Adaptec 2006 Annual Report Download - page 42

Table of Contents
I TEM 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.
OVERVIEW
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, the majority of our revenues in 2006 came from products that were acquired through
business combinations in 2006 or were developed in 2005 and earlier. After an individual product is completed and announced it may take several years before
that device generates any significant revenues. Our current revenue is generated by a portfolio of approximately 270 products.
In addition to incurring costs for the marketing, sales, and administration of selling existing products, we expend a substantial amount every year for the
development of new semiconductor devices. We determine the amount to invest in the development of new semiconductors based on our assessment of the future
market opportunities for those components, and the estimated return on investment. To compete globally we must invest in businesses and technologies that are
both growing in demand and cost competitive in the geographic markets that we serve. Going forward, we plan to continue to aggressively focus on the cost side
of our business and find ways to improve on operational efficiencies.
In 2006 we completed the integration of the Storage Semiconductor Business, which we acquired from Avago on February 28, 2006. Our consolidated results
include the results of the Storage Semiconductor Business from the acquisition date. We purchased the Storage Semiconductor Business due to the market
position the Storage Semiconductor Business has in the Fibre Channel controller market and the growth opportunities for standard semiconductor solutions in the
enterprise storage market. Since the acquisition we have experienced the benefits from product synergies between the Storage Semiconductor Business’ Fibre
Channel controllers and PMC’s Fibre Channel and SAS disk-interconnect products. This acquisition contributed $95.7 million in revenues during the ten months
since the acquisition date, primarily from the Tachyon product line, and we expect continued growth in 2007.
During the fourth quarter of 2006 we continued the financial and operational integration of Passave Inc., which we acquired on May 4, 2006. Passave develops
system-on-chip semiconductor solutions for the Fiber To The Home (FTTH) access market. The results of Passave are included in our consolidated results from
the date of acquisition. We purchased Passave due to its market share leadership in Passive Optical Networking (PON) solutions for central office and customer
premise FTTH applications, and in the eight months since the acquisition date, Passave contributed $30.7 million in revenues. In the second half of 2006 we
experienced lower activity levels of FTTH deployment in Japan, especially as it relates to Ethernet Passive Optical Networking (EPON) products, due partly to a
slowdown in equipment orders in Japan, and also due to a lower ratio of network-based to subscriber-based Optical Networking Units (ONU’s) to Optical Line
Terminals (OLT’s) which are installed in central offices, than originally anticipated. We expect orders for both OLT’s and ONU’s in Japan to slowly improve in
the first half of 2007.
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Source: PMC SIERRA INC, 10-K, March 01, 2007 Powered by Morningstar® Document Research℠