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What changed in Western Digital's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Western Digital's 2022 and 2023 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 2023 report.

+335 added−331 removedSource: 10-K (2023-08-22) vs 10-K (2022-08-25)

Top changes in Western Digital's 2023 10-K

335 paragraphs added · 331 removed · 235 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

66 edited+16 added−21 removed26 unchanged
Biggest changeOver 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. We devote significant research and development resources to the development of highly reliable, high-performance, cost-effective flash-based technology and are pursuing developments in next generation flash-based technology capacities.
Biggest changeWe 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.
The strong growth in amount, value, and use of data continues, creating a global need for larger, faster and more capable storage solutions. We are a customer-focused organization that has developed deep relationships with industry leaders to continue to deliver innovative solutions to help users capture, store and transform data across a boundless range of applications.
The strong growth in the amount, value, and use of data continues, creating a global need for larger, faster and more capable storage solutions. We are a customer-focused organization that has developed deep relationships with industry leaders to continue to deliver innovative solutions to help users capture, store and transform data across a boundless range of applications.
The storage industry is increasingly utilizing tiered architectures with HDD, solid state drives (“SSD”) 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.
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.
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 strong 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. We promote a pay-for-performance culture and offer employees competitive compensation consisting of base salary and both short-term and long-term incentives.
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 has never been clearer.
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.
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 on-line 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, data analysis and other enterprise applications. We also provide higher value data storage platforms to the market.
The Yokkaichi site, which is owned and operated by Kioxia, currently includes five wafer fabrication facilities. We have jointly invested, and intend to continue to jointly invest, with Kioxia in manufacturing equipment for the Yokkaichi fabrication facilities.
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.
For example, we are taking 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.
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.
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. 7 Table of Contents 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.
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.
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; and • deep relationships with industry leaders across the data ecosystems that give us the broadest routes to market.
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.
For a discussion of associated risks, 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.
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.
We help original equipment manufacturers (“OEM”) 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’s possible for storage.
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 and are comprised of the Western Digital®, SanDisk® and WD brands®. In 2022, we refined the end markets we report to be “Cloud”, “Client” and “Consumer”.
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.
Each Flash Venture entity purchases wafers from Kioxia at cost and then resells those wafers to us and Kioxia at cost plus a small mark-up.
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.
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 71%, 78% and 72% of our net revenue for 2022, 2021 and 2020, 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 69%, 71% and 78% of our net revenue for 2023, 2022 and 2021, respectively.
We provide numerous data solutions that we incorporate into our client’s devices, which consist of HDD and SSD desktop and notebook PCs, smart video systems, 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, industrial and connected home applications.
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 based on both flash-based products (“Flash”) and hard disk drives (“HDD”) technologies.
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.
The growth in computing complexity, 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 a creation of new form factors for data storage.
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.
Through the Client end market, we provide our OEM and channel customers a broad array of high-performance flash and hard drive solutions across personal computer (“PC”), mobile, gaming consoles, 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 flash and hard drive solutions across personal computer, mobile, gaming, automotive, virtual reality headsets, at-home entertainment, and industrial spaces.
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. We are expanding our analysis of 2022 pay equity to cover 100% of our employee population globally.
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.
We have one of the technology industry’s most valuable patent portfolios with approximately 13,500 active patents worldwide. We have a rich heritage of innovation and operational excellence, a wide range of intellectual property (“IP”) assets and broad research and development (“R&D”) capabilities.
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 strive to maintain manufacturing flexibility, high manufacturing yields, reliable products and high-quality components. 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 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.
Our capacity enterprise helium hard drives provide high-capacity storage needs and low total cost of ownership per GB for the growing cloud data center market. These drives are primarily for use in data storage systems, in tiered storage models and where data must be stored reliably for years.
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.
In the last year, we also implemented a global recognition program to celebrate the contributions of employees who bring our core values and cultural attributes to life. To ensure that our pay practices are fair and equitable, we conduct an annual pay equity assessment to ensure that men and women receive equal pay for equal work.
We also offer a global recognition program to celebrate the contributions of employees who bring our core values to life. To ensure that our pay practices are fair and equitable, we conduct an annual pay equity assessment to promote equal pay for equal work for men and women.
In Flash, we compete with vertically integrated suppliers such as Kioxia, Micron Technology, Inc., Samsung Electronics Co., Ltd., SK hynix, Inc., Solidigm, Yangtze Memory Technologies Co., Ltd. and numerous smaller companies that assemble flash into products.
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.
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.
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.
We believe an in-depth understanding of our employee population will enable us to better engage and retain our talent. 9 Table of Contents Compensation and Benefits We believe in the importance of investing in our people, and we do that through a robust Total Rewards program.
Participation was optional, data was protected and the results were anonymized. We believe an in-depth understanding of our employee population will enable us to better engage and retain our talent. Compensation and Benefits We believe in the importance of investing in our people, and we do that through a robust Total Rewards program.
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. We have developed deep relationships with these vendors and Kioxia to establish continuous supply of flash-based memory and controllers.
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.
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. Materials and Supplies Our Flash consists of flash-based memory, controllers and firmware and other components. Substantially all of our flash-based memory is supplied by our business ventures with Kioxia.
The first phase of construction of Y7 is now complete and has commenced output. 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. Materials and Supplies Our Flash consists of flash-based memory, controllers and firmware and other components.
In HDD, we compete with Seagate Technology plc and Toshiba Electronic Devices & Storage Corporation. 4 Table of Contents 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 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.
We provide extensive health and safety resources and training to all of our employees, especially for 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 provide extensive health and safety resources and training to all of our employees, especially for those who work in our manufacturing and operations.
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. 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 also have agreements that extend Flash Ventures to a wafer fabrication facility located in Kitakami, Japan, referred to as “K1”, which is operated by Kioxia Iwate Corporation, a wholly owned subsidiary of Kioxia. The primary purpose of K1 is to provide clean room space to continue the transition of existing flash-based wafer capacity to newer technology nodes.
We also have agreements that extend Flash Ventures to a wafer fabrication facility located in Kitakami, Japan, referred to as “K1”, which is operated by Kioxia Iwate Corporation, a wholly-owned subsidiary of Kioxia.
Nevertheless, compliance with existing or future governmental regulations, including, but not limited to, those pertaining to global trade, the environment, consumer and data protection, employee health and safety, and taxes, could have a material impact on our business in subsequent periods. See Part I, Item 1A, Risk Factors for a discussion of these potential impacts.
Compliance with existing or future governmental regulations, including, but not limited to, those pertaining to global trade, the environment, consumer and data protection, employee health and safety, and taxes, could have a material impact on our capital expenditures, earnings, competitive position and overall business in subsequent periods.
We rely upon non-disclosure agreements, contractual provisions and a system of internal safeguards to protect our proprietary information. Despite these safeguards, there is a risk that competitors may obtain and use such information. The laws of foreign jurisdictions in which we conduct business may provide less protection for confidential information than the laws of the U.S.
Despite these safeguards, there is a risk that competitors may obtain and use such information. The laws of foreign jurisdictions in which we conduct business may provide less protection for confidential information than the laws of the U.S. We rely on certain technology that we license from other parties to manufacture and sell our products.
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 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.
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 great position to capitalize on the opportunities presented by the large and growing storage markets We invest considerable resources in R&D, manufacturing infrastructure and capital equipment for recording head and media technology, as well as other aspects of the magnetic recording system such as HDD mechanics, controller and firmware technology, in order to secure our competitive position and cost structure.
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.
Accordingly, the patents held and applied for cannot alone ensure our future success. In addition to patent protection of certain IP rights, we consider elements of our product designs and processes to be proprietary and confidential. We believe that our non-patented IP, particularly some of our process technology, is an important factor in our success.
