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Our Competitive StrengthsDisk drive technology is a fundamental building block of any network storage system. We believeour leadership in developing and providing high-density automation and disk drive test equipment,combined with our experience in developing high-density network storage subsystems, has uniquelypositioned us to understand our customer needs and drive innovation in both our product segments. Inparticular, we believe that the following attributes of our business position us to take advantage ofmarket opportunities:Leadership in High-Growth Market SegmentsWe are an established leader in key segments of the external storage and networking markets. Weare the leading subsystem provider to OEMs in the NAS systems segment and based on data from IDCwe believe we ship over 9% of the shipments in terms of terabytes in the world wide external storagesystems market. We are also the leading independent supplier of disk drive production test and servotrack writing process equipment to the disk drive industry. We estimate that over 55 percent of all3.5 inch disk drives shipped worldwide and over 20% of the 2.5 inch disk drives shipped worldwide areprocessed through our technology in either the servo writer or final test and qualification processes. Weare well positioned to become a leader in providing technology to OEMs in Capacity-OptimizedStorage Systems segment. This segment integrates high density desk top drives into the enterprisestorage systems market by incorporating SATA and SAS disk drive technologies. SATA based systemsprovide a key, cost effective enabler for such data storage, disk-to-disk backup and NearLineapplications. These systems, coupled with advancements in virtualization software are enabling growingimplementation in ‘‘tiered storage’’ architecture.Excellence in Technology InnovationWe are a leader in high-specification design of high-density, scalable, storage subsystems andautomated process test equipment. We are also a leader in the development and integration of networkcommunication protocols and switching technologies. As of November 30, 2005, we employed 386research and development professionals, which represent 27% of our total employees. Our position as aleader in providing networked storage subsystem technology and disk drive automation and process testequipment has enabled us to deliver innovative and first-to-market products that complement ourcustomers’ core competencies.Our history of innovation and first-mover positioning has contributed to our success in winninglarge OEM contracts and developing long-term customer relationships. For example, in 2002 we werefirst to offer our OEM customers the new ‘‘switched bunch of disks,’’ or SBOD, technology. Thisinnovative technology can offer substantial increases in performance, data availability and serviceabilityin certain customer applications. We demonstrated our third generation SBOD incorporating 4 gigabitsper second Fibre Channel technology in 2004. We also demonstrated SAS storage systems with SAShost connection through SAS expander technology in 2004. In 2005 we announced a number ofsignificant patent filings in the areas of optical backplane interconnect and revolutionary congestionmanagement techniques required in multi stage switching networks.We are focused on providing stronger and more competitive RAID solutions to our OEMcustomers with greater flexibility and value-added features. To this end, we have and will continue toinvest heavily in RAID products and technology.In 2002, we were first-to-market with a revolutionary high-density automated disk drive productiontest process. This process automation significantly increases the process efficiencies within the final testand qualification stages of disk drive production, and enhances the competitive positioning of ourcustomer base. In 2004 we optimized the automated production test process platform for 2.5 inchdrives, reflecting the growing importance of the smaller form factor technology within our customerbase. We continue to research opportunities for automated optical inspection processes in magneticmedia production processes.26