Adaptec 2001 Annual Report Download - page 35

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As a result of these factors, we have very limited revenue visibility and the rate by which
revenues are booked and shipped within the same reporting period is typically volatile. In
addition, our net bookings can vary sharply up and down within a quarter.
Our revenues have declined due to reduced demand in the markets we serve, and may
decline further in 2002.
Several of our customers’ clients have reported low er than expected demand for their services
or products, which has resulted in poor operating results and difficulty in accessing the capital
needed to build their networks or survive to profitability. M any of these companies are facing
increased competition and have either filed for bankruptcy or may become insolvent in the near
future. Concurrently, many of our customers’ more viable netw ork service provider clients
have accumulated significant debt loads to finance capital projects that have yet to generate
significant positive cash flows. Recent new s releases further indicate that carriers continue to
struggle financially and may further decrease expenditures on our customers’ products.
Consequently, most of our customers’ clients have announced significant reductions in current
and forecasted expenditures on the equipment our customers sell and have adjusted these
expenditures toward equipment which may generate financial return in a shorter time horizon.
This equipment may not incorporate, or may incorporate fewer, of our products.
In response to the actual and anticipated declines in networking equipment demand, many of
our customers and their contract manufacturers have undertaken initiatives to significantly
reduce expenditures and excess component inventories. Consequently, they have canceled or
rescheduled orders for our netw orking products. Many platforms in which our products are
designed have been cancelled as our customers cancel or restructure product development
initiatives or as venture-financed startup companies fail. Our revenues may be materially and
adversely impacted beyond 2001 if these conditions continue or worsen.
Our customers’ actions have materially and adversely impacted our revenues, reduced our
visibility of future revenue streams, caused an increase in our inventory levels, and made a
portion of our inventory obsolete. In addition, because some of our costs are fixed in the short
term, the reduction in demand for our products has caused our gross and net profit margins to
decline.
While we believe that our customers and their contract manufacturers are consuming a portion
of their inventory of PMC products, w e believe that those inventories as well as the weakened
demand that our customers are experiencing for their products, will continue to depress
revenues and profit margins beyond 2001 (see “ Business Outlook” above). We cannot
accurately predict when demand will strengthen or how quickly our customers will consume
their inventories of our products.
Our customers may cancel or delay the purchase of our products for reasons other than
the industry downturn described above.
Many of our customers have numerous product lines, numerous component requirements for
each product, sizeable and complex supplier structures, and often engage contract
manufacturers to supplement their manufacturing capacity. This makes forecasting their