditions may require us to adjust our incentive programs as a percentage of gross revenue.
For 2024, 2023 and 2022, these programs represented 15%, 20% and 17%, respectively, of gross revenues. The amounts attributed to our sales incentive and marketing programs generally vary according to several factors including industry conditions, list pricing strategies, seasonal demand, competitor actions, channel mix and overall availability of products.
We expect to pay $523 million in the first quarter of 2024 with respect to years 2008 through 2012 and expect to pay any remaining balance with respect to this matter within the next twelve months.
We expect to pay any remaining balance with respect to this matter within the next twelve months.
Net cash used in investing activities in 2022 primarily consisted of a $1.12 billion of capital expenditures, partially offset by a $91 million net increase in notes receivable issuances to Flash Ventures.
Net cash used in investing activities in 2023 primarily consisted of $821 million of capital expenditures, partially offset by $14 million in net notes receivable proceeds from (issuances to) Flash Ven tures.
The decrease in exabytes sold was primarily driven by lower shipments to customers in our Cloud end market and to a lesser extent in Client and Consumer end markets.
The increase in exabytes sold was primarily driven by improved demand from our OEM customers in our Client end market, and higher shipments of SSDs to our customers in our Consumer end market, partially offset by lower shipments in our Cloud end market.
There are no material tax consequences that were not previously accrued for on the repatriation of this cash. Our cash equivalents are primarily invested in money market funds that invest in U.S. Treasury securities and U.S. Government agency securities.
Our cash equivalents are primarily invested in money market funds that invest in U.S. Treasury securities and U.S. Government agency securities.
Our ability to sustain our working capital position is subject to a number of risks that we discuss in Part I, Item 1A, Risk Factors , in this Annual Report on Form 10-K. 41 Table of Content s A total of $1.28 billion and $1.82 billion of our cash and cash equivalents were held outside of the U.S. as of June 30, 2023 and July 1, 2022, respectively.
Our ability to sustain our working capital position is subject to a number of risks that we discuss in Part I, Item 1A, Risk Factors , in this Annual Report on Form 10-K.
If our stock price decreases significantly, goodwill could become impaired, which could result in a material charge and adversely affect our results of operations. Our recent assessments have indicated that fair value exceeds carrying value by a reasonable margin and we have not identified any impairment indicators for our reporting units. 47 Table of Content s
If our stock price decreases significantly, goodwill could become impaired, which could result in a material charge and adversely affect our results of operations. We have not identified any impairment indicators for our reporting units as of June 28, 2024. We also did not incur any impairment charges for 2023 or 2022.
We reduced our expenditures for property, plant and equipment for our company plus our portion of the capital expenditures by our Flash Ventures joint venture with Kioxia for its operations to approximately $1.4 billion in 2023 from approximately $1.5 billion in 2022.
We reduced our expenditures for property, plant and equipment and our portion of the Flash Ventures’ capital expenditures for its operations to approximately $825 million in 2024 from approximately $2.22 billion in 2023.
Net cash provided by changes in operating assets and liabilities was $90 million for 2023, as compared to $1.08 billion for 2022, which reflects the reduction in the volume of our business.
Net cash used for changes in operating assets and liabilities was $307 million for 2024, as compared to $92 million of net cash provided by such changes for 2023, which largely reflects payments made on the IRS matter and an increase in net operating assets and liabilities resulting from the increase in the volume of our business.
To adapt to these conditions, since the beginning of 2023, we have scaled back on capital expenditures, consolidated production lines and reduced bit growth to align with market demand and implemented measures to reduce operating expenses.
To adapt to these conditions, since the beginning of 2023, we have been implementing measures to reduce operating expenses, and to proactively manage supply and inventory to align with demand and improve our capital efficiency while continuing to deploy innovative products. These actions have enabled us to scale back on capital expenditures, consolidate production lines and reduce production bit growth.
In connection with settlements for years 2008 through 2015, we expect to realize reductions to our mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to approximately $160 million to $180 million. See Part I, Item 1, Note 14, Income Tax Expense for further details.
We expect to pay any remaining balance with respect to this matter within the next twelve months. In connection with settlements for the years 2008 through 2015, we expect to realize reductions to our mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to approximately $165 million.
In connection with settlements for years 2008 through 2015, we expect to realize reductions to our mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to approximately $160 million to $180 million. See Part I, Item 1, Note 14, Income Tax Expense for further details.
We expect to pay any remaining balance with respect to this matter within the next twelve months. In connection with settlements for the years 2008 through 2015, we expect to realize reductions to our mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to $165 million.