In addition to patent protection of certain IP rights, we consider elements of our product designs and processes to be proprietary and confidential. We believe that our non-patented IP, particularly some of our process technology, is an important factor in our success. We rely upon non-disclosure agreements, contractual provisions and a system of internal safeguards to protect our proprietary information.
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. 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.
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.
Seasonality can also be impacted by the growth in emerging markets and macroeconomic conditions. For a discussion of associated risks, see Part I, Item 1A, Risk Factors , of this Annual Report on Form 10-K.
For a discussion of associated risks, see Part I, Item 1A, Risk Factors , of this Annual Report on Form 10-K.
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.
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.
As of July 1, 2022, four of the nine members of our Board of Directors were women, and women represented 26% of our management positions and 23% of our technical staff. Additionally, members of Asian, Black/African American, Hispanic/Latinx or other racially or ethnically diverse communities, represented 60% of our U.S. management positions.
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.
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.
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 focus our engineering efforts on optimizing our product design and manufacturing processes to bring our products to market in a cost-effective and timely manner.
We focus our engineering efforts on optimizing our product design and manufacturing processes to bring our products to market in a cost-effective and timely manner. For a discussion of associated risks, see Part I, Item 1A, Risk Factors , of this Annual Report on Form 10-K.
For each of 2022, 2021 and 2020, 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 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.
We are committed to hiring inclusively, providing training and development opportunities and ensuring equitable pay for employees, and we are continuing to focus on increasing diverse representation at every level of our company.
Diversity, Equity and Inclusion We are committed to diversity and promoting an inclusive environment where every individual can thrive through a sense of belonging, respect and contribution. We support inclusive hiring, training and development opportunities and ensuring equitable pay for employees, and we continue to focus on increasing diverse representation at every level of our company.
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 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.
Sales to international customers are subject to certain risks not normally encountered in domestic operations, including exposure to tariffs and various trade regulations.
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.
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. 5 Table of Contents Hard Disk Drives.
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.
K1 is now fully operational. In January 2022, we entered into additional agreements regarding Flash Ventures’ investment in a new wafer fabrication facility currently under construction in Yokkaichi, Japan, referred to as “Y7”, which upon completion will be the sixth wafer fabrication facility at the Yokkaichi site.
In January 2022, we entered into agreements regarding Flash Ventures’ investment in a new wafer fabrication facility in Yokkaichi, Japan, referred to as “Y7”, which is the sixth wafer fabrication facility at the Yokkaichi site. The primary purpose of Y7 is to provide clean room space to continue the transition of existing flash-based wafer capacity to newer flash technology nodes.
We have approximately 13,500 active patents worldwide and have many patent applications in process. We continually seek additional United States (“U.S.”) and international patents on our technology. We believe that, although our active patents and patent applications have considerable value, the successful manufacturing and marketing of our products also depends upon the technical and managerial competence of our staff.
We believe that, although our active patents and patent applications have considerable value, the successful manufacturing and marketing of our products also depends upon the technical and managerial competence of our staff. Accordingly, the patents held and applied for cannot alone ensure our future success.
In June 2022, we announced that we are reviewing potential strategic alternatives aimed at further optimizing long-term value for our stockholders. 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. Technology Flash Technologies .
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.
We also engage employees by taking actions to promote and ground them in our core values and beliefs as a company, so that we are conducting business in an ethical way. As a result of this focus, in 2022, we were named one of the World’s Most Ethical Companies by Ethisphere Institute for the fourth consecutive year.
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.
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.
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.
We also believe in creating an environment that allows our employees to prioritize their health and well-being. 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.
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.
Our wireless drive products allow in-field back up of created content, as well as wireless streaming of high-definition movies, photos, music and documents to tablets, smartphones and PCs. Research and Development We devote substantial resources to the development of new products and the improvement of existing products.
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.
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. Competition Our industry is highly competitive. We compete with manufacturers of Flash and HDD for cloud, client, and consumer end markets.
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 also leverage contract manufacturers when strategically advantageous. 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; San Jose and Fremont, CA, USA.
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; 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.
For a discussion of associated risks, see Part I, Item 1A, Risk Factors , of this Annual Report on Form 10‑K. 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 grow our manufacturing operations as necessary.
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.
We rely on certain technology that we license from other parties to manufacture and sell our products. We believe that we have adequate cross-licenses and other agreements in place in addition to our own IP portfolio to compete successfully in the storage industry.
We believe that we have adequate cross-licenses and other agreements in place in addition to our own IP portfolio to compete successfully in the storage industry. For a discussion of associated risks, see Part I, Item 1A, Risk Factors , of this Annual Report on Form 10‑K.
For additional detail about our workforce, we encourage you to review our Sustainability Report, which we publish annually and make available on our corporate website. Nothing on our website shall be deemed incorporated by reference into this Annual Report on Form 10-K.
We have several ERG communities, focusing on women, LGBTQ+, racial and ethnic minorities, military and people with disabilities. For additional detail about our workforce, we encourage you to review our Sustainability Report, which we publish annually and make available on our corporate website.
We have welcomed employees who transitioned to working from home during the pandemic back to the office and have offered a flexible hybrid work model for certain employees. 10 Table of Contents Government Regulation Our worldwide business activities are subject to various laws, rules, and regulations of the United States as well as of foreign governments.
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.
For a discussion of associated 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 internally and through outside firms utilizing both consumer media and trade publications targeting various reseller and end-user markets.
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 associated risks, see Part I, Item 1A, Risk Factors , of this Annual Report on Form 10-K. 6 Table of Contents Patents, Licenses and Proprietary Information We rely on a combination of patents, trademarks, copyright and trade secret laws, confidentiality procedures and licensing arrangements to protect our IP rights.
Patents, Licenses and Proprietary Information We rely on a combination of patents, trademarks, copyright and trade secret laws, confidentiality procedures and licensing arrangements to protect our IP rights. We have approximately 13,000 active patents worldwide and have many patent applications in process. We continually seek additional United States (“U.S.”) and international patents on our technology.
We believe that listening is crucial to identifying opportunities to strengthen employee engagement as well as influencing our overall strategy. In 2022, we had an overall employee survey participation rate of 90%. Key strengths that employees identified were that they felt that their work was meaningful, they are excited about our future, and they would recommend their manager to others.
We believe that listening is crucial to identifying opportunities to strengthen employee engagement as well as influencing our overall strategy. We also engage employees by taking actions to promote and ground them in our core values and beliefs as a company, so that we are conducting business in an ethical way.
Our employees also regularly engage in a wide range of hands-on volunteering and matching campaigns that support the communities in which they work and live. Health and Safety We are committed to creating a safe work environment everywhere we operate.
In 2023, 32% of our employees participated in a company-sponsored volunteer event, which was bolstered by a 27-percentage point increase in participation among our factory worker population. Health and Safety We are committed to creating a safe work environment everywhere we operate.
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With dedicated business units driving advancements in NAND flash and magnetic recording technologies, we create and drive innovations needed to help customers capture, preserve, access, and transform an ever-increasing diversity of data. 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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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.
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Flash 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 storage, client storage, automotive, mobile devices and removable memory devices.
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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.
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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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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 provide 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.
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We invest considerable resources in R&D, manufacturing infrastructure and capital equipment for recording head and media technology, as well as other aspects of the magnetic recording system such as HDD mechanics, controller and firmware technology, in order to secure our competitive position and cost structure.
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The primary purpose of Y7 is to provide clean room space to continue the transition of existing flash-based wafer capacity to newer flash technology nodes. The first phase of construction of Y7 is complete and output is expected to commence in the first half of 2023.
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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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Human Capital Management We have been on a journey to transform the Company and redefine the data storage market. Our employees are paramount to our success.
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We also leverage contract manufacturers when strategically advantageous.
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To this end, our people strategy is grounded in the intention to hire, engage and retain the best talent to support our vision of creating breakthrough innovation that enables the world to actualize its aspirations.
