Garmin 2005 Annual Report Download - page 51

21
Historically, we have experienced steady increases in demand for our products although we did experience a
decline in demand for our aviation products in 2001 due to declining economic conditions and the shut down of U.S.
airspace as a result of the terrorist attacks that occurred on September 11, 2001. We have generally been able to
increase production to meet this increasing demand. However, the demand for our products depends on many
factors and will be difficult to forecast. We expect that it will become more difficult to forecast demand as we
introduce and support multiple products and as competition in the market for our products intensifies. Significant
unanticipated fluctuations in demand could cause the following problems in our operations:
y If demand increases beyond what we forecast, we would have to rapidly increase production. We would
depend on suppliers to provide additional volumes of components and those suppliers might not be able
to increase production rapidly enough to meet unexpected demand.
y Rapid increases in production levels to meet unanticipated demand could result in higher costs for
manufacturing and supply of components and other expenses. These higher costs could lower our profit
margins. Further, if production is increased rapidly, manufacturing quality could decline, which may also
lower our margins and reduce customer satisfaction.
y If forecasted demand does not develop, we could have excess production resulting in higher inventories
of finished products and components, which would use cash and could lead to write-offs of some or all of
the excess inventories. Lower than forecasted demand could also result in excess manufacturing capacity
or reduced manufacturing efficiencies at our facilities, which could result in lower margins.
We may become subject to significant product liability costs.
If our aviation products malfunction or contain errors or defects, airplane collisions or crashes could occur
resulting in property damage, personal injury or death. Malfunctions or errors or defects in our marine navigational
products could cause boats to run aground or cause other wreckage, personal injury or death. If any of these events
occurs, we could be subject to significant liability for personal injury and property damage and under certain
circumstances could be subject to a judgment for punitive damages. We maintain insurance against accident-related
risks involving our products. However, there can be no assurance that such insurance would be sufficient to cover
the cost of damages to others or that such insurance will continue to be available at commercially reasonable rates.
In addition, insurance coverage generally will not cover awards of punitive damages. If we are unable to maintain
sufficient insurance to cover product liability costs or if our insurance coverage does not cover the award, this could
have a materially adverse impact on our business, financial condition and results of operations.
We depend on our suppliers, some of which are the sole source for specific components, and our production
would be seriously harmed if these suppliers are not able to meet our demand and alternative sources are not
available, or if the costs of components rise.
We are dependent on third party suppliers for various components used in our current products. Some of
the components that we procure from third party suppliers include semiconductors and electroluminescent panels,
liquid crystal displays, memory chips and microprocessors. The cost, quality and availability of components are
essential to the successful production and sale of our products. Some components we use are from sole source
suppliers. Certain application-specific integrated circuits incorporating our proprietary designs are manufactured for
us by sole source suppliers. Alternative sources may not be currently available for these sole source components.
In the past (including in the first half of 2004) we have experienced shortages of liquid crystal displays and
other components. In addition, if there are shortages in supply of components, the costs of such components may
rise. If suppliers are unable to meet our demand for components on a timely basis and if we are unable to obtain an
alternative source or if the price of the alternative source is prohibitive, or if the costs of components rise, our ability
to maintain timely and cost-effective production of our products would be seriously harmed.
We license mapping data for use in our products from various sources. There are only a limited number of
suppliers of mapping data for each geographical region. If we are unable to continue licensing such mapping data