As of June 30, 2023, we have recognized a liability for tax and interest of $753 million related to all years from 2008 through 2015.
During the twelve months ended June 28, 2024, we made payments aggregating $524 million for tax and interest with respect to years 2008 through 2012 and have a remaining liability of $185 million as of June 28, 2024 related to all years from 2008 through 2015.
We record inventory write-downs of our inventory to lower of cost or net realizable value or for obsolete or excess inventory based on assumptions, which requires significant judgement. The determination of NRV involves estimating the average selling prices less any selling expenses of inventory based on market conditions and customer demand.
Inventories We value inventories at the lower of cost or net realizable value (“NRV”), with cost determined on a first-in, first-out basis. We record inventory write-downs of our inventory to lower of cost or net realizable value or for obsolete or excess inventory based on assumptions, which requires significant judgement.
While adjustments to these reserves have generally not been material, in 2023, we recorded a charge to Cost of revenue of $130 million, primarily to reduce component inventory to net realizable value as a result of a sudden change in demand for certain products.
While adjustments to these reserves have generally not been material to the years presented, in 2023, we recorded a charge to Cost of revenue of approximately $130 million, primarily to reduce component inventory to net realizable value as a result of a sudden change in demand for certain products. 48 Table of Contents Income Taxes We account for income taxes under the asset and liability method, which provides that deferred tax assets and liabilities be recognized for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities and expected benefits of utilizing net operating loss and tax credit carryforwards.
Our broad portfolio of technology and products address our multiple end markets: “Cloud”, “Client” and “Consumer”. Cloud represents a large and growing end market comprised primarily of products for public or private cloud environments and enterprise customers, which we believe we are uniquely positioned to address as the only provider of both Flash and HDD.
Our broad portfolio of technology and products addresses our multiple end markets: “Cloud,” “Client” and “Consumer”. Cloud is comprised primarily of products for public or private cloud environments and enterprise customers.
In April 2020, we suspended our dividend to reinvest in the business and to support our ongoing deleveraging efforts. We will reevaluate our dividend policy as our leverage ratio improves.
In April 2020, we suspended the payment of dividends to common shareholders and intend to utilize cash from operations to reinvest in the business and to support our ongoing deleveraging efforts.
We believe our cash, and cash equivalents including the proceeds from the drawdown of the Delayed Draw Term Loan, as discussed in “Key Developments - Financing Activities” above, as well as our available revolving credit facility, will be sufficient to meet our working capital, debt and capital expenditure needs for at least the next twelve months and for the foreseeable future thereafter, as we navigate the current market downturn before returning to profitable operations and positive cash flows when the market normalizes.
We believe our cash and cash equivalents as well as our available revolving credit facility will be sufficient to meet our working capital, debt and capital expenditure needs for at least the next twelve months and for the foreseeable future thereafter. We believe we can also access the various capital markets to further supplement our liquidity position if necessary.
Consolidated gross margin decreased 16 percentage points over the prior year with approximately 4 percentage points of the decline due to the net charges noted above and the remainder driven by the lower average selling prices per gigabyte in Flash.
Consolidated gross margin increased 7.3 percentage points in 2024 compared to 2023, with approximately 2 percentage points of the increase due to the lower net charges in the current period and the remainder driven by the same factors as noted above.
The changes in net revenue by geography in 2023, compared to 2022, primarily reflect a larger decline in Asia from lower Client revenue from OEMs in this region as they reduced purchases to align with current market demand, as well as routine variations in the mix of business.
The changes in net revenue by geography in 2024 compared to 2023, primarily reflected larger growth in Asia from OEMs in this region as their production levels increased as well as routine variations in the mix of business. For 2024, 2023 and 2022, our top 10 customers accounted for 39%, 43% and 45%, respectively, of our net revenue.
In addition, we have tentatively reached a basis for resolving the notices of proposed adjustments with respect to years 2013 through 2015. As of June 30, 2023, we have recognized a liability for tax and interest of $753 million related to all years from 2008 through 2015.
During the twelve months ended June 28, 2024, we made payments of $363 million for tax and $161 million for interest with respect to years 2008 through 2012 and recorded adjustments to align with IRS calculations, resulting in a remaining liability of $185 million as of June 28, 2024, related to all years from 2008 through 2015.
DIO increased by 23 days over the prior year, primarily reflecting a decline in products shipped in light of the current market environment. DPO decreased 10 days over the prior year, primarily due to reductions in production volume and capital expenditures as well as routine variations in the timing of purchases and payments during the period.
