3Ware 2003 Annual Report Download - page 35

advance ordering has in the past and may in the future result in excess inventory levels or unanticipated inventory
write-downs if expected orders fail to materialize, or other factors render our products less marketable.
Accordingly, our financial condition and operating results could be materially harmed.
Our expense levels are relatively fixed and are based on our expectations of future revenues. We have
limited ability to reduce expenses quickly in response to any revenue shortfalls.
As the downturn in the communications equipment industry continues, our revenues and profitability will
continue to be adversely affected.
We derive a majority of our revenues from communications equipment manufacturers. The communications
equipment industry is experiencing a significant extended downturn and as a result, the financial condition of
many telecommunications companies has significantly declined. This downturn has severely affected carrier
capital equipment expenditures, which in turn has affected the demand for our products and our revenues and
profitability. We cannot predict how long this downturn will last, but as long as it does, our revenues and
profitability will continue to be impacted. Our need to continue investment in research and development during
this downturn and to maintain extensive ongoing customer service and support 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
continues 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. One or more of our key customers may discontinue operations as a result of
consolidation, liquidation or otherwise. 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;
30