Adaptec 2003 Annual Report Download - page 23

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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of the financial condition and results of our operations should be read in conjunction with the Consolidated
Financial Statements and notes thereto included elsewhere in this Annual Report.
We generate revenues from the sale of semiconductor devices that we have designed and developed. Almost all of our revenues in
any given year come from the sale of semiconductors that are developed prior to that year. For example, more than 99% of our
revenues in 2003 came from parts developed in 2002 and earlier. After an individual part is completed and announced it may take
several years before that device generates any significant revenues. A portfolio of more than 180 products generates our current
revenue.
In addition to incurring costs for the marketing, sales and administration of the sale of existing products, we expend a substantial
amount every year for the development of new semiconductors. We decide on the amount to expend on the development of new
semiconductors based on our assessment of the future market opportunities for those components, and the estimated return those parts
will generate. For the past three years, we have expended more on the development of new parts than we generate in operating profit
from the sale of our existing parts. Throughout this period, we have reduced our research and development spending to a level that we
believe matches current market opportunities. As demand for our products in the end markets that we serve continues to improve then
we expect profitability to increase.
Net Revenues ($000,000)
2003 Change 2002 Change 2001
Networking products $ 247.9 17% $ 212.7 (29)% $ 300.2
Non−networking products $ 1.5 (72)% $ 5.4 (76)% $ 22.5
Total net revenues $ 249.4 14% $ 218.1 (32)% $ 322.7
Net revenues for 2003 increased $31.3 million, or 14%, over net revenues in 2002. Net revenues for 2002 decreased by $104.6
million, or 32%, from net revenues in 2001.
Networking
In 2003, we saw an improvement over the business conditions that had depressed demand for our communication products in 2001
and 2002. We saw improved demand for our microprocessor products in enterprise−related applications and products used in
asynchronous digital subscriber line (ADSL) infrastructure applications. Our customers began placing new orders for our products as
they depleted their inventories of our products that they had held over the past two years.
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