iRobot 2012 Annual Report Download - page 64

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supply substantially all of the raw materials and provide all facilities and 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 defense 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.
We face intense competition from other providers of robots, including diversified technology providers, as well as
competition from providers offering alternative products, which could negatively impact our results of operations and cause
our market share to decline.
We believe that a number of companies have developed or are developing robots that will compete directly with our
product offerings. Additionally, large and small companies, government-sponsored laboratories and universities are
aggressively pursuing contracts for robot-focused research and development. Many current and potential competitors have
substantially greater financial, marketing, research and manufacturing resources than we possess, and there can be no assurance
that our current and future competitors will not be more successful than us. Moreover, while we believe many of our customers
purchase our floor vacuuming robots as a supplement to, rather than a replacement for, their traditional vacuum cleaners; we
also compete in some cases with providers of traditional vacuum cleaners. Our competitors include developers of robot floor
cleaning products, developers of small unmanned ground vehicles, and established government contractors working on
unmanned systems.