Circuit City 2002 Annual Report Download - page 8

Research and Development
The Company's research and development teams design and develop products for Systemax' private label
offerings. The individuals responsible for research and development have backgrounds in engineering and industrial
design.
This in-house capability provides important support to the private label offerings. Products designed include
PCs, servers, furniture, ergonomic monitor support arms, printer and monitor stands, wrist rests and other durable
computer related products, storage racks and shelving systems, various stock and storage carts, work benches, plastic
bins and shop furniture. The Company owns the tooling for many of these products, including plastic bins, computer
accessories, furniture, and metal alloy monitor arms. See "Research and Development Costs" in Footnote 1 to the
Consolidated Financial Statements for further information.
Competition and Other Market Factors
PCs and Notebook Computers
The North American and European computer markets are highly competitive, with many U.S., Asian and
European companies vying for market share. There are few barriers of entry to the PC market, with PCs being sold
through the direct market channel, mass merchants, over the internet and computer and office supply superstores.
Certain PC manufacturers that have traditionally sold to wholesalers via the wholesale/retail sales channel are now
marketing their products directly to end users in order to compete more effectively with established direct marketers.
Timely introduction of new products or product features are critical elements to remaining competitive. Other
competitive factors include product performance, quality and reliability, technical support and customer service,
marketing and distribution and price. There can be no assurance that the Company will be able to maintain or improve
its current competitive position with respect to any of these or other competitive factors. Some of the Company's
competitors have stronger brand-
recognition, broader product lines and greater financial, marketing, manufacturing and
technological resources than the Company. Additionally, the Company's results could also be adversely affected should
it be unable to maintain its technological and marketing arrangements with other companies, such as Microsoft®,
Intel® and Advanced Micro Devices®.
Continued weakness in the global economy has led to a slowdown in PC sales. This slowdown has resulted in
lower selling prices among our competitors creating an extremely competitive environment that has affected and may
continue to affect profitability over the short-term. The Company's long-
term view of the PC market, however, remains
optimistic, although there can be no assurance that current economic conditions will soon improve.
Computer Related Products
The North American computer related products market is highly fragmented and characterized by multiple
channels of distribution including direct marketers, local and national retail computer stores that carry computer
supplies, computer resellers, mass merchants, computer and office supply "superstores" and internet-based resellers.
In Europe, the Company's major competitors are regional or country-specific retail and direct-mail distribution
companies and internet-based resellers.
As with PCs, the slowing global economy has led to a highly competitive environment resulting in the overall
reduction in retail prices for computer related products which may adversely affect the Company's future revenues and
profits. Additionally, the Company relies in part upon the introduction of new technologies and products by other
manufacturers in order to sustain long-term sales growth and profitability. There is no assurance that the rapid rate of
such technological advances and product development will continue.
Industrial Products
The market for the sale of industrial products in North America is highly fragmented and is characterized by