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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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur 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 limiting our ability to (i) consolidate or merge with or into, or sell all or substantially all of our assets to, another person; (ii) enter into sale/leaseback transactions; (iii) incur additional indebtedness and (iv) 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.
Biggest changeOur 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.
Climate change may reduce the availability and/or increase the cost of certain types of insurance by contributing to an increase in the incidence and severity of certain natural disasters. We depend upon Kioxia to obtain and maintain sufficient property, business interruption and other insurance for Flash Ventures.
Climate change may reduce the availability or increase the cost of certain types of insurance by contributing to an increase in the incidence and severity of certain natural disasters. We depend upon Kioxia to obtain and maintain sufficient property, business interruption and other insurance for Flash Ventures.
Further, our ASPs and gross margins tend to decline when there is a shift in the mix of product sales to lower priced products. Further, 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 face potential gross margin pressures resulting from our ASPs declining more rapidly than our cost of revenue.
Item 1A. Risk Factors Our business can be affected by a number of risks and uncertainties, which could cause material harm to our actual operating results and financial condition. The risks discussed below are not the only ones facing our business but represent risks that we believe are material to us.
Item 1A. Risk Factors Our business can be affected by a number of risks and uncertainties, any of which could cause material harm to our actual operating results and financial condition. The risks discussed below are not the only ones facing our business but represent risks that we believe are material to us.
Accurately forecasting demand has also become increasingly difficult for us, our customers and our suppliers due to volatility in global economic conditions, end market dynamics and industry consolidation, resulting in less availability of historical market data for certain product segments.
Accurately forecasting demand has become increasingly difficult for us, our customers and our suppliers due to volatility in global economic conditions, end market dynamics and industry consolidation, resulting in less availability of historical market data for certain product segments.
Similarly, other activist investors may engage in proxy solicitations or advance shareholder proposals, or otherwise attempt to affect changes and assert influence on our Board and management, which could lead to the impacts on our business, board, management and employees discussed above.
Similarly, activist investors may engage in proxy solicitations or advance shareholder proposals, or otherwise attempt to affect changes and assert influence on our Board and management, which could lead to the impacts on our business, board, management and employees discussed above.
The Delaware Exclusive Forum Provision is intended to apply to claims arising under Delaware state law and would not apply to claims brought pursuant to the Exchange Act or the Securities Act, or any other claim for which the federal courts have exclusive jurisdiction.
The Delaware Exclusive Forum Provision is intended to apply to claims arising under Delaware state law and would not apply to claims brought pursuant to the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.
In addition, the success of our technology transitions and product development depends on a number of other factors, including: • R&D expenses and results; 17 Table of Contents • difficulties faced in manufacturing ramp; • market acceptance/qualification; • effective management of inventory levels in line with anticipated product demand; • the vertical integration of some of our products, which may result in more capital expenditures and greater fixed costs than if we were not vertically integrated; • our ability to cost effectively respond to customer requests for new products or features (including requests for more efficient and efficiently-produced products with reduced environmental impacts) and software associated with our products; • our ability to increase our software development capability; and • the effectiveness of our go-to-market capability in selling new products.
In addition, the success of our technology transitions and product development depends on a number of other factors, including: • R&D expenses and results; • difficulties faced in manufacturing ramp; • market acceptance/qualification; • effective management of inventory levels in line with anticipated product demand; • the vertical integration of some of our products, which may result in more capital expenditures and greater fixed costs than if we were not vertically integrated; • our ability to cost effectively respond to customer requests for new products or features (including requests for more efficient and efficiently-produced products with reduced environmental impacts) and software associated with our products; • our ability to increase our software development capability; and • the effectiveness of our go-to-market capability in selling new products.
If Kioxia fails to do so, we could suffer significant unreimbursable losses, and such failure could also cause Flash Ventures to breach various financing covenants. The loss of our key management, staff and skilled employees, the inability to hire and integrate new employees or decisions to realign our business could negatively impact our business prospects.
If Kioxia fails to do so, we could suffer significant unreimbursable losses, and such failure could also cause Flash Ventures to breach various financing covenants. The loss of our key management, staff and skilled employees; the inability to hire and develop new employees; or decisions to realign our business could negatively impact our business prospects.
FINANCIAL RISKS Our level of debt may negatively impact our liquidity, restrict our operations and ability to respond to business opportunities, and increase our vulnerability to adverse economic and industry conditions. We utilize debt financing in our capital structure and may incur additional debt, including under our revolving credit facility, subject to customary conditions in our loan agreement.
FINANCIAL RISKS Our level of debt may negatively impact our liquidity, restrict our operations and ability to respond to business opportunities, and increase our vulnerability to adverse economic and industry conditions. We utilize debt financing in our capital structure and may incur additional debt, including under our revolving credit facility subject to customary conditions in our loan agreements.
Rapid technological changes often reduce the volume and profitability of sales of existing products and increase the risk of inventory obsolescence. Finally, the data storage industry has experienced consolidation over the past several years, which could enhance the resources and lower the cost structure of some competitors.
Rapid technological changes often reduce the volume and profitability of sales of existing products and increase the risk of inventory obsolescence and write-downs. Finally, the data storage industry has experienced consolidation over the past several years, which could enhance the resources and lower the cost structure of some competitors.
We participate in a highly competitive industry that is subject to declining average selling prices (“ASPs”), volatile demand, rapid technological change and industry consolidation, as well as lengthy product qualifications, all of which could negatively impact our business.
We participate in a highly competitive industry that is subject to declining average selling prices (“ASPs”), volatile demand, rapid technological change and industry consolidation, as well as lengthy product qualifications, all of which can negatively impact our business.
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.
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.
We experience cyber attacks 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 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.
Additional risks not presently known to us or that we currently deem immaterial may also negatively affect our business. 11 Table of Contents 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.
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.
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 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 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.
We have and will continue to incur substantial 15 Table of Contents expenses associated with identifying, evaluating and negotiating potential strategic alternatives. There can be no assurance that any potential transaction or other strategic alternative, if consummated, will provide greater value to our stockholders than that reflected in the current price of our common stock.
We have and will continue to incur substantial expenses associated with identifying, evaluating and negotiating potential strategic alternatives. There can be no assurance that any potential transaction or other strategic alternative, if consummated, will provide greater value to our stockholders than that reflected in the current price of our common stock.
In order to pursue this part of our growth strategy successfully, we must 18 Table of Contents 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 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.
Therefore, as a substantial portion of our sales are from countries outside the U.S., fluctuations in currency exchanges 21 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.
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.
Additionally, uncertainty about 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 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.
We are actively working with financial advisors and the Company’s legal counsel in this strategic review process. Any potential transaction or other strategic alternative would be dependent on a number of factors that may be beyond our control, including, among other things, market conditions, industry trends, regulatory approvals, and the availability of financing for a potential transaction on reasonable terms.
We are actively working with financial advisors and the Company’s legal counsel in this strategic review process. 15 Table of Content s Any potential transaction or other strategic alternative would be dependent on a number of factors that may be beyond our control, including, among other things, market conditions, industry trends, regulatory approvals, and the availability of financing for a potential transaction on reasonable terms.
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; 16 Table of Contents • difficulties and delays in product and technology development at, ramping production at, and transferring technology to, our strategic partners; • 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 and/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 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.
The process of reviewing potential strategic alternatives may be time consuming, distracting and disruptive to our business operations, which may cause concern to our current or potential customers, employees, investors, strategic partners and other constituencies and may have a material impact on our business and operating results and/or result in increased volatility in our share price.
The process of reviewing potential strategic alternatives is time consuming and may be distracting and disruptive to our business operations and long-term planning, which may cause concern to our current or potential customers, employees, investors, strategic partners and other constituencies and may have a material impact on our business and operating results or result in increased volatility in our share price.
Our possession and use of third-party data, including personal data and 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 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.
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 under-utilization charges, and the potential impairment of our investments in Flash Ventures.
