Adaptec 2001 Annual Report Download - page 3

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3
• customer networking product inventory levels, needs and order levels;
• revenues;
• the degree to which our future revenues are booked and shipped within the same reporting
period, or “ turns business” ;
• gross profit;
• research and development expenses;
• marketing, general and administrative expenditures;
• interest and other income;
• capital resources sufficiency;
• capital expenditures;
• restructuring activities, expenses and associated annualized savings; and
• our business outlook.
This discussion contains forward-looking statements that are subject to known and unknown
risks, uncertainties and other factors that may cause our actual results, levels of activity,
performance, achievements and prospects to be materially different from those expressed or
implied by such forward-looking statements. These risks, uncertainties and other factors
include, among others, those identified under “ Factors That You Should Consider Before
Investing In PMC-Sierra” and elsewhere in this Annual Report.
INDUSTRY OVERVIEW
During the 1990’s, the Internet experienced enormous growth as more households, enterprises
and corporations connected to and increased their utilization of the Internet. Traffic on the
netw ork continued to increase due to a growing number of web-based applications (such as e-
commerce, e-mail, videoconferencing, webcasting, virtual private networks and networked
storage). H igher volumes of data are being transmitted betw een local area networks (LA Ns),
metro area networks (MA Ns) and wide area netw orks (WA Ns) as a result of this increased
connectivity and usage of the Internet.
The growth in data traffic placed increasing pressure on the existing telecommunications
netw ork infrastructure , which was originally constructed for voice communication rather than
data transmission. Many of the incumbent telephone companies (such as AT& T, Sprint,
WorldCom, NTT, British Telecom and Deutsche Telekom) and Regional Bell Operating
Companies (such as Verizon, BellSouth, and SBC) began investing in data networks to meet the
growing demands of their customers. A t the same time, deregulation of the
telecommunications industry and privatization of many European carriers resulted in increased
market competition. The abundance of capital available in the public and private markets also
accelerated a build out of new netw ork infrastructure. Numerous competitive carriers were
launched with the intention of capturing significant share of (i) long-haul and ultra long-haul
data traffic (such as Global Crossing, Level 3, Williams); and (ii) the local/ regional data
markets (such as Covad, N orthpoint and RhythmsNet). This caused a significant increase in
capital spending on networking equipment by both the incumbent and competitive carriers.
During this period of rapid expansion, our customers - - the netw orking equipment companies
(“ OEM s” ) - - placed increased pressure on their suppliers to ensure they had the components
needed to fulfill the expected growth in demand. With many of the semiconductor foundries at
full capacity at the time, the OEMs often ordered more devices than necessary in an attempt to