3Ware 2002 Annual Report Download - page 27

The complexity of our products may lead to errors, defects and bugs when they are first introduced, which
could negatively impact our reputation with customers.
Products as complex as ours may contain errors, defects and bugs when first introduced or as new versions
are released. Our products have in the past experienced such errors, defects and bugs. Delivery of products with
production defects or reliability, quality or compatibility problems could significantly delay or hinder market
acceptance of the products. This, in turn, could damage our reputation and adversely affect our ability to retain
existing customers and to attract new customers. Errors, defects or bugs could cause problems, interruptions,
delays or cessation of sales to our customers.
We may also be required to make significant expenditures of capital and resources to resolve such problems.
There can be no assurance that problems will not be found in new products after commencement of commercial
production, despite testing by us, our suppliers or our customers. This could result in:
• additional development costs;
• loss of, or delays in, market acceptance;
• diversion of technical and other resources from our other development efforts;
• claims by our customers or others against us; and
• loss of credibility with our current and prospective customers.
Any such event could have a material adverse effect on our business, financial condition and results of
operations.
Our ability to manufacture a sufficient number of products to meet demand could be severely hampered
by a shortage of water, electricity or other supplies, or by natural disasters or other catastrophes.
The manufacture of our products requires significant amounts of water. Previous droughts have resulted in
restrictions being placed on water use by manufacturers. In the event of a future drought, reductions in water use
may be mandated generally, and our ability or our external foundries’ ability to manufacture our products could
be impaired.
Early in 2001, California experienced prolonged energy alerts and blackouts caused by disruption in energy
supplies. As a consequence, California continues to experience substantially increased costs of electricity and
natural gas. To minimize the potential disruption to our business, we equipped our internal manufacturing
facilities with generators. We are unsure whether these alerts and blackouts will reoccur or how severe they may
become in the future. Several of our facilities, including our principal executive offices and principal research
and development headquarters, are located in California. Many of our customers and suppliers are also
headquartered or have substantial operations in California. If we, or any of our major customers located in
California, experience a sustained disruption in energy supplies, our results of operations could be materially and
adversely affected.
Our internal manufacturing facilities are located in San Diego, California, which is subject to natural
disasters such as earthquakes or floods. We do not have earthquake insurance for these facilities, because
adequate coverage is not offered at economically justifiable rates. In addition, some of our external foundries
upon which we rely for the manufacture of the majority of our products are also located in areas which have in
the past, and may in the future, experience a significant earthquake. A significant natural disaster or other
catastrophic event could have a material adverse impact on our business, financial condition and operating
results.
In addition, the effects of war or acts of terrorism could have a material adverse effect on our business,
operating results and financial condition. The terrorist attacks in New York and Washington, D.C. on
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