8x8 1999 Annual Report Download - page 19

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be better able than the Company to initiate and withstand significant price competition or downturns in the economy. There can be no
assurance that the Company will be able to continue to compete effectively, and any failure to do so would have a material adverse effect on
the Company's business and operating results.
MANUFACTURING
The Company outsources the manufacturing of its semiconductors and its Broadband Telephony, Video Monitoring and ViaTV system
Semiconductor Manufacturing Corporation. Subcontract manufacturers include EFA Corporation in Taiwan and Flash Electronics in Fremont,
California. The Company also relies on Amkor/Anam Electronics in South Korea for packaging and testing of its semiconductors. The
Company does not have long term purchase agreements with its subcontract manufacturers or its component suppliers. There can be no
assurance that the Company's subcontract manufacturers will be able or willing to reliably manufacture the Company's products, or that the
Company's component suppliers will be able or willing to reliably supply components for the Company's products, in volumes, on a cost
effective basis or in a timely manner. The Company may experience difficulties due to its reliance on independent semiconductor foundries,
subcontract manufacturers and component suppliers that could have a material adverse effect on the Company's business and operating results.
In addition, from time to time the Company may issue non-cancelable purchase orders to its third-
party manufacturers for raw materials used in
its Video Monitoring or other potential system level products to ensure availability for long lead-time items or to take advantage of favorable
pricing terms. If the Company should experience decreased demand for its Video Monitoring products or future system level 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 system
level product demand, such purchase commitments could have a material adverse effect on the Company's business and operating results.
RESEARCH AND DEVELOPMENT
ended March 31, 1999, 1998 and 1997 were $9.9 million, $12.3 million and $10.5 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 digital and multimedia communication
semiconductors have and will continue to focus on the Company's next generations of these products. Areas of emphasis will include enhanced
versions of its digital communication semiconductor architectures 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 audio and video telephony standards and protocols, quality and performance enhancements to
multimedia compression algorithms and additional features supporting both the Company's Broadband Telephony and Video Monitoring
products.
Research and development efforts relating to the Company's Broadband Telephony products are directed towards the addition of features,
network protocols and audio enhancements to systems which include the Audacity semiconductor and Symphony VoIP module. To expand its
line of telephony products, the Company
* 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 15, "Competition" commencing on
page 13 and "Factors That May Affect Future Results" commencing on page 17 for a discussion of certain factors that could affect future
performance.
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