Plantronics 2011 Annual Report Download - page 24

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 the majority
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 manufacturing 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.
Currently, the majority of our Bluetooth products are manufactured by GoerTek, a contract manufacturer located in Weifang,
China; 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 or unwilling
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.
We have strong competitors and expect to face additional competition in the future. If we are unable to compete effectively,
our results of operations may be adversely affected.
All of our markets are intensely competitive. We could experience a decline in average selling prices, competition on sales terms
and conditions, or continual performance, technical and feature enhancements from our competitors in the retail market. Also,
aggressive industry pricing practices may result in downward pressure on margins.
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, Aliph's Jawbone brand, Samsung, GN's Jabra brand, Bose, BlueAnt Wireless, 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 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 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.
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