Plantronics 2010 Annual Report Download - page 22

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Currently, our single largest competitor is GN Store Nord A/S (“GN”), a Danish telecommunications conglomerate with whom we
experience price competition in the business markets. Motorola is a significant competitor in the consumer headset market, primarily
in the mobile Bluetooth market, and has a brand name that is very well known and supported with significant marketing investments.
Motorola also benefits from the ability to bundle other offerings with its headsets. We are also experiencing competition from other
consumer electronics companies that currently manufacture and sell mobile phones or computer peripheral equipment. These
competitors generally are larger, offer broader product lines, bundle or integrate with other products’ communications headset tops
and bases manufactured by them or others, offer products containing bases that are incompatible with our headset tops and have
substantially greater financial, marketing and other resources than we do.
Competitors in audio devices vary by product line. The most competitive product line is headsets for cell phones where we compete
with Motorola, Nokia, GN’s Jabra brand, Aliph’s Jawbone brand, Samsung, and Sony Ericsson among many others. Many of these
competitors have substantially greater resources than we have, and each of them has established market positions in this business. In
the office and contact center market, the largest competitors are GN and Sennheiser Communications. For the entertainment and
computer audio market, our primary competitors are Logitech and Sennheiser. Our product markets are intensely competitive, and
market leadership changes frequently as a result of new products, designs and pricing. We are facing additional competition from
companies, principally located in the Asia Pacific region, which offer very low cost headset products, including products that are
modeled on or are direct copies of our products. These new competitors are offering very low cost products which results in pricing
pressure in the market. If market prices are substantially reduced by such new entrants into the headset market, our business, financial
condition or results of operations could be materially adversely affected.
If we do not continue to distinguish our products, particularly our retail products, through distinctive, technologically advanced
features and design, as well as continue to build and strengthen our brand recognition, our business could be harmed. If we do not
otherwise compete effectively, demand for our products could decline, our revenues and gross margins could decrease, we could lose
market share, and our earnings could decline.
We also compete in the consumer market for the sale of our mobile, gaming, and Clarity products. We believe that effective product
promotion is highly relevant in the consumer market, which is dominated by large brands that have significant consumer
mindshare. We have invested in marketing initiatives to raise awareness and consideration of the Plantronics’ products. We believe
this will help increase preference for Plantronics and promote headset adoption overall. The consumer market is characterized by
relatively rapid product obsolescence, and we are at risk if we do not have the right products at the right time to meet consumer
needs. In addition, some of our competitors have significant brand recognition, and we are experiencing more competition in pricing
actions, which can result in significant losses and excess inventory.
If we are unable to stimulate growth in our business, if our costs to stimulate demand do not generate incremental profit, or if we
experience significant price competition, our business, financial condition, results of operations and cash flows could suffer. In
addition, failure to effectively market our products to customers could lead to lower and more volatile revenue and earnings, excess
inventory and the inability to recover the associated development costs, any of which could also have a material adverse effect on our
business, financial condition, results of operations and cash flows.
We depend on original design manufacturers and contract manufacturers who may not have adequate capacity to fulfill our needs
or may not meet our quality and delivery objectives which could have an adverse effect on our business.
Original design manufacturers and contract manufacturers produce key portions of our product lines for us, including all of our
Bluetooth products. Our reliance on these original design manufacturers and contract manufacturers involves significant risks,
including reduced control over quality and logistics management, the potential lack of adequate capacity and loss of services.
Financial instability of our manufacturers or contractors resulting from the global recession or otherwise could result in our having to
find new suppliers which could increase our costs and delay our product deliveries. These manufacturers and contractors may also
choose to discontinue building our products for a variety of reasons. Consequently, we may experience delays in the timeliness,
quality and adequacy of product deliveries, any of which could harm our business and operating results.
In the fourth quarter of fiscal 2009, we announced our plan to outsource the manufacturing of all of our Bluetooth headsets to
GoerTek, Inc., which is an existing supplier located in Weifang, China. As a result, we stopped our manufacturing operations in our
Suzhou, China facility during the second quarter of fiscal 2010. Currently, substantially all of our Bluetooth products are
manufactured by GoerTek; therefore, the manufacturing of these products is heavily dependent upon GoerTek’s ability to deliver the
quantities of products that we demand in a timely manner and to meet our quality standards. In the event that GoerTek is unable to
meet our demand, delivery or price requirements, our Bluetooth business could be severely and materially affected as it may be
difficult to ramp-up a new manufacturer on a timely and cost effective basis.