3Ware 2002 Annual Report Download - page 21

Any significant order cancellations or deferrals could adversely affect our operating results.
We typically sell products pursuant to purchase orders that customers can generally cancel or defer on short
notice without incurring a significant penalty. Any significant cancellations or deferrals in the future could
materially and adversely affect our business, financial condition and results of operations. In addition,
cancellations or deferrals could cause us to hold excess inventory, which could reduce our profit margins,
increase product obsolescence and restrict our ability to fund our operations. We generally recognize revenue
upon shipment of products to a customer. If a customer refuses to accept shipped products or does not pay for
these products, we could miss future revenue projections or incur significant charges against our income, which
could materially and adversely affect our operating results.
An important part of our strategy is to continue our focus on the markets for high-speed communications
ICs. If we are unable to expand our share of these markets further, our revenues may not grow and could
decline.
Our markets frequently undergo transitions in which products rapidly incorporate new features and
performance standards on an industry-wide basis. If our products are unable to support the new features or
performance levels required by OEMs in these markets, we would be likely to lose business from an existing or
potential customer and, moreover, would not have the opportunity to compete for new design wins until the next
product transition occurs. If we fail to develop products with required features or performance standards, or if we
experience a delay as short as a few months in bringing a new product to market, or if our customers fail to
achieve market acceptance of their products, our revenues could be significantly reduced for a substantial period.
A significant portion of our revenues in recent periods has been, and is expected to continue to be, derived
from sales of products based on SONET, SDH, ATM and DWDM transmission standards. If the communications
market evolves to new standards, we may not be able to successfully design and manufacture new products that
address the needs of our customers or gain substantial market acceptance. Although we have developed products
for the Gigabit Ethernet and Fibre Channel communications standards, sales volumes of these products are
modest, and we may not be successful in addressing the market opportunities for products based on these
standards.
Customers for network processors, one of our product lines, generally have substantial technological
capabilities and financial resources. They traditionally use these resources to internally develop their own
network processors. The future prospects for our products in these markets are dependent upon our customers’
acceptance of our network processors as an alternative to their internally developed network processors. Network
equipment vendors may in the future continue to use internally developed ASIC components and general-purpose
processors. They also may decide to develop or acquire components, technologies or network processors that are
similar to, or that may be substituted for, our network processor products.
If our network equipment vendor customers fail to accept network processors as an alternative, if they
develop or acquire the technology to develop such components internally rather than purchase our network
processor products, or if we are otherwise unable to develop strong relationships with network equipment
vendors, our business, financial condition and results of operations would be materially and adversely affected.
Our industry is subject to consolidation, which may result in stronger competitors.
There has been a trend toward industry consolidation among communications IC companies for several
years. We expect this trend toward industry consolidation to continue as communications IC companies attempt
to strengthen or hold their positions in evolving markets. Consolidation may result in stronger competitors, which
in turn could have a material adverse effect on our business, operating results, and financial condition.
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