Adaptec 2006 Annual Report Download - page 22

Table of Contents
We are involved in litigation with UTStarcom that may be expensive and time consuming.
In November 2005, UTStarcom, Inc. filed a suit against Passave in the Santa Clara County Superior Court in California, which is more fully described under Part
I Item 3. “Legal Proceedings”. We believe that we have meritorious defenses to UTStarcom’s claims. Although we have attempted to try to resolve this claim, we
may not be able to do so on reasonable terms, if at all. If PMC loses this litigation, a court could require us to pay substantial damages. Any negotiated resolution
of the UTStarcom claim could also require PMC to make substantial payments. Either of these results could have a material adverse effect on our business,
results of operations and financial condition.
Changes in the political and economic climate in China and Taiwan may have a significant impact on our profitability.
China represents a significant portion of our net revenues (15% and 19% for the years ended December 31, 2006 and 2005, respectively) and substantially all of
Passave’s revenues in 2006 were derived from product sales in Japan. Our financial condition and results of operations are becoming increasingly dependent on
our sales in China and the majority of our wafer supply comes from Taiwan. China has large organizations with major programs that can start and stop quickly.
For example, in 2004 our operating profits were adversely affected by a sudden slowdown in telecom infrastructure build-out in China. Instability in China’s
economic environment could lead to a contraction of capital spending by our customers. Economic shutdowns, decreases in demand in these markets for our
products and overall negative market conditions in Asia could have a disproportionate effect on our overall business results. Additional risks to us include
economic sanctions imposed by the U.S. government, imposition of tariffs and other potential trade barriers or regulations, uncertain protection for intellectual
property rights and generally longer receivable collection periods.
Hostilities in Israel may have a significant impact on our Israeli subsidiary’s ability to conduct its business.
One of our subsidiaries is located in Israel, and employs approximately 150 people. If regional hostilities resume, a significant number of the subsidiary’s
employees may be called into active military duty at any time. As a result, while product development schedules have not to date been impacted, there may be
delays in their ability to meet future development schedules. It is not clear if the hostilities will resume, and if so, how many PMC employees may be called to
military duty or otherwise affected by any potential hostilities.
Our revenues may decline if we do not maintain a competitive portfolio of products.
We are experiencing significantly greater competition from many different market participants as the market in which we participate matures. In addition, we are
expanding into markets, such as the wireless infrastructure, enterprise storage, customer premise equipment, and generic microprocessor markets, which have
established incumbents with substantial financial and technological resources. We expect more intense competition than that which we have traditionally faced as
some of these incumbents derive a majority of their earnings from these markets.
20
Source: PMC SIERRA INC, 10-K, March 01, 2007 Powered by Morningstar® Document Research℠