Garmin 2008 Annual Report Download - page 44

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22
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 our automotive or
marine products contain defects or errors in the mapping supplied by third-party map providers or if our users do not
heed our warnings about the proper use of these products, collisions or accidents could occur resulting in property
damage, 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 and may not cover the cost of associated legal fees and defense costs, which could
result in lower margins. 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, batteries 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 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 depend on third party licensors for the digital map data contained in our automotive/mobile products,
and our business and/or gross margins could be harmed if we become unable to continue licensing such
mapping data or if the royalty costs for such data rise.
We license digital 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. The two largest digital map suppliers are
NAVTEQ Corporation and Tele Atlas N.V. NAVTEQ Corporation is owned by Nokia Oyj and Tele Atlas N.V. is
owned by TomTom N.V. Nokia and TomTom are both competitors of Garmin.
Although we do not foresee difficulty in continuing to license data at favorable pricing due to the long term
license extension signed between Garmin and NAVTEQ in November 2007 (extending our NAVTEQ license
agreement through 2015 with an option to extend through 2019), if we are unable to continue licensing such
mapping data and are unable to obtain an alternative source, or if the nature of our relationships with NAVTEQ
changes detrimentally, our ability to supply mapping data for use in our products would be seriously harmed.