3Ware 2002 Annual Report Download - page 26

contaminants in the manufacturing environment, design issues, defects in masks used to print circuits on a wafer
and difficulties in the fabrication process. Design iterations and process changes by our suppliers can cause a risk
of contamination. Many of these problems are difficult to diagnose, are time consuming and expensive to
remedy, and can result in shipment delays.
We estimate yields per wafer in order to estimate the value of inventory. If yields are materially different
than projected, work-in-process inventory may need to be revalued. We have in the past, and may occasionally in
the future, take inventory write-downs as a result of decreases in manufacturing yields. We may suffer periodic
yield problems in connection with new or existing products or in connection with the commencement of
production at a new manufacturing facility.
In addition, our manufacturing output or yields may decline as a result of power outages, supply shortages,
accidents, natural disasters or other disruptions to the manufacturing process.
Due to an industry transition to six-inch, eight-inch and twelve-inch wafer fabrication facilities, there is a
limited number of suppliers of the four-inch wafers that we use to build products in our existing manufacturing
facility, and we rely on a single supplier for these wafers. We believe that we will have sufficient access to four-
inch wafers to support production in our internal fabrication facility until it is closed. However, if we are unable
to attain sufficient numbers of these four-inch wafers, it may prevent us from fulfilling our last time buy orders
with certain customers of our legacy products.
We must develop or otherwise gain access to improved process technologies.
Our future success will depend upon our ability to continue to improve existing process technologies, to
develop or acquire new process technologies, and to adapt our process technologies to emerging industry
standards. In the future, we may be required to transition one or more of our products to process technologies
with smaller geometries, other materials or higher speeds in order to reduce costs and/or improve product
performance. We may not be able to improve our process technologies and develop or otherwise gain access to
new process technologies in a timely or affordable manner. In addition, products based on these technologies
may not achieve market acceptance.
We may experience difficulties in transitioning to smaller geometry process technologies or in achieving
higher levels of design integration and that may result in reduced manufacturing yields, delays in product
deliveries and increased expenses.
In order to remain competitive, we expect to continue to transition our products to increasingly smaller line
width geometries. This transition will require us to modify the manufacturing processes for our products and
redesign certain products. We periodically evaluate the benefits, on a product-by-product basis, of migrating to
smaller geometry process technologies to reduce our costs, and we have designed products to be manufactured at
as little as .13 micron geometry processes. In the past, we have experienced some difficulties in shifting to
smaller geometry process technologies or new manufacturing processes. These difficulties resulted in reduced
manufacturing yields, delays in product deliveries and increased expenses. We may face similar difficulties,
delays and expenses as we continue to transition our products to smaller geometry processes. We are dependent
on our relationships with our foundries to transition to smaller geometry processes successfully. We cannot
assure you that our foundries will be able to effectively manage the transition or that we will be able to maintain
our relationships with our foundries. If we or our foundries experience significant delays in this transition or fail
to efficiently implement this transition, our business, financial condition and results of operations could be
materially and adversely affected. As smaller geometry processes become more prevalent, we expect to continue
to integrate greater levels of functionality into our products. However, we may not be able to achieve higher
levels of design integration or deliver new integrated products on a timely basis, or at all.
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