Adaptec 2006 Annual Report Download - page 19

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Table of Contents
ITEM 1A. Risk Factors.
Our Company is subject to a number of risks affecting our operating results – some are normal to the fabless semiconductor industry, some are the same or
similar to those disclosed in previous SEC filings, and some may be present in the future. You should carefully consider all of these risks and the other
information in this report before investing in PMC. The fact that certain risks are endemic to the industry does not lessen the significance of the risk.
We are subject to rapid changes in demand for our products due to short order lead times, customer inventory levels, production schedules,
fluctuations in demand for networking equipment and our customer concentration.
As a result of the following risks, our business, financial condition or operating results could be materially adversely affected. This could cause the trading price
of our securities to decline, and you may lose part or all of your investment.
Our revenues and profits may fluctuate because of factors that are beyond our control, including variation in our turns business.
Our ability to project revenues is limited because a significant portion of our quarterly revenues may be derived from orders placed and shipped in the same
quarter, which we call our “turns business.” Our turns business varies widely quarter to quarter. Our customers may delay product orders and reduce delivery
lead-time expectations, which reduces our ability to project revenues beyond the current quarter. While we evaluate end users’ and contract manufacturers’
inventories of our products to assess the impact of inventories on our projected turns business, we do not have complete information on their inventories. This
could cause our projections of a quarter’s turn business to be inaccurate, leading to lower revenues than projected.
We may fail to meet our forecasts if our customers cancel or delay the purchase of our products.
Many of our customers have numerous product lines, numerous component requirements for each product, sizeable and complex supplier structures, and
typically engage contract manufacturers for additional manufacturing capacity. In addition, our customers often shift buying patterns as they manage inventory
levels, market different products, or change production schedules. This makes forecasting their production requirements difficult and can lead to an inventory
surplus of certain of their components. This also reduces our visibility for revenues beyond the current quarter, so projections of full-year results based on current
guidance from customers may not be realized.
We may be unable to deliver products to customers when they require them if we incorrectly estimate future demand, and this may cause the timing of shipments
of our products to fluctuate. Our book-to-bill ratio in a quarter does not predict accurately revenues in the next quarter. Because a significant portion of our
operating expenses are fixed, even a small revenue shortfall can have a disproportionately negative effect on our operating results.
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Source: PMC SIERRA INC, 10-K, March 01, 2007 Powered by Morningstar® Document Research℠