Adaptec 2001 Annual Report Download - page 32

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Business Outlook
Our networking revenues declined in 2001 compared to 2000 because:
• in reaction to lower than expected demand for network services and rising debt levels,
netw ork service providers spent less on the netw orking equipment that our customers sell
and which include our netw orking products, and
• our customers consumed a portion of the significant excess inventories of our netw orking
products that they accumulated in 2000 and the first quarter of 2001.
Most of our networking customers’ clients have announced further anticipated declines in
expenditures on our customers’ equipment and some have either filed or will soon file for
bankruptcy protection. M ost of our customers continue to restructure their operations, cut
significant product development efforts, reduce their excess component inventories, and divest
parts of their operations.
While we expect the netw orking equipment industry downturn to continue into 2002, we
believe that our customers and their contract manufacturers have depleted a significant portion
of their inventories of our netw orking products. In addition, w e believe our customers have
designed more of our next generation networking semiconductors into their equipment than in
prior years. This suggests that our netw orking revenues will stabilize in 2002, albeit at lower
levels than in 2001. We expect to experience quarterly sequential grow th in the first quarter of
2002. We expect that the pattern of our quarterly networking revenues to be volatile in 2002 as
a result of fluctuating customer demand forecasts and inventory levels. At any time our
networking revenues may decline further if our customers’ clients announce further reductions
in spending on our customers’ equipment. Recent news releases indicate that network service
providers continue to struggle financially and may further decrease expenditures on our
customers’ products.
We expect sales of our non-networking device to decline significantly by the second quarter of
2002 as the next generation product that our principal customer has designed no longer
incorporates our non-networking device.
We expect our total R&D and MG&A expenses to decline in 2002 as compared to 2001 as a
result of the tw o restructurings we undertook in 2001. We estimate that our quarterly overhead
expenses will be in the mid $50 million range, excluding any special charges, for the foreseeable
future.
In July 2001, the Financial A ccounting Standards Board issued Statement of Financial
Accounting Standard No.142 (SFAS 142), "Goodw ill and Other Intangible Assets". SFA S 142
specifies that goodw ill will no longer be amortized but instead will be subject to impairment
tests at least annually. We will not amortize goodwill in 2002. We will complete an initial
goodwill impairment assessment in the second quarter of 2002 to determine if a transition
impairment charge should be recognized under SFAS 142.
We anticipate that interest and other income will decline significantly in 2002 as compared to
2001 because we expect to earn lower average yields on our cash balances and expect to
consume cash throughout 2002 for operations.