Adaptec 2003 Annual Report Download - page 42

than most companies because, in addition to selling our products in a number of countries, a significant portion of our research and
development and manufacturing is conducted outside the United States.
The geographic diversity of our business operations could hinder our ability to coordinate design and sales activities. If we are unable
to develop systems and communication processes to support our geographic diversity, we may suffer product development delays or
strained customer relationships.
We may lose our ability to design or produce products, could face additional unforeseen costs or could lose access to key customers
if any of the nations in which we conduct business impose trade barriers or new communications standards.
We may have difficulty obtaining export licenses for certain technology produced for us outside the United States. If a foreign
country imposes new taxes, tariffs, quotas, and other trade barriers and restrictions or the United States and a foreign country develop
hostilities or change diplomatic and trade relationships, we may not be able to continue manufacturing or sub−assembly of our
products in that country and may have fewer sales in that country. We may also have fewer sales in a country that imposes new
communications standards or technologies. This could inhibit our ability to meet our customers’ demand for our products and lower
our revenues.
Changes in political and economic climate in China may have a significant impact on our profitability.
China represents a significant and increasing portion of our net revenues (2003 – 14%, 2002 – 8%, 2001 – 10%). Our financial
condition and results of operations are becoming increasingly dependent on our sales in China. Any instability in China’s economic
environment could lead to a contraction of capital spending by our customers. Additional risks to us include economic sanctions
imposed by the U.S. government, implications with regard to travel and trade resulting from the recent SARS (severe acute respiratory
syndrome) outbreak, government regulation of exports, imposition of tariffs and other potential trade barriers, uncertain protection for
intellectual property rights and generally longer receivable collection periods.
We are exposed to the credit risk of some of our customers and we may have difficulty collecting receivables from customers based
in foreign countries.
Many of our customers employ contract manufacturers to produce their products and manage their inventories. Many of these
contract manufacturers represent greater credit risk than our networking equipment customers, who generally do not guarantee our
credit receivables related to their contract manufacturers.
In addition, international debt rating agencies have significantly downgraded the bond ratings on a number of our larger customers,
which had traditionally been considered financially stable. Should these companies enter into bankruptcy proceedings or breach their
debt covenants, collection of our significant accounts receivables with these companies could be jeopardized.
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