3Ware 2002 Annual Report Download - page 20

and as a result, the financial condition of many telecom companies has significantly declined. This downturn has
severely affected the demand for our products, and in turn our revenues and profitability. We cannot predict how
long this downturn will last. In addition, our need to continue investment in research and development during this
downturn and to maintain extensive ongoing customer service and support capability constrains our ability to
reduce expenses.
Our business substantially depends upon the continued growth of the Internet.
A substantial portion of our business and revenue depends on the continued growth of the Internet. We sell
our products primarily to communications equipment manufacturers that in turn sell their equipment to customers
that depend on the growth of the Internet. As a result of the economic slowdown, the significant decline in the
financial condition of many telecommunications companies and the reduction in capital spending, spending on
Internet infrastructure has declined. To the extent that the economic slowdown and reduction in capital spending
continue to adversely affect spending on Internet infrastructure, our business, operating results and financial
condition will continue to be materially harmed.
Our customers are concentrated. The loss of one or more key customers or the diminished demand for our
products from a key customer could significantly reduce our revenues and profits.
A relatively small number of customers have accounted for a significant portion of our revenues in any
particular period. We have no long-term volume purchase commitments from any of our key customers. Many of
our key customers have announced dramatic declines in demand for their products into which our products are
incorporated. As a result, new orders from these customers have been deferred, and customers may have
overstocked our products. Continued reductions, delays and cancellation of orders from our key customers or the
loss of one or more key customers could significantly further reduce our revenues and profits. We cannot assure
you that our current customers will continue to place orders with us, that orders by existing customers will
continue at current or historical levels or that we will be able to obtain orders from new customers.
Our ability to maintain or increase sales to key customers and attract new significant customers is subject to
a variety of factors, including:
• customers may stop incorporating our products into their own products with limited notice to us and
may suffer little or no penalty;
• customers or prospective customers may not incorporate our products in their future product designs;
• design wins with customers may not result in sales to such customers;
• the introduction of a customer’s new products may be late or less successful in the market than planned;
• a customer’s product line using our products may rapidly decline or be phased out;
• our agreements with customers typically do not require them to purchase a minimum amount of our
products;
• many of our customers have pre-existing relationships with current or potential competitors that may
cause them to switch from our products to competing products;
• we may not be able to successfully develop relationships with additional network equipment vendors;
and
• our relationship with some of our larger customers may deter other potential customers (who compete
with these customers) from buying our products.
The occurrence of any one of the factors above could have a material adverse effect on our business,
financial condition and results of operations.
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