8x8 1999 Annual Report Download - page 27

and third-party intellectual property into its products.* Some of this intellectual property includes analog components for which the Company
has little or no experience or in-house expertise. No assurance can be given that higher levels of design integration or the use of third-party
intellectual property will not adversely affect the Company's ability to deliver new integrated products on a timely basis, or at all.
PRODUCT COMPLEXITY
Products as complex as those offered by the Company frequently contain errors, defects and functional limitations when first introduced or as
new versions are released. The Company has in the past experienced such errors, defects or functional limitations. The Company sells products
into markets that are extremely demanding of robust, reliable, fully functional products. Therefore delivery of products with production defects
or reliability, quality or compatibility problems could significantly delay or hinder market acceptance of such products, which could damage
the Company's credibility with its customers and adversely affect the Company's ability to retain its existing customers and to attract new
customers. Moreover, such errors, defects or functional limitations could cause problems, interruptions, delays or a cessation of sales to the
Company's customers. Alleviating such problems may require significant expenditures of capital and resources by the Company. There can be
no assurance that, despite testing by the Company, its suppliers or its customers, errors, defects or functional limitations will not be found in
new products after commencement of commercial production, resulting in additional development costs, loss of, or delays in, market
acceptance, diversion of technical and other resources from the Company's other development efforts, product repair or replacement costs,
claims by the Company's customers or others against the Company, or the loss of credibility with the Company's current and prospective
customers. Any such event could have a material adverse effect on the Company's business, financial condition and results of operations.
INTERNATIONAL OPERATIONS
Sales to customers outside of the United States represented 43%, 47% and 54% of total revenues in the fiscal years ended March 31, 1999,
1998 and 1997, respectively. Specifically, sales to customers in the Asia Pacific region represented 26%, 25% and 33% of the Company's total
revenues for the fiscal years ended March 31, 1999, 1998 and 1997, respectively, while sales to customers in Europe represented 17%, 22%
and 21% of the Company's total revenues for the same periods, respectively.
International sales of the Company's semiconductors will continue to represent a substantial portion of the Company's product revenues for the
foreseeable future.* In addition, substantially all of the Company's current products are, and substantially all of the Company's future products
will be, manufactured, assembled and tested by independent third parties in foreign countries.* International sales and manufacturing are
subject to a number of risks, including general economic conditions in regions such as Asia, changes in foreign government regulations and
telecommunications standards, export license requirements, tariffs and taxes, other trade barriers, fluctuations in currency exchange rates,
difficulty in collecting accounts receivable and difficulty in staffing and managing foreign operations. The Company is also subject to
geopolitical risks, such as political, social and economic instability, potential hostilities and changes in diplomatic and trade relationships, in
connection with its international operations. A significant decline in demand from foreign markets, which may result from the current
economic conditions in the Asia Pacific region, or for other reasons could have a material adverse effect on the Company's business and
operating results.
* 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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