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.
The effects of such health crises, including the COVID-19 pandemic, 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 governmental orders to contain the spread of infectious disease, such as travel restrictions, quarantines, shelter in place orders, trade controls and business shut-downs; • 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; 12 Table of Contents • Increased data security and technology risk as some employees continue to 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.
The 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.
In addition, some of our components have long lead-times, requiring us to place orders several months in advance of anticipated demand. Such long lead-times increase the risk of excess inventory or loss of sales in the event our forecasts vary substantially from actual demand.
In addition, some of our components have long lead-times, requiring us to place orders several months in advance of anticipated demand. Such long lead-times increase the risk of excess inventory, potentially resulting in inventory write-downs, or loss of sales in the event our forecasts vary substantially from actual demand.
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 or decrease 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 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.
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.
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
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 attacks.
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, product defects, product recalls or epidemic failures may cause damage to our reputation or customer relationships, lost revenue, indemnification for a recall of our customers’ products, warranty claims, litigation or loss of market share with our customers, including our OEM and ODM customers.
In addition, product defects, product recalls or epidemic failures may cause damage to our reputation or customer relationships, lost revenue, indemnification for a recall of our customers’ products, warranty claims, litigation or loss of market share with our customers, including our OEM and original design manufacturer (“ODM”) customers.
Additionally, if the distribution market weakens as a result of technology transitions or a significant change in consumer buying preference, or if we experience significant price declines due to demand changes in the distribution channel, our operating results would be negatively impacted.
If we fail to respond to changes in demand in the distribution market, our business could suffer. Additionally, if the distribution market weakens as a result of technology transitions or a significant change in consumer buying preference, or if we experience significant price declines due to demand changes in the distribution channel, our operating results would be negatively impacted.
The prices of our products are influenced by, among other factors, 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, 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.
Our Bylaws provide that, unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or other employee of the Company or its stockholders, (iii) any action or proceeding asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the Company’s Certificate of Incorporation or Bylaws, or (iv) any action or proceeding asserting a claim governed by the internal affairs doctrine (the “Delaware Exclusive Forum Provision”).
Our Bylaws provide that, unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or the federal district court in the State of Delaware if the Court of Chancery does not have subject matter jurisdiction) is the sole and exclusive forum for (i) any derivative action brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or other employee of the Company or its stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the Company’s Certificate of Incorporation or Bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine (the “Delaware Exclusive Forum Provision”).
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 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.
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; • 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 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.
When we do have contractual commitments with suppliers in an effort to stabilize the supply of our components, those commitments may require us to buy a substantial number of components or make significant cash advances to the supplier and may not result in a satisfactory supply of our components. In addition, our supply base has experienced industry consolidation.
When we do have contractual commitments with suppliers in an effort to stabilize the supply of our components, those commitments may require us to buy a substantial number of components or make significant cash advances to the supplier and may not result in a satisfactory supply of our components.
Further, our products contain sophisticated 14 Table of Contents hardware and operating system software and applications that may contain security problems, security vulnerabilities, or defects in design or manufacture, including “bugs” and other problems that could interfere with the intended operation of our products.
Further, our products contain sophisticated hardware and operating system software and applications that may contain security problems, security vulnerabilities, or defects in design or manufacturing, including “bugs” and other problems that could interfere with the intended operation of our products.
Breaches 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.
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.
To the extent our products are hacked or the encryption schemes are compromised or breached, this could harm our business by requiring us to employ additional resources to fix the errors or defects, exposing us to litigation and indemnification claims and hurting our reputation.
To the extent our products include design defects, suffer system failure or are hacked, or if the encryption schemes are compromised or breached, this could harm our business by requiring us to employ additional resources to fix the errors or defects, exposing us to litigation and indemnification claims and hurting our reputation.
Acquisitions of, investment opportunities in, or other significant transactions with companies that are complementary to our business are a key part of our overall business strategy.
Acquisitions of, investment opportunities in, or other significant transactions with companies that are complementary to our business are an important part of our overall business strategy.
Possible impacts include work and equipment stoppages and damage to or closure of our 13 Table of Contents facilities, or those of our suppliers or customers, for an indefinite period of time. Climate change has in the past and is expected to continue to increase the incidence and severity of certain natural disasters.
Possible impacts include work and equipment stoppages and damage to or closure of our facilities, or those of our suppliers or customers, for an indefinite period of time. Climate change has in the past and is expected to continue to increase the incidence and severity of certain natural disasters, including wildfires and adverse weather events.
Cyber attacks can include ransomware, computer denial-of-service attacks, worms, and other malicious software programs or other attacks, and covert introduction of malware to computers and networks, including those using techniques that change frequently or may be disguised or difficult to detect, or designed to remain dormant until a triggering event or that may continue undetected for an extended period of time.
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.
Our suppliers may be acquired by our competitors, decide to exit the industry, or redirect their investments and increase costs to us. In addition, some of our suppliers have experienced a decline in financial performance.
Our suppliers may be acquired by our competitors, decide to exit the industry, or redirect their investments and increase costs to us. In addition, some of our suppliers have experienced a decline in financial performance, including as a result of cancelled or deferred purchase commitments.
In some instances, efforts to correct vulnerabilities or prevent attacks may reduce the 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 computer systems and networks, which could negatively impact our business.
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.
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.
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.
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.
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 we must anticipate 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. 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.
As a result of these risks, our business could be harmed. 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 impacted and may continue to impact our workforce and operations, and those of our strategic partners, customers, suppliers and logistics providers.
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.
Global competition for skilled employees in the technology industry is intense, and our business success becomes increasingly dependent on our ability to retain our key staff and skilled employees, to implement succession plans for our key management and staff, to attract, integrate and retain new 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.
Our success depends upon the continued contributions of our key management, staff and skilled employees, many of whom would be extremely difficult to replace. 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 can result in loss of continuity, loss of accumulated knowledge, departure of other key employees, disruptions to our operations and inefficiency during transitional periods.
The storage market has experienced volatile product life cycles, which can harm our ability to recover the cost of product development, and periods of excess capacity, which can lead to liquidation of excess inventories, significant reductions in ASPs and negative impacts on our revenue and gross margins.
The storage market has recently experienced, and may continue to experience, periods of excess capacity leading to liquidation of excess inventories, inventory write-downs, significant reductions in ASPs and negative impacts on our revenue and gross margins, and volatile product life cycles that harm our ability to recover the cost of product development.
If we fail to implement new technologies or develop new products desired by our customers quickly and cost-effectively, our business may be harmed.
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.
Cyber attacks may also include impersonation of authorized users, 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.
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.
Beginning in our fiscal year 2023, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures in the year incurred, requiring amortization in accordance with IRC Section 174. If this requirement is not repealed or otherwise modified, it will materially increase our effective tax rate and reduce our operating cash flows.
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.
We may not have sufficient funds available to repay accelerated indebtedness, and we may be required to refinance all or part of our debt, sell important strategic assets at unfavorable prices, incur additional indebtedness or issue common stock or other equity securities, which we may be unable 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 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.
Compliance requirements and 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. 22 Table of Contents 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.
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.
For example, we often ship a high percentage of our total quarterly sales in the third month of the quarter, which makes it difficult for us to forecast our financial results before the end of each quarter.
Changes in the product or channel mix of our business can also impact seasonal and cyclical patterns. For example, we often ship a high percentage of our total quarterly sales in the third month of the quarter, which makes it difficult for us to forecast our financial results before the end of each quarter.
Additionally, new products could substitute for our current products and make them obsolete. We also develop products to meet certain industry and technical standards, which may change and cause us to incur substantial costs as we adapt to new standards or invest in different manufacturing processes to remain competitive.
We also develop products to meet certain industry and technical standards, which may change and cause us to incur substantial costs as we adapt to new standards or invest in different manufacturing processes to remain competitive. We experience sales seasonality and cyclicality, which could cause our operating results to fluctuate.
