Adaptec 2001 Annual Report Download - page 37

Download and view the complete annual report

Please find page 37 of the 2001 Adaptec annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 93

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93

37
• Customer inventory consumption may not correlate with purchases of product from our
inventories or the inventories of our distributors. The PM C products that our customers
require may shift as the technologies underlying their new products evolve.
We rely on a few customers for a major portion of our sales, any one of which could
materially impact our revenues should they change their ordering pattern.
We depend on a limited number of customers for a major portion of our revenues. Through
direct, distributor and subcontractor purchases, Cisco Systems and Lucent Technologies each
accounted for more than 10% of our fiscal 2001 revenues. Both of these companies have
recently announced order shortfalls for some of their products.
We do not have long-term volume purchase commitments from any of our major customers.
Accordingly, our future operating results will continue to depend on the success of our largest
customers and on our ability to sell existing and new products to these customers in significant
quantities. The loss of a key customer, or a reduction in our sales to any key customer or our
inability to attract new significant customers could materially and adversely affect our
business, financial condition or results of operations.
If the current downturn continues, we may have to add to our inventory reserve, which
would lead to a further decline in our operating profits.
As a result of the industry-wide reduction in capital spending and resulting significant
decrease in demand for our products, we determined that we had inventory levels that
exceeded our anticipated demand over the next twelve months. Accordingly, in 2001 we
recorded an inventory write-dow n of $20.7 million related to excess inventory on hand. The
inventory reserve was based on our revenue expectations through 2002. If future demand of
our products does not meet our expectations, we may need to take an additional w rite-down of
inventory.
If the recent trend of consolidation in the networking industry continues, many of our
customers may be acquired, sold or may choose to restructure their operations, which
could lead those customers to cancel product lines or development projects and our
revenues could decline.
The netw orking equipment industry is experiencing significant merger activity and partnership
programs. Through mergers or partnerships, our customers could seek to remove duplication
or overlap in their product lines or development initiatives. This could lead to the cancellation
of a product line into w hich our products are designed or a development project in which we
are participating. In the case of a product line cancellation, our revenues could be negatively
impacted. In the case of a development project cancellation, we may be forced to cancel
development of one or more products, which could mean opportunities for future revenues
from this development initiative could be lost.
Desi gn wins do not transl ate into near-term revenues and the ti ming of revenues from new ly
desi gned products is often uncertai n.