DPO increased 9 days over the prior year, primarily due to more favorable payment terms and routine variations in the timing of purchases and payments during the period.
Tax Resolution As disclosed in previous periods, we have received statutory notices of deficiency and notices of proposed adjustments from the Internal Revenue Service (“IRS”) with respect to 2008 through 2015.
Leveraging our expertise and innovation in both areas, we believe we are well-positioned to capitalize on this improved market condition. 34 Table of Contents Tax Resolution As disclosed in previous periods, we had previously reached a final agreement with the Internal Revenue Service (“IRS”) and received notices of deficiency with respect to years 2008 through 2012 and in February 2024, we also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015.
Mandatory Research and Development Expense Capitalization Beginning in 2023, the 2017 Act requires us to capitalize and amortize research and development expenses rather than expensing them in the year incurred, which is expected to result in higher cash tax payments once we return to profitability.
Mandatory Deemed Repatriation Tax The following is a summary of our estimated mandatory deemed repatriation tax obligations that are payable in the following years (in millions): June 28, 2024 2025 $ 265 2026 201 Total $ 466 Mandatory Research and Development Expense Capitalization Since the beginning of 2023, the 2017 Act has required us to capitalize and amortize R&D expenses rather than expensing them in the year incurred, which is expected to result in materially higher cash tax payments in future profitable periods, if not repealed or otherwise modified.
Our future effective tax rate is subject to future regulatory developments and changes in the mix of our U.S. earnings compared to foreign earnings. Our total tax expense in future years may also vary as a result of discrete items such as excess tax benefits or deficiencies.
Our future effective tax rate is subject to future regulatory developments and changes in the mix of our U.S. earnings compared to foreign earnings. The 2017 Act requires us to capitalize and amortize R&D expenses rather than expensing them in the year incurred.
For additional information regarding employee termination, asset impairment and other charges, see Part II, Item 8, Note 16, Employee Termination, Asset Impairment, and Other Charges , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. 38 Table of Content s Interest and Other Income The total interest and other income, net in 2023 was relatively flat compared to 2022, which reflected higher interest expense as a result of increases in interest rates and lower other income, partially offset by $29 million of lower amortization of the debt discount as a result of the adoption of ASU 2020-06 (as defined and described in Note 2, Recent Accounting Pronouncements , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K) and higher interest income on our cash and investments due to higher interest rates.
For additional information regarding employee termination, asset impairment, and other, see Part II, Item 8, Note 15, Employee Termination, Asset Impairment, and Other , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
The $1.10 billion principal amount of our 1.50% convertible notes due 2024 will mature on February 1, 2024, and we are required to settle any conversion value with the principal amount settled in cash and any excess in cash, shares of the Company’s common stock, or a combination thereof pursuant to the terms of the indenture, dated as of February 13, 2018.
Upon any conversion of the 2028 Convertible Notes, we will pay cash for the aggregate principal amount of the notes to be converted and pay or deliver, as the case may be, cash, shares of our common stock or a combination thereof, at our election, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the notes being converted.
However, we believe digital transformation will continue to drive long-term growth for data storage in both Flash and HDD and believe that the actions we are taking will position us to capitalize on market conditions when they improve to address long-term growth opportunities in data storage across all our end markets.
We anticipate that digital transformation, including AI data-cycle, will continue driving improved market conditions in the near- and long-term for data storage, encompassing both HDD and Flash technologies.
For additional information regarding our off-balance sheet arrangements, see Part II, Item 8, Note 10, Related Parties and Related Commitments and Contingencies , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. 43 Table of Content s Short- and Long-term Liquidity Material Cash Requirements In addition to cash requirements for unrecognized tax benefits and dividend rights with respect to the Series A Preferred Stock discussed below, the following is a summary of our known material cash requirements, including those for capital expenditures, as of June 30, 2023: Total 1 Year (2024) 2-3 Years (2025-2026) 4-5 Years (2027-2028) More than 5 Years (Beyond 2028) (in millions) Long-term debt, including current portion (1) $ 7,100 $ 1,213 $ 2,600 $ 2,287 $ 1,000 Interest on debt 1,091 342 555 118 76 Flash Ventures related commitments (2) 3,912 1,859 1,613 537 (97) Operating leases 334 49 94 77 114 Purchase obligations and other commitments 3,102 2,589 316 67 130 Mandatory deemed repatriation tax 663 199 464 — — Total $ 16,202 $ 6,251 $ 5,642 $ 3,086 $ 1,223 (1) Principal portion of debt, excluding discounts and issuance costs.
