8x8 1998 Annual Report Download - page 15

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time items or to take advantage of favorable pricing terms. If the Company should experience decreased demand for its VideoCommunicator
products, the Company would still be required to take delivery of and make payment for such raw materials. In the event of a significant
decrease in VideoCommunicator product demand, such purchase commitments could have a material adverse effect on the Company's business
and operating results. The Company's reliance on foreign subcontract manufacturers involves a number of risks. See "Factors That May Affect
Future Results -- International Operations."
RESEARCH AND DEVELOPMENT
As of March 31, 1998, the Company had 55 employees engaged in research and development. Research and development expenses in the years
ended March 31, 1998, 1997 and 1996 were $12.3 million, $10.5 million and $7.7 million, respectively. The Company's development of new
products and the enhancement of existing products is essential to its success.* Accordingly, the Company anticipates that research and
developments expenses will continue to increase in the foreseeable future.* However, such expenses may fluctuate from quarter to quarter
depending on a wide range of factors, including the status of and prospects for various development projects.*
The Company's current and future research and development efforts relating primarily to video communication semiconductors have and will
continue to focus on the Company's next generations of these products.* Areas of emphasis will include an enhanced version of its video
communication semiconductor architecture intended to provide higher performance, enhanced functionality and further integration of certain
essential system functions.* This integration is designed to permit improved system price/performance.* Future software developments may
focus on emerging video telephony standards, picture quality enhancements and additional features supporting both the Company's systems
products and its OEM customer products.*
Research and development efforts relating to the Company's VideoCommunicators are directed towards the addition of features and picture and
audio quality enhancements.* To expand its family of VideoCommunicators, the Company is developing new form factors and products that
are designed to comply with emerging video telephony standards.*
If the Company is unable to develop and introduce new or enhanced products in a timely manner, or if such new or enhanced products do not
achieve sufficient market acceptance, it would have a material adverse effect on the Company's business and operating results. See "Factors
That May Affect Future Results -- Uncertainty of Market Acceptance; Limits of Existing Technology" and "Factors That May Affect Future
Results -- Rapid Technological Change; Dependence on New Product Introduction."
LICENSING AND DEVELOPMENT ARRANGEMENTS
The Company has entered into licensing and development arrangements with other companies to promote the design, development,
manufacture and sale of the Company's products. The Company intends to continue to license its semiconductor, software and systems
technology to other companies, many of which are current or potential competitors of the Company. Such arrangements may enable these
companies to use the Company's technology to produce products that compete with the Company's VideoCommunicators. See "Competition."
The Company's most significant licenses are with 3Com and KME.
On May 5, 1997, the Company entered into a license agreement with 3Com. Pursuant to the agreement, the Company has granted to 3Com, for
an initial license fee plus certain royalties, a license to make, use and sell systems and products containing the Company's proprietary
technology relating to its VideoCommunicators and its PC-related video communication products. As a result, 3Com has a license to
substantially all of the Company's technology underlying its VideoCommunicators. 3Com is prohibited under the agreement
* This statement is a forward looking statement reflecting current expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. See "Manufacturing" commencing on page 10, "Competition" on page 13 and
"Factors That May Affect Future Results" commencing on page 14 for a discussion of certain factors that could affect future performance.
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