TiVo 2006 Annual Report Download - page 33

Table of Contents
result in product recalls. We record adjustments to our inventory of finished products and materials on-hand, when appropriate, to reflect inventory at lower of
cost or market and to account for product or materials which is not forecasted to be used in future production. We also record accruals for charges that
represent Management's estimate of our exposure to the contract manufacturer for excess non-cancelable purchase commitments. As of January 31, 2007, we
had impaired $2.0 million in inventory and reserved approximately $500,000 for excess non-cancelable purchase commitments. In the future, we may be
required to record additional write-downs of finished products and materials on-hand and/or additional charges for excess purchase commitments as a result of
future changes in our sales forecasts.
We have from time-to-time engaged in the outsourcing of engineering work related to the design, development, and manufacturing of our products. We
have and expect to in the future work with companies located in jurisdictions outside of the United States, including, but not limited to, China, South Korea,
India, Ukraine, and Mexico. We have limited experience in the outsourcing of engineering, manufacturing and other work to third parties located
internationally that operate under different laws and regulations than those in the United States. If we are unable to properly manage and oversee the
outsourcing of this engineering, manufacturing and other work related to our products, we could suffer the loss of valuable intellectual property, including
patents, trademarks, trade secrets, and copyrights and as a result our business could be harmed.
We have limited experience in providing service and operations internationally that are subject to different laws, regulations, and
requirements than those in the United States and our inability to perform or comply with such laws, regulations, and requirements could harm our
reputation, brand, and have a negative impact on revenues.
We have provided and expect to continue to provide TiVo service in jurisdictions outside of the United States, including the United Kingdom and in the
future, Mexico. We have limited experience in international operations. If we are unable to properly manage our international operations or comply with
international laws, regulations, and requirements, we could suffer damage to our reputation, brand, and revenues and as a result our business could be harmed.
Product defects, system failures or interruptions to the TiVo service may have a negative impact on our revenues, damage our reputation and
decrease our ability to attract new customers.
Our ability to provide uninterrupted service and high quality customer support depends on the efficient and uninterrupted operation of our computer and
communications systems. Our computer hardware and other operating systems for the TiVo service are vulnerable to damage or interruption from
earthquakes, floods, fires, power loss, telecommunication failures and similar events. They are also subject to break-ins, sabotage, intentional acts of
vandalism and similar misconduct. These types of interruptions in the TiVo service may reduce our revenues and profits. We currently house the server
hardware that delivers the TiVo service at only one location and continue to explore the benefits of establishing a backup facility. Our business also will be
harmed if consumers believe our service is unreliable. In addition to placing increased burdens on our engineering staff, service outages will create a flood of
customer questions and complaints that must be responded to by our customer support personnel. Any frequent or persistent system failures could irreparably
damage our reputation and brand and possibly trigger requests for refunds on subscriptions fees and hardware purchases and possible consumer litigation.
We have detected in the past and may continue to detect errors and product defects in the future. These problems can affect system uptime and result in
significant warranty and repair problems, which could cause customer service and customer relations problems. Correcting errors in our software or fixing
defects in our products requires significant time and resources, which could delay product releases and affect market acceptance of the TiVo service. Any
delivery by us of products or upgrades with undetected material product defects or software errors could harm our credibility and market acceptance of the
DVRs and the TiVo service. In addition, defective products could cause a risk of injury that may subject us to litigation or cause us to have to undertake a
product recall. For example, we previously became aware of occasions where a part came loose from the remote control device that comes with the DVRs that
enable the TiVo service, including occurrences where a young child gagged on or ingested a part of the remote control device. While we
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