For additional information regarding our off-balance sheet arrangements, see Part II, Item 8, Note 9, Related Parties and Related Commitments and Contingencies , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. 44 Table of Contents Short- and Long-term Liquidity Material Cash Requirements The following is a summary of our known material cash requirements, including those for capital expenditures, as of June 28, 2024.
This has resulted in incremental charges for employee termination, asset impairment and other charges and manufacturing underutilization charges in Flash and HDD in 2023, and is expected to impact near-term results.
In 2024 and 2023, these actions have resulted in incremental charges for employee termination, asset impairment and other charges as well as charges for unabsorbed manufacturing overhead costs in HDD and Flash as a result of the underutilization of facilities as we temporarily scaled back production.
During the third quarter of 2023, we and the IRS reached an agreement on the federal tax and interest calculations with respect to the years 2008 through 2012 and a tentative settlement for the years 2013 through 2015.
During the twelve months ended June 28, 2024, we made payments of $363 million for tax and $161 million for interest with respect to years 2008 through 2012 and recorded adjustments to align with IRS calculations, resulting in a remaining liability of $185 million as of June 28, 2024 related to all years from 2008 through 2015.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+0 added−2 removed5 unchanged
Biggest changeFor additional information regarding our variable interest rate debt, see Part II, Item 8, Note 8, Debt , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. 48 Table of Content s
Biggest changeAs of June 28, 2024, our variable rate debt outstanding consisted of our Term Loan A-2, which is based on various index rates as discussed further in Note 7, Debt , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
For additional information, see Part II, Item 8, Note 6, Fair Value Measurements and Investments, and Note 7, Derivative Instruments and Hedging Activities , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
For additional information, see Part II, Item 8, Note 5, Fair Value Measurements and Investments, and Note 6, Derivative Instruments and Hedging Activities , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
During 2023, 2022 and 2021, total net realized and unrealized transaction and foreign exchange contract currency gains and losses were not material to our Consolidated Financial Statements.
During 2024, 2023 and 2022, total net realized and unrealized transaction and foreign exchange contract currency gains and losses were not material to our Consolidated Financial Statements.
Therefore, we have performed sensitivity analyses for 2023 and 2022, using a modeling technique that measures the change in the fair values arising from a hypothetical 10% adverse movement in the levels of foreign currency exchange rates relative to the U.S. dollar, with all other variables held constant.
We have performed sensitivity analyses for 2024, using a modeling technique that measures the change in the fair values arising from a hypothetical 10% adverse movement in the levels of foreign currency exchange rates relative to the U.S. dollar, with all other variables held constant.
The analyses cover all of our foreign currency derivative contracts used to offset the underlying exposures. The foreign currency exchange rates used in performing the sensitivity analyses were based on market rates in effect at June 30, 2023 and July 1, 2022.
The analyses cover all of our foreign currency derivative contracts used to offset the underlying exposures. The foreign currency exchange rates used in performing the sensitivity analyses were based on market rates in effect at June 28, 2024.
The sensitivity analyses indicated that a hypothetical 10% adverse movement in foreign currency exchange rates relative to the U.S. dollar would result in a foreign exchange fair value loss of $285 million and $306 million at June 30, 2023 and July 1, 2022, respectively.
The sensitivity analyses indicated that a hypothetical 10% adverse movement in foreign currency exchange rates relative to the U.S. dollar would result in a foreign exchange fair value loss of $248 million at June 28, 2024.
As of June 30, 2023, the outstanding balance on our Term Loan A-2 was $2.70 billion and a one percent increase in the variable rate of interest would increase annual interest expense by $27 million.
As of June 28, 2024, the outstanding balance on our Term Loan A-2 was $2.59 billion and a 1% increase in the variable rate of interest would increase annual interest expense by $26 million. 50 Table of Contents
Removed
Due to macroeconomic changes and volatility experienced in the foreign exchange market recently, we believe sensitivity analysis is more informative in representing the potential impact to the portfolio as a result of market movement.
Removed
As of June 30, 2023, our only variable rate debt outstanding was our Term Loan A-2 Loan, which bears interest, at the Company’s option, at a per annum rate equal to either (x) the Adjusted Term Secured Overnight Financing Rate (“SOFR”) (as defined in the Loan Agreement) plus an applicable margin varying from 1.125% to 2.000% or (y) a base rate plus an applicable margin varying from 0.125% to 1.000%, in each case depending on the corporate family ratings of the Company from at least two of Standard & Poor’s Ratings Services, Moody’s Investors Service, Inc. and Fitch Ratings, Inc., with an initial interest rate of Adjusted Term SOFR plus 1.375%.

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