iRobot 2011 Annual Report Download - page 64

Form 10-K
labor required to manufacture our products. If these companies were to terminate their arrangements with us or
fail to provide the required capacity and quality on a timely basis, we would be unable to manufacture our
products until replacement contract manufacturing services could be obtained or volume transferred to an
alternative manufacturing partner, each of which is a costly and time-consuming process. We cannot assure you
that we would be able to establish alternative manufacturing arrangements on acceptable terms or in a timely
manner.
Our reliance on these contract manufacturers involves certain risks, including the following:
• lack of direct control over production capacity and delivery schedules;
• lack of direct control over quality assurance, manufacturing yields and production costs;
• lack of enforceable contractual provisions over the production and costs of consumer products;
• risk of loss of inventory while in transit;
• risks associated with international commerce, including unexpected changes in legal and regulatory
requirements, changes in tariffs and trade policies, risks associated with the protection of intellectual
property and political and economic instability; and
• our attempts to add additional manufacturing resources may be significantly delayed and thereby create
disruptions in production of our products.
Any interruption in the manufacture of our products would be likely to result in delays in shipment, lost
sales and revenue and damage to our reputation in the market, all of which would harm our business and results
of operations. In addition, while our contract obligations with our contract manufacturers in China are typically
denominated in U.S. dollars, changes in currency exchange rates could impact our suppliers and increase our
prices.
Any efforts to expand our product offerings beyond our current markets may not succeed, which could
negatively impact our operating results.
We have focused on selling our robots in the home floor care and military markets. We plan to expand into
other markets. Efforts to expand our product offerings beyond the markets that we currently serve, however, may
divert management resources from existing operations and require us to commit significant financial resources to
an unproven business, either of which could significantly impair our operating results. Moreover, efforts to
expand beyond our existing markets may never result in new products that achieve market acceptance, create
additional revenue or become profitable.
If we fail to maintain or increase consumer robot sales through our distribution channels, our operating
results would be negatively impacted.
We do not have long-term contracts regarding purchase volumes with any of our retail partners. As a result,
purchases generally occur on an order-by-order basis, and the relationships, as well as particular orders, can
generally be terminated or otherwise materially changed at any time by our retail partners. A decision by a major
retail partner, whether motivated by competitive considerations, financial difficulties, economic conditions or
otherwise, to decrease its purchases from us, to reduce the shelf space for our products or to change its manner of
doing business with us could significantly damage our consumer product sales and negatively impact our
business, financial condition and results of operations. In addition, during recent years, various retailers,
including some of our partners, have experienced significant changes and difficulties, including consolidation of
ownership, increased centralization of purchasing decisions, restructurings, bankruptcies and liquidations. These
and other financial problems of some of our retailers increase the risk of extending credit to these retailers. A
significant adverse change in a retail partner relationship with us or in a retail partner’s financial position could
cause us to limit or discontinue business with that partner, require us to assume more credit risk relating to that
partner’s receivables or limit our ability to collect amounts related to previous purchases by that partner, all of
which could harm our business and financial condition. Disruption of the iRobot on-line store could also decrease
our home care robot sales.
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