Plantronics 1998 Annual Report Download - page 28

P.20
ANNUAL REPORT . 199 8
PLANTRONICS
Management’s DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DEMAND OF CHANGING TECHNOLOGIES The technology of telephone headsets, both “tops” and “bottoms,” has traditionally
evolved slowly. Products have traditionally exhibited life cycles of three to five years before introduction of the next
generation of products. Next generation products usually included stylistic changes and quality improvements but were
based on similar technology. The Company believes that future changes in technology may come at a faster pace,
particularly in the telephone, wireless telephone and computer uses in the business and home office market segments.
In addition, in order to avoid product obsolescence, the Company will have to monitor technological changes in
telephone and computer technologies, as well as users’ demands for new technologies. The Company may experience
fluctuations in manufacturing yields that can materially affect the Company’s operations, particularly in the start-up
phase of new products or new manufacturing processes. The Company’s future success will be dependent in part on
its ability to develop products that utilize new technologies and to introduce them successfully to the marketplace.
Failure by the Company to keep pace with future technological changes could materially adversely affect the Company’s
revenues and operating results.
RISKS RELATED TO GROSS PROFIT The Company’s gross profit percentage is a function of the product mix sold in any
period. Therefore, the gross profit percentage may fluctuate, affecting the Company’s operating results. Factors such
as unit volumes, obsolescence/surplus of inventory, heightened price competition, changes in channels of distribution,
shortages and cost increases in supplies of component parts from vendors, and the availability and cost of labor, also
may cause fluctuations in gross profit percentages.
NEED TO MATCH PRODUCTION TO DEMAND Historically, the Company has seen steady increases in customer demand for
its products and has generally been able to increase production to meet that demand. Demand for the Company’s
products is dependent on many factors and such demand is inherently difficult to forecast. Rapid increases in production
levels could require expenditures that may negatively affect gross margins and may result in decreased manufacturing
yields. Failure to balance demand and production could result in excesses or shortages of components and parts and
excesses or shortages of manufacturing capacity. Failure to meet demand could result in the inability to meet customer
expectations and adversely affect the Company’s operations and operating results.
RELIANCE UPON SUPPLIERS The Company’s manufacturing operations primarily consist of assembly of components
and subassemblies that Plantronics manufactures or purchases from a variety of sources. The cost, quality and availability
of such components are essential to the successful production of the Company’s communications products. Most
components and subassemblies used in the Company’s manufacturing operations are obtained, or are reasonably available,
from numerous sources. However, certain of its subassemblies and components are currently obtained only from
single suppliers. The Company currently purchases those goods on a purchase order basis. The Company periodically
experiences constrained supply of certain component parts and such constraints, if persistent, may adversely affect
operating results until alternate sourcing can be developed. To date, the Company has experienced only minor interrup-
tions in the supply of these components, none of which has adversely affected its operations. However, an interruption
in supply from any of the Company’s single source suppliers in the future could temporarily result in the Company’s
inability to deliver products on a timely basis, which in turn could adversely affect its operations.
IMPORTANCE OF PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS The Company’s success will depend in part on
its ability to obtain patents and preserve other intellectual property rights covering the design and operation of its
products. The Company currently holds certain patents and intends to continue to seek patents on its inventions
when appropriate. The process of seeking patent protection can be lengthy and expensive, and there can be no assurance
that patents will issue from currently pending or future applications or that the Company’s existing patents or any
new patents issued will be of sufficient scope or strength or provide meaningful protection or any commercial advantage
to the Company. The Company may be subjected to, or may initiate, litigation or patent office interference proceedings,
which may require significant financial and management resources. The failure to obtain necessary licenses or other rights
or the advent of litigation arising out of any such claims could have a material adverse effect on the Company’s operations.