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.
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.
Until the review process is concluded, perceived uncertainties related to our future may result in the loss of potential business opportunities and volatility in the market price of our common stock and may make it more difficult for us to attract and retain qualified personnel and business partners.
Until the review process is concluded, perceived uncertainties related to our future may result in the loss of potential business opportunities, volatility in the market price of our common stock and difficulty attracting and retaining qualified talent and business partners.
Flash Ventures requires significant investments by both Kioxia and us for technology transitions and capacity expansions, and our business could be harmed if our technology roadmap and investment plans are not sufficiently aligned with Kioxia’s. Lack of alignment with Kioxia with respect to Flash Ventures could negatively impact our ability to stay at the forefront of technological advancement.
Flash Ventures requires significant investments by both Kioxia and us for technology transitions and capacity expansions, and our business could be harmed if our technology roadmap and investment plans are not sufficiently aligned with Kioxia’s.
The degree to which the COVID-19 pandemic or future public health crises ultimately impact our business will depend on many factors beyond our control, which are highly uncertain and cannot be predicted at this time.
The degree to which any future public health crises, including resurgences of COVID-19, ultimately impact our business will depend on many factors beyond our control, which are highly uncertain and cannot be predicted at this time. Our operations, and those of certain of our suppliers and customers, are subject to substantial risk of damage or disruption.
These liabilities could be substantial and may include, among other things: the costs of defending lawsuits against these individuals; the cost of defending shareholder derivative suits; the cost of governmental, law enforcement or regulatory investigations or proceedings; civil or criminal fines and penalties; legal and other expenses; and expenses associated with the remedial measures, if any, which may be imposed. 23 Table of Contents The nature of our industry and its reliance on IP and other proprietary information subjects us and our suppliers, customers and partners to the risk of significant litigation.
These liabilities could be substantial and may include, among other things: the costs of defending lawsuits against these individuals; the cost of defending shareholder derivative suits; the cost of governmental, law enforcement or regulatory investigations or proceedings; civil or criminal fines and penalties; legal and other expenses; and expenses associated with the remedial measures, if any, which may be imposed.
We believe cyber attack attempts are increasing in number and that cyber attackers are increasingly organized and well-financed or supported by state actors, and are developing increasingly sophisticated systems and means to not only attack systems, but also to evade detection or to obscure their activities. Geopolitical tensions or conflicts may create heightened risk of cyber attacks.
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.
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.
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.
These customers have a variety of suppliers to choose from and therefore can make substantial demands on us, including demands on product pricing and on contractual terms, often resulting in the allocation of risk to us as the supplier. Our ability to maintain strong relationships with our principal customers is essential to our future performance.
These customers have a variety of suppliers to choose from and therefore can make substantial demands on us, including demands on product pricing, contractual terms and the environmental impact and attributes of our products, often resulting in the allocation of risk or increased costs to us as the supplier.
The data storage industry has been characterized by significant litigation. This includes litigation relating to patent and other IP rights, product liability claims and other types of litigation.
The nature of our industry and its reliance on IP and other proprietary information subjects us and our suppliers, customers and partners to the risk of significant litigation. The data storage industry has been characterized by significant litigation. This includes litigation relating to patent and other IP rights, product liability claims and other types of litigation.
Additionally, because a substantial portion of our key employees’ compensation is placed “at risk” and linked to the performance of our business, including through equity compensation, when our operating results are negatively impacted, we may be at a competitive disadvantage for retaining and hiring key management, staff and skilled employees.
Additionally, because a substantial portion of our key employees’ compensation is linked to the performance of our business, we may be at a competitive disadvantage for hiring and retaining talent when our operating results are negatively impacted. If we are unable to hire and retain key talent, our operating results would likely be harmed.
W e 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.
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.
Kioxia’s management changes, ownership and capital structure could lead to delays in decision-making, disputes or changes in strategic direction that could negatively impact the strategic partnership, and therefore us.
Kioxia’s stakeholders may include, or have included in the past, competitors, customers, a private equity firm, government entities or public stockholders. Kioxia’s management changes, ownership and capital structure could lead to delays in decision-making, disputes or changes in strategic direction that could negatively impact the strategic partnership, and therefore us.
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. 24 Table of Contents 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.
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.
We experience sales seasonality and cyclicality, which could cause our operating results to fluctuate. 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.
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.
As a result of actual or perceived breaches, we could experience additional costs, notification requirements, civil and administrative fines and penalties, indemnification claims, litigation, and damage to our brand and reputation. All of these consequences could harm our reputation and our business and materially and negatively impact our operating results and financial condition.
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.
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. Most of the lease obligations are guaranteed 50% by us and 50% by Kioxia. Some of the lease obligations are guaranteed in full by us.
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.
Continued availability of lease financings for Flash Ventures is not guaranteed and could be limited by several factors, including our and/or Kioxia’s financial performance and changes to our and/or Kioxia’s business, ownership or corporate structure. To the extent that lease financings are not accessible on favorable terms or at all, more cash would be required to fund investments.
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.
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 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.
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.
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.
We are dependent on a limited number of qualified suppliers who provide critical services, materials or components, and a disruption in our supply chain could negatively affect our business. We depend on an external supply base for technologies, software (including firmware), preamps, controllers, dynamic random-access memory, components, equipment and materials for use in our product design and manufacturing.
We depend on an external supply base for technologies, software (including firmware), preamps, controllers, dynamic random-access memory, components, equipment and materials for use in our product design and manufacturing. We also depend on suppliers for a portion of our wafer testing, chip assembly, product assembly and product testing, and on service suppliers for providing technical support for our products.
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. From time to time, we may also be the subject of inquiries, requests for information, investigations and actions by government and regulatory agencies regarding our businesses.
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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur principal manufacturing, R&D, marketing and administrative facilities as of July 1, 2022 were as follows: Location Buildings Owned or Leased Approximate Square Footage Description United States California Fremont Leased 290,000 HDD manufacturing of head wafers and R&D Irvine Leased 431,000 HDD R&D, administrative, marketing and sales Milpitas Owned 589,000 Flash R&D, marketing and sales, and administrative San Jose Owned 2,275,000 Manufacturing of head wafers, head, media and product development, R&D for Flash and HDD, administrative, marketing and sales Colorado Longmont Leased 87,000 Flash R&D Colorado Springs Leased 59,000 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 285,000 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 1,261,000 Flash R&D and administrative Middle East Israel Kfar Saba Owned 167,000 Flash R&D Tefen Owned 64,000 Flash R&D We also lease office space in various other locations throughout the world primarily for R&D, sales, operations, administration and technical support.
Biggest changeOur 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.
In general, new manufacturing facilities can be developed and become operational within approximately 12 to 24 months should we require such additional facilities. 26 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. 27 Table of Contents
In 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

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 30, 2017) 29 Table of Contents Total Return Analysis June 30, 2017 June 29, 2018 June 28, 2019 July 3, 2020 July 2, 2021 July 1, 2022 Western Digital Corporation $ 100.00 $ 89.48 $ 57.44 $ 52.78 $ 87.32 $ 54.00 S&P 500 Index $ 100.00 $ 114.37 $ 126.29 $ 135.77 $ 191.15 $ 170.86 Dow Jones U.S.
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.
The graph assumes that $100 was invested in our common stock at the close of market on June 30, 2017 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 29, 2018 and that all dividends were reinvested. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns.
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 11, 2022 was 874.
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.
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 July 1, 2022.
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.
