Audiovox 2003 Annual Report Download - page 21

depress sales of existing products and technologies. This may result in
declining prices and inventory obsolescence. Since we maintain a substantial
investment in product inventory, declining prices and inventory obsolescence
could have a material adverse effect on our business and financial results. (see
further discussions in Business Overview Page 32).
As a result of the emergence of the digital market, which resulted in the
reduction of selling prices of analog hand−held phones, we recorded an analog
inventory write−down to market of $13.5 million in fiscal 2001. This write−down
had a material adverse effect on our profitability. As a result of increasing
pricing pressures and a surplus of supply created by other manufacturers also
attempting to sell off analog inventories, there was a drop off in demand for
analog products. The write−down was based upon the drop in demand, as carriers
no longer promoted analog product and notified the Company that previous
indications for orders of analog phones were no longer viable. Also during 2001,
the Company recorded an additional inventory write−down to market of $7,150
associated with older digital products as newer products were being introduced.
During fiscal 2002 and 2003, Wireless recorded inventory write−downs of
$13.8 and $2.8 million, respectively, due to more current technological advances
in the market. These write−downs were made based upon open purchase orders from
customers and selling prices subsequent to the respective balance sheet dates as
well as indications from customers based upon the then current negotiations.
There can be no assurance that this will not occur again given the emergence of
new technologies.
We Depend on a Small Number of Key Customers For a Large Percentage of Our
Sales.
The wireless industry is characterized by a small number of key customers.
Specifically, 70%, 71% and 72% of our wireless sales were to five wireless
customers in fiscal 2001, 2002 and 2003, respectively. The loss of one or more
of these customers would have a material impact on our business.
We Do Not Have Long−term Sales Contracts with Any of Our Customers.
Sales of our wireless products are made by written purchase orders and are
terminable at will by either party. The unexpected loss of all or a significant
portion of sales to any one of our large customers could have a material adverse
effect on our performance. Sales of our electronics products are made by
purchase order and are terminated at will at the option of either party. We do
not have long−term sales contracts with any of our customers. The unexpected
loss of all or a significant portion of sales to any one of these customers
could result in a material adverse effect on our performance.
We Could Lose Customers or Orders as a Result of Consolidation in the Wireless
Telecommunications Carrier Industry.
As a result of global competitive pressures, there has been significant
consolidation in the wireless industry which has caused extreme price
competition. Future consolidations could cause us to lose business if any of the
new consolidated entities do not perform as they expect to because of
integration or other problems. In addition, these consolidations will result in
a smaller number of wireless carriers, leading to greater competition in the
wireless handset market and may favor one or more of our competitors over us.
This could also lead to fluctuations in our quarterly results and carrying value
of our inventory. If any of these new entities orders less product from us or
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