3Ware 1999 Annual Report Download - page 21

The Company is in the process of communicating with its critical external suppliers to determine the extent to which
the Company may be vulnerable to such parties’ failure to resolve their own Year 2000 issues. Where practicable, the Company
will assess and attempt to mitigate its risks with respect to the failure of these entities to be Year 2000 ready. The effect, if any,
on the Company’s results of operations from the failure of such parties to be Year 2000 ready, can not reasonably be estimated.
The Company has developed contingency plans for certain critical applications and is working on such plans for others. These
contingency plans involve, among other actions, manual workarounds and adjusting staffing strategies.
The Company has incurred and expensed approximately $200,000 related to the Year 2000 project and expects to incur an
additional $700,000 on completing the Year 2000 project. Approximately one-half of the costs associated with the Year 2000
project are expected to relate to internal resources that have been reallocated from other projects, with the balance of costs
reflecting incremental spending for equipment and software upgrades. The costs of the Year 2000 project are expected to be
funded through operating cash flows, with the cost of internal resources expensed as incurred and the cost of equipment and
software upgrades capitalized or expensed in accordance with the Company’s policy on property and equipment.
The costs of the project and the date on which the Company plans to complete the Year 2000 modifications are based on
management’s best estimates, which were derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these
estimates will be achieved, and actual results could differ materially from those plans. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability
to locate and correct all relevant computer codes and the ability to identify and correct equipment with embedded hardware
or software and similar uncertainties.
COMPARISON OF THE YEAR ENDED MARCH 31, 1998 TO THE YEAR ENDED MARCH 31, 1997
NET REVENUES. Net revenues for the year ended March 31, 1998 were approximately $76.6 million, representing an increase
of 33% over net revenues of approximately $57.5 million for the year ended March 31, 1997. Revenues from sales of com-
munications products increased from 44% of net revenues for the year ended March 31, 1997 to 48% of net revenues for the
year ended March 31, 1998, reflecting unit growth in shipments of existing products as well as the introduction of new prod-
ucts for these markets. Revenues from sales of products to other markets, consisting of the ATE, high-speed computing and
military markets, decreased from 56% of net revenues for the year ended March 31, 1997 to 52% of net revenues for the year
ended March 31, 1998, although revenues from sales to these other markets increased in absolute dollars. The increase in
absolute dollars in revenues attributed to these other markets was primarily due to an increase in shipments of PCI bus prod-
ucts for high-speed computing applications and to increased shipments of products to the ATE market. Sales to Nortel
accounted for 21% and 20% of net revenues for the years ended March 31, 1998 and 1997, respectively. In the year ended
March 31,1998, one other customer, Insight Electronics, Inc., the Company’s domestic distributor, accounted for 11% of net
revenues. Sales outside of North America accounted for 23% and 21% of net revenues for the years ended March 31, 1998
and 1997, respectively.
GROSS MARGIN. Gross margin was 55.2% for the year ended March 31, 1998, as compared to 47.7% for the year ended
March 31, 1997. The significant increase in gross margin primarily resulted from increased utilization of the Company’s wafer
fabrication facility, as well as a $1.1 million improvement in manufacturing yields.
MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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1999 AMCC