Technology Hardware & Equipment Index $ 100.00 $ 130.26 $ 140.45 $ 204.31 $ 315.74 $ 281.89 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. 30 Table of Contents
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

Item 7. Management's Discussion & Analysis

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

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Biggest changeWe have no material assets or operations in Russia. 34 Table of Contents Results of Operations Summary Comparison of 2022, 2021 and 2020 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) : 2022 2021 2020 (in millions, except percentages) Revenue, net $ 18,793 100.0 % $ 16,922 100.0 % $ 16,736 100.0 % Cost of revenue 12,919 68.7 12,401 73.3 12,955 77.4 Gross profit 5,874 31.3 4,521 26.7 3,781 22.6 Operating Expenses: Research and development 2,323 12.4 2,243 13.3 2,261 13.5 Selling, general and administrative 1,117 5.9 1,105 6.5 1,153 6.9 Employee termination, asset impairment, and other charges 43 0.2 (47) (0.3) 32 0.2 Total operating expenses 3,483 18.5 3,301 19.5 3,446 20.6 Operating income 2,391 12.7 1,220 7.2 335 2.0 Interest and other income (expense): Interest income 6 — 7 — 28 0.2 Interest expense (304) (1.6) (326) (1.9) (413) (2.5) Other income, net 30 0.2 26 0.2 4 — Total interest and other expense, net (268) (1.4) (293) (1.7) (381) (2.3) Income (loss) before taxes 2,123 11.3 927 5.5 (46) (0.3) Income tax expense 623 3.3 106 0.6 204 1.2 Net income (loss) $ 1,500 8.0 % $ 821 4.9 % $ (250) (1.5) % (1) Percentages may not total due to rounding. 35 Table of Contents The following table sets forth, for the periods presented, a summary of our segment information: 2022 2021 2020 (in millions, except percentages) Net revenue: Flash $ 9,753 $ 8,706 $ 7,769 HDD 9,040 8,216 8,967 Total net revenue $ 18,793 $ 16,922 $ 16,736 Gross profit: Flash $ 3,527 $ 2,611 $ 1,903 HDD 2,661 2,221 2,602 Unallocated corporate items: Amortization of acquired intangible assets (66) (331) (610) Stock-based compensation expense (48) (55) (51) Contamination related charges (207) — — Recoveries from a power outage incident 7 75 (68) Other — — 5 Total unallocated corporate items (314) (311) (724) Consolidated gross profit $ 5,874 $ 4,521 $ 3,781 Gross margin: Flash 36.2% 30.0% 24.5% HDD 29.4% 27.0% 29.0% Consolidated gross margin 31.3% 26.7% 22.6% The following table sets forth, for the periods presented, summary information regarding our disaggregated revenue: 2022 2021 2020 (in millions) Revenue by End Market Cloud $ 8,017 $ 5,723 $ 7,018 Client 7,076 7,281 6,335 Consumer 3,700 3,918 3,383 Total Revenue $ 18,793 $ 16,922 $ 16,736 Revenue by Geography Asia $ 10,054 $ 9,455 $ 8,366 Americas 5,867 4,406 5,444 Europe, Middle East and Africa 2,872 3,061 2,926 Total Revenue $ 18,793 $ 16,922 $ 16,736 Exabytes Shipped 645 541 518 Net Revenue Net revenue increase d 11 % in 2022 compared to 2021, which reflects increases in exabytes of Flash and HDD sold as further discussed below.
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.
In addition, the estimates used to determine the fair value of each of our reporting unit 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 go odwill impairment for 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.
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.
In addition, the effective tax rate for 2022 includes a net increase to the liability for unrecognized tax benefits, which includes interest and offsetting tax benefits, as a result of ongoing discussions with various taxing authorities of $352 million.
In addition, the effective tax rate for 2022 includes a net increase of $352 million to the liability for unrecognized tax benefits, which includes interest and offsetting tax benefits, as a result of our discussions with various taxing authorities.
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. 43 Table of Contents 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 IP infringement claims made by third parties.
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.
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. 45 Table of Contents
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
A discussion of our cash flows for the year ended July 3, 2020 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 2, 2021 filed with the Securities and Exchange Commission on August 27, 2021. 40 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.
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.
For 2022, 2021 and 2020, these programs represented 17%, 19% and 16%, respectively, of gross revenues, and adjustments to revenue due to changes in accruals for these programs have generally averaged less than 1% of gross revenue over the last three years.
For 2023, 2022 and 2021, these programs represented 20%, 17% and 19%, respectively, of gross revenues, and adjustments to revenue due to changes in accruals for these programs have generally averaged less than 1% of gross revenue over the last three years.
Approximately every five to six years, we report a 53-week fiscal year to align the fiscal year with the foregoing policy. Fiscal years 2022 and 2021, which ended on July 1, 2022 and July 2, 2021, respectively, are comprised of 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 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.
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 July 1, 2022, 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 30, 2023, we were in compliance with all covenants under these Japanese lease facilities.
Income Tax Expense The Tax Cuts and Jobs Act (the “2017 Act”), enacted on December 22, 2017, includes a broad range of tax reform proposals affecting businesses. We completed our accounting for the tax effects of the enactment of the 2017 Act during the second quarter of 2019. However, the U.S.
Income Tax Expense The Tax Cuts and Jobs Act (the “2017 Act”) includes a broad range of tax reform proposals affecting businesses. We completed our accounting for the tax effects of the enactment of the 2017 Act during the second quarter of fiscal 2019. However, the U.S.
Additional information regarding our indebtedness, including 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 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 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.
While adjustments to these reserves have generally not been material, in 2019, we recorded a charge to Cost of Sales of $110 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, 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.
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.
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.
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 flash-based products (“Flash”) and hard disk drives (“HDD”) technologies.
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.
At the end of the respective fourth quarters, the cash conversion cycles were as follows (in days): 2022 2021 2020 (in days) Days sales outstanding 56 42 50 Days in inventory 107 98 87 Days payables outstanding (66) (63) (67) Cash conversion cycle 97 77 70 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): 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.
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 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.
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 financial statements.
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, Philippines and Thailand that will expire at various dates during 2021 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 2024 through 2031. The primary drivers of the difference between the effective tax rate for 2022 and the U.S.
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 materially higher cash tax payments, if not repealed or otherwise modified.
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.
We also 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 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 also enter into long-term agreements with suppliers that contain fixed future commitments, which are contingent on certain conditions such as performance, quality and technology of the vendor’s components.
We also enter into long-term agreements with suppliers that contain fixed future commitments, which are contingent on certain conditions such as performance, quality and technology of the vendor’s components. These arrangements are included under “Purchase obligations and other commitments” in the table above.
After consideration of the Flash Ventures’ lease financing of its capital expenditures and net operating cash flow, we expect net cash used for our purchases of property, plant and equipment and net activity in notes receivable relating to Flash Ventures to be a cash outflow of approximately $1.6 billion during 2023.
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.
Investing Activities N et cash used in investing activities in 2022 primarily consisted of $1.1 billion in capital expenditures and a $91 million net increase in notes receivable issuance to Flash Ventures.
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.
These arrangements are included under “Purchase obligations” in the table above. 42 Table of Contents Mandatory Deemed Repatriation Tax The following is a summary of our estimated mandatory deemed repatriation tax obligations under the 2017 Act that are payable in the following fiscal years (in millions): July 1, 2022 2023 $ 106 2024 165 2025 219 2026 275 Total $ 765 For additional information regarding our estimate of the total tax liability for the mandatory deemed repatriation tax, see Part II, Item 8, Note 14, Income Tax Expense , of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended June 28, 2019.
Mandatory Deemed Repatriation Tax The following is a summary of our estimated mandatory deemed repatriation tax obligations under the 2017 Act that are payable in the following years (in millions): June 30, 2023 2024 $ 199 2025 206 2026 258 Total $ 663 For additional information regarding our estimate of the total tax liability for the mandatory deemed repatriation tax, see Part II, Item 8, Note 13, Income Tax Expense , of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended June 28, 2019.
Unrecognized Tax Benefits As of July 1, 2022, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was approximately $1.05 billion. Accrued interest and penalties related to unrecognized tax benefits as of July 1, 2022 was approximately $254 million. Of these amounts, approximately $1.16 billion could result in potential cash payments.
