Adaptec 2005 Annual Report Download - page 18

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Table of Contents
BACKLOG
Our sales originate from customer purchase orders. However, our customers frequently revise order quantities and shipment schedules to reflect changes in their
requirements. As of December 30, 2007, our backlog of products scheduled for shipment within three months totaled approximately $95.5 million. Unless our
customers cancel or defer to a subsequent year a portion of this backlog, we expect this entire backlog to be filled in 2008. Our backlog of products as of
December 31, 2006 for shipment within three months totaled approximately $75.3 million.
Our backlog includes our backlog of shipments to direct customers, minor distributors and a portion of shipments by our major distributor to end customers. Our
customers may cancel or defer backlog orders. Accordingly, we believe that our backlog at any given time is not a meaningful indicator of future long-term
revenues.
COMPETITION
We typically face competition at the customer design stage when our customers are determining which semiconductor components to use in their equipment
designs.
Most of our customers choose a particular semiconductor component primarily based on whether the component:
• meets the functional requirements;
• interfaces easily with other components in the product;
• meets power usage requirements;
• is priced competitively; and
• is commercially available on a timely basis.
OEMs are becoming more price conscious as semiconductors sourced from third party suppliers start to comprise a larger portion of the total materials cost in
OEM equipment. This price sensitivity from our customers can lead to aggressive price competition by competing suppliers that may force us to decrease our
prices significantly to win a design and therefore decrease our gross profit.
OEMs also consider the quality of the supplier when determining which component to include in a design. Many of our customers will consider the breadth and
depth of the supplier’s technology, as using one supplier for a broad range of technologies can often simplify and accelerate the design of next generation
equipment. OEMs will also consider a supplier’s design execution reputation, as many OEMs design their next generation equipment concurrently with the
semiconductor component design. OEMs also consider whether a supplier has been pre-qualified, as this ensures that components made by that supplier will
meet the OEM’s quality standards.
We compete against established peer-group semiconductor companies that focus on the communications and storage semiconductor business. These companies
include Applied Micro Circuits, Broadcom, Conexant, Cortina, Emulex, Exar, Freescale, Infineon, LSI Logic, Marvell, Maxim, and Texas Instrument. Many of
these companies are well financed, have significant communications semiconductor technology assets and established sales channels, and depend on the market
in which we participate for the bulk of their revenues.
12
Source: PMC SIERRA INC, 10-K, February 22, 2008