iRobot 2005 Annual Report Download - page 28

If critical components of our products that we currently purchase from a small number of suppliers
become unavailable, we may incur delays in shipment, which could damage our business.
We and our outsourced manufacturers obtain hardware components, various subsystems and raw
materials from a limited group of suppliers. We do not have any long-term agreements with these suppliers
obligating them to continue to sell components or products to us. Our reliance on these suppliers involves
significant risks and uncertainties, including whether our suppliers will provide an adequate supply of required
components of sufficient quality, will increase prices for the components and will perform their obligations on
a timely basis. If we or our outsourced manufacturers are unable to obtain components from third-party
suppliers in the quantities and of the quality that we require, on a timely basis and at acceptable prices, we
may not be able to deliver our products on a timely or cost-effective basis to our customers, which could cause
customers to terminate their contracts with us, reduce our gross profit and seriously harm our business, results
of operations and financial condition. Moreover, if any of our suppliers become financially unstable, we may
have to find new suppliers. It may take several months to locate alternative suppliers, if required, or to re-tool
our products to accommodate components from different suppliers. We may experience significant delays in
manufacturing and shipping our products to customers and incur additional development, manufacturing and
other costs to establish alternative sources of supply if we lose any of these sources. We cannot predict if we
will be able to obtain replacement components within the time frames that we require at an affordable cost, or
at all.
Our products are complex and could have unknown defects or errors, which may give rise to claims
against us, diminish our brand or divert our resources from other purposes.
Our robots rely on the interplay among behavior-based artificially intelligent systems, real-world dynamic
sensors, friendly user interfaces and tightly-integrated, electromechanical designs to accomplish their mis-
sions. Despite testing, our new or existing products have contained defects and errors and may in the future
contain defects, errors or performance problems when first introduced, when new versions or enhancements
are released, or even after these products have been used by our customers for a period of time. These
problems could result in expensive and time-consuming design modifications or warranty charges, delays in
the introduction of new products or enhancements, significant increases in our service and maintenance costs,
exposure to liability for damages, damaged customer relationships and harm to our reputation, any of which
could materially harm our results of operations and ability to achieve market acceptance. In addition,
increased development and warranty costs could be substantial and could reduce our operating margins. For
instance, we are engaged in a dispute relating to a contract, entered into in 2001, with a UK government
agency that is claiming it is entitled to a refund of all payments made by it for the design and development of a
robot for ordnance disposal. Moreover, because military robots are used in dangerous situations, the failure or
malfunction of any of these robots, including our own, could significantly damage our reputation and support
for robot solutions in general. The existence of any defects, errors, or failures in our products could also lead to
product liability claims or lawsuits against us. A successful product liability claim could result in substantial
cost, diminish our brand and divert management's attention and resources, which could have a negative
impact on our business, financial condition and results of operations.
The robot industry is and will likely continue to be characterized by rapid technological change, which
will require us to develop new products and product enhancements, and could render our existing
products obsolete.
Continuing technological changes in the robot industry and in the markets in which we sell our robots
could undermine our competitive position or make our robots obsolete, either generally or for particular types
of services. Our future success will depend upon our ability to develop and introduce a variety of new
capabilities and enhancements to our existing product offerings, as well as introduce a variety of new product
offerings, to address the changing needs of the markets in which we offer our robots. Delays in introducing
new products and enhancements, the failure to choose correctly among technical alternatives or the failure to
offer innovative products or enhancements at competitive prices may cause existing and potential customers to
forego purchases of our products and purchase our competitors' products. Moreover, the development of new
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