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.
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.
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.
For each of 2022, 2021 and 2020, 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.
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.
A discussion of our results of operations for 2020, including a comparison of such results of operations to 2021, 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 2, 2021 filed with the Securities and Exchange Commission o n August 27, 2021. 38 Table of Contents Liquidity and Capital Resources The following table summarizes our statements of cash flows: 2022 2021 2020 (in millions) Net cash provided by (used in): Operating activities $ 1,880 $ 1,898 $ 824 Investing activities (1,192) (765) 278 Financing activities (1,718) (817) (1,508) Effect of exchange rate changes on cash (13) 6 (1) Net increase (decrease) in cash and cash equivalents $ (1,043) $ 322 $ (407) We and the IRS tentatively reached a settlement for resolving the statutory notices of deficiency and notices of proposed adjustments with respect to years 2008 through 2015.
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.
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 judgment and differences between the estimated and actual amounts of variable consideration can be significant.
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.
We used the Shelf Registration Statement to complete our offering of $1.0 billion aggregate principal amount of senior unsecured notes in December 2021, and we may use the Shelf Registration Statement or other capital sources, including other offerings of equity or debt securities or the credit markets, to satisfy future financing needs, including planned or unanticipated capital expenditures, investments, debt repayments or other expenses.
We may use the Shelf Registration Statement or other capital sources, including other offerings of equity or debt securities or the credit markets, to satisfy future financing needs, including planned or unanticipated capital expenditures, investments, debt repayments or other expenses.
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.
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.
This amount includes $324 million related to the effects of the tentative settlement with the IRS resolving the statutory notices of deficiency and notices of proposed adjustments with respect to 2008 through 2015. The primary drivers of the difference between the effective tax rate for 2021 and the U.S.
This amount includes $324 million related to the effects of the final settlement with the IRS resolving the statutory notices of deficiency with respect to 2008 through 2012 and the tentative settlement reached with the IRS resolving the notices of proposed adjustments with respect to 2013 through 2015.
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. 44 Table of Contents 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.
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 are actively working with financial advisors and our legal counsel in this strategic review process. Tax Resolution As previously disclosed, we have received statutory notices of deficiency and notices of proposed adjustments from the Internal Revenue Service (“IRS”) wi th respect to 2008 through 2015.
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.
Net cash used for changes in operating assets and liabilities was $1.08 billion for 2022, as compared to $175 million for 2021. 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.
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.
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 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.
Debt In addition to our existing debt, we have $2.25 billion available for borrowing under our revolving credit facility until January 2027, subject to customary conditions under the loan agreement.
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”.
We expect to pay tax and interest totaling approximat ely $600 million to $700 million , which we expect to be partially offset by future reductions to our mandatory deemed repatriation tax obligations and tax savings from interest deductions aggregating to approximately $100 to $150 million. See Part I, Item 1, Note 14, Income Tax Expense for further details.
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.
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.
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.
The loan agreement governing our revolving credit facility and our term loan A-2 due 2027 requires us to comply with a leverage ratio financial covenant. As of July 1, 2022, we were in compliance with this financial covenant.
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.
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. 41 Table of Contents Short and Long-term Liquidity Material Cash Commitments The following is a summary of our known material cash commitments, including those for capital expenditures, as of July 1, 2022: Total 1 Year (2023) 2-3 Years (2024-2025) 4-5 Years (2026-2027) More than 5 Years (Beyond 2027) (in millions) Long-term debt, including current portion (1) $ 7,100 $ — $ 1,363 $ 4,737 $ 1,000 Interest on debt 1,185 256 466 288 175 Flash Ventures related commitments (2) 5,263 3,162 1,683 631 (213) Operating leases 369 48 92 82 147 Purchase obligations and other commitments 3,705 2,467 989 99 150 Mandatory Deemed Repatriation Tax 765 106 384 275 — Total $ 18,387 $ 6,039 $ 4,977 $ 6,112 $ 1,259 (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 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.
In June 2022, we announced that we are reviewing potential strategic alternatives aimed at further optimizing long-term value for stockholders. The Executive Committee of our Board of Directors is overseeing the assessment process and evaluating a range of alternatives, including options for separating our Flash and HDD business units.
The Executive Committee of our Board of Directors is overseeing the assessment process and evaluating a range of alternatives, including options for separating our Flash and HDD business units. As of June 30, 2023, we are still actively working with financial advisors and our legal counsel in this strategic review process.
Net cash used in financing activities in 2021 primarily consisted of $886 million for repayment of debt, which included $600 million in voluntary prepayments on our Term Loan B-4, and $56 million for taxes paid on vested stock awards under employee stock plans, partially offset by $134 million of cash from the issuance of stock under our employee stock plans.
Cash used in financing activities in 2022 primarily consisted of $3.62 billion for repayment of debt, as well as $122 million for taxes paid on vested stock awards under employee stock plans, partially offset by net proceeds of $1.87 billion from the issuance of new debt and $90 million from the issuance of stock under employee stock plans.
The following table sets forth Income tax information from our Consolidated Statement of Operations by dollar and effective tax rate: 2022 2021 2020 (in millions, except percentages) Income (loss) before taxes $ 2,123 $ 927 $ (46) Income tax expense 623 106 204 Effective tax rate 29 % 11 % (443) % The primary drivers of the difference between the effective tax rate for 2022 and the U.S.
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.
During 2022, we and the IRS tentatively reached a settlement for resolving the statutory notices of deficiency and notices of proposed adjustments with respect to years 2008 through 2015 subject to the parties entering into final stipulations and a closing agreement. As a result, the trial originally scheduled to take place in May 2022 was cancelled.
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.
We believe our cash, cash equivalents and cash generated from operations as well as our available credit facilities will be sufficient to meet our working capital, debt, capital expenditure needs and other cash material cash requirements for at least the next twelve months and the foreseeable future.
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.
Any additional regulatory or interpretive guidance would constitute new information, which may require further refinements to our estimates in future periods.
Any additional regulatory or interpretive guidance would constitute new information, which may require further refinements to our estimates in future periods. On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which contained significant law changes related to tax, climate, energy, and health care.
Additional information is provided in our discussion of Income tax expense in our results of operations below, as well as in Part I, Item 1, 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. 32 Table of Contents Flash Ventures Contamination Incident In February 2022, contamination of certain material used in manufacturing processes occurred at Flash Ventures’ fabrication facilities in both Yokkaichi and Kitakami, Japan which resulted in damage to inventory units in production, a temporary disruption to production operations and a reduction in our flash wafer availability.
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.
Such indemnification agreements may not be subject to maximum loss clauses. Historically, we have not incurred material costs as a result of obligations under these agreements. Stock Repurchase Program Our Board of Directors has authorized a stock repurchase program for the repurchase of up to $5.00 billion of our common stock, which authorization is effective through July 25, 2023.
Such indemnification agreements may not be subject to maximum loss clauses. Historically, we have not incurred material costs as a result of obligations under these agreements. Cash Dividend We issued a quarterly cash dividend from the first quarter of 2013 up to the third quarter of 2020.
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 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.
Any such additional financing will be subject to market conditions and may not be available on terms acceptable to us or at all. During 2023, we expect 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 aggregate to $3.2 billion.
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.
While we ultimately expect that the impact of these conditions will be transitory, the severity and duration of the impact of these conditions on our business is dynamic and cannot be predicted. 33 Table of Contents We believe we have made significant progress in strengthening our product portfolio to meet our customers’ growing and evolving storage needs.
We will continue to actively monitor developments impacting our business and may take additional responsive actions that we determine to be in the best interest of our business and stakeholders. 34 Table of Content s We believe we have made significant progress in strengthening our product portfolio to meet our customers’ growing and evolving storage needs.
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.
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.
Net cash used by investing activities in 2021 primarily consisted of a $1.1 billion of capital expenditures, partially offset by a $231 million net decrease in notes receivable issuances to Flash Ventures. Our cash equivalents are primarily invested in money market funds that invest in U.S. Treasury securities and U.S. Government agency securities.
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.
DIO increased by 9 days over the prior fiscal year, reflecting higher stocking levels of raw materials to minimize the risk of supply chain disruptions. DPO increased 3 days over the prior year, primarily reflecting routine variations in the timing of purchases and payments during the period.
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.
There are no material tax consequences that were not previously accrued for on the repatriation of this cash. 39 Table of Contents Operating Activities Cash flow from operating activities primarily consists of net income, adjusted for non-cash charges, plus or minus changes in operating assets and liabilities. This represents our principal source of cash.
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.
With dedicated business units driving advancements in NAND flash and magnetic recording technologies, we create and drive innovations needed to help customers capture, preserve, access, and transform an ever-increasing diversity of data. Our broad portfolio of technology and products address multiple end markets. In 2022, we refined the end markets we report to be “Cloud”, “Client” and “Consumer”.
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.
Gross Profit and Gross Margin Consolidated gross profit increased $1.35 billion, or 30%, in 2022 compared to 2021, which reflects the increase in revenue in both Flash and HDD, the shift in product mix to more efficient higher-capacity drives, and cost efficiencies as we ramped production on new products, as well as a $265 million decrease in charges in the current period related to amortization expense on acquired intangible assets, some of which became fully amortized.
Gross Profit and Gross Margin Consolidated gross profit decreased $3.99 billion, or 68%, in 2023 compared to 2022, which reflected the decrease in revenue described above as well as an aggregate of approximately $605 million for manufacturing underutilization and related charges and a write-down of certain Flash inventory to the lower of cost or market value ($404 million in Flash and $201 million in HDD), partially offset by $207 million of charges related to a contamination event in the Flash Ventures’ fabrication facilities incurred in the prior year, and a $66 million decrease in charges related to amortization expense on acquired intangible assets, some of which became fully amortized in 2023.
Removed
Fiscal year 2020, which ended on July 3, 2020, was comprised of 53 weeks, with the first quarter consisting of 14 weeks and the remaining quarters consisting of 13 weeks each. Key Developments Business Structure and Strategic Alternatives In 2021, we made and announced the decision to reorganize our business by forming two separate product business units: Flash and HDD.
Added
Key Developments Network Security Incident As previously disclosed, on March 26, 2023, we identified a network security incident in which an unauthorized third party gained access to a number of our systems.
Removed
The new structure is intended to provide each business unit with focus and responsibility for identifying current and future customer requirements while driving the strategy, roadmap, pricing and overall profitability for their respective product areas.
Added
Upon discovery of the incident, we implemented incident response efforts, which included taking various systems and services offline as a proactive measure to secure our business operations and initiating an investigation with the assistance of leading outside security and forensic experts.
Removed
To align with the new operating model and business structure, we made management organizational changes and implemented new reporting modules and processes to provide discrete information to manage the business. Effective July 3, 2021, management finalized its assessment of our operating segments and concluded that we now have two reportable segments: Flash and HDD.
Added
In collaboration with outside forensic experts, we confirmed that an unauthorized party obtained a copy of a Western Digital database used for our online store that contained some personal information of our online store customers. This information included customer names, billing and shipping addresses, email addresses and telephone numbers.
Removed
In conjunction with that review process, we announced that we had entered into a letter agreement with Elliott Investment Management L.P. (“Elliott”), which had disclosed in May 2022 a $1 billion investment in our Company and called for a full strategic review of our business.
Added
In addition, the database contained, in encrypted format, hashed and salted passwords and partial credit card numbers. We have provided notifications to impacted customers and relevant governmental authorities. The incident, together with the incident response efforts discussed above, resulted in some disruptions to our business operations, including manufacturing, sales, fulfillment and general corporate activities.
Removed
During 2022 , new information became available which required us to re-measure our unrecognized tax benefits for this IRS matter. We and the IRS tentatively reached a settlement for resolving this matter.
Added
We were able to stabilize core operations after a short period of time and brought impacted systems back online in order of operational priority. The incident did not have a material impact on the financial results in 2023.
Removed
During 2022, we incurred charges of $207 million related to this contamination incident that were recorded in cost of revenue and primarily consisted of scrapped inventory and rework costs, decontamination and other costs needed to restore the facilities to normal capacity, and under absorption of overhead costs. We are evaluating potential options for recovery.
Added
Investigation, recovery, and remediation expenses, including costs for forensics activities, third-party consulting and service providers, outside legal advisors, and other IT professionals, as a result of the network security incident were not material to the Consolidated Financial Statements.
Removed
Financing Activities During 2022, we continued to execute on our commitment to reduce our overall debt levels and Fitch Ratings, Inc. raised our Company credit rating to investment grade in December 2021.
Added
We maintain cyber insurance, subject to certain deductibles and policy limitations, typical for our size and industry. 33 Table of Content s Strategic Alternatives In June 2022, we announced that we are reviewing potential strategic alternatives aimed at further optimizing long-term value for stockholders.
Removed
We fully repaid our Term Loan B-4 in October 2021 and shortly thereafter initiated a series of transactions to further reduce our debt levels and better stagger the maturities of our debt.
Added
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.
Removed
In December 2021, we issued $500 million aggregate principal amount of 2.850% senior unsecured notes due February 1, 2029 (the “ 2029 Notes ”) and we issued $500 million aggregate principal amount of 3.100% senior unsecured notes due February 1, 2032 (the “ 2032 Notes ”).
Added
Financing Activities In December 2022 and in June 2023, we amended the loan agreement governing our Term Loan A-2 and revolving credit facility to provide additional financial flexibility as we navigate through the current dynamic economic environment.
Removed
We used the proceeds from these note offerings and available cash to voluntarily repay $1.21 billion of our Term Loan A-1 and reduce the principal amount to $3.0 billion as of December 31, 2021.
Added
The amendments modified our financial covenant requirements, including modifying the leverage ratio requirements, and introducing a minimum liquidity covenant applicable through the quarter ending September 27, 2024 and a minimum free cash flow requirement applicable through the quarter ending December 29, 2023.
Removed
In January 2022, we amended and restated our existing loan agreement to provide for, among other things: (i) the issuance of a new $3.0 billion Term Loan A-2 maturing in January 2027 to replace our previously existing Term Loan A-1; (ii) the availability of a new $2.25 billion revolving credit facility maturing in January 2027 to replace our previously existing $2.25 billion revolving credit facility; and (iii) additional covenant flexibility and other modifications.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs of July 1, 2022, a one percent increase in the variable rate of interest would increase annual interest expense by $27 million. We currently have pay-fixed interest rate swaps of $2.0 billion notional amount, which would mitigate the impact of fluctuations in variable interest rates noted above through February 2023.
Biggest changeAs 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.
Therefore, we have performed sensitivity analyses for 2022 and 2021, 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.
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.
As of July 2, 2022, 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%.
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%.
During 2022, 2021 and 2020, total net realized and unrealized transaction and foreign exchange contract currency gains and losses were not material to our Consolidated Financial Statements.
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.
For 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. 46 Table of Contents
For 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
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 July 1, 2022 and July 2, 2021.
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 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 $306 million and $183 million at July 1, 2022 and July 2, 2021, 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 $285 million and $306 million at June 30, 2023 and July 1, 2022, respectively.
Disclosure About Interest Rate Risk Variable Interest Rate Risk We have generally held a balance of fixed and variable rate debt. As of July 1, 2022, we had reduced the amount of variable rate debt to $2.70 billion from $5.43 billion as of July 2, 2021.
Disclosure About Interest Rate Risk Variable Interest Rate Risk We have generally held a balance of fixed and variable rate debt.

Other WDC 10-K year-over-year comparisons