3Ware 2003 Annual Report Download - page 40

markets, particularly in the communications markets, would have a material adverse effect on our business,
financial condition and results of operations.
We expect revenues that are currently derived from non-communications markets will decline in future
periods.
We have derived significant revenues from product sales to customers in the ATE, high-speed computing
and military markets and currently anticipate that we will continue to derive revenues from sales to customers in
these markets in the near term. The majority of these products were manufactured at our internal wafer
fabrication facility, which closed in March 2003. Throughout fiscal 2003, we were fulfilling last-time-buy orders
for parts manufactured in this facility. As a result of the last-time-buy program, our revenues from sales of our
non-communications products increased to 35% of net revenues for the year ended March 31, 2003 from 16% of
net revenues for the year ended March 31, 2002. We expect that revenues from our non-communications
products will decline materially as we fulfill the last-time-buy orders throughout most of fiscal 2004. We will
continue to sell products for these markets for the foreseeable future, but the volumes and revenues are expected
to be modest.
The closing of our internal foundry could result in unanticipated liability and reduced revenues.
A significant portion of our recent revenues has been derived from products developed for and
manufactured in our internal foundry. As of March 31, 2003, the facility is closed and we do not have the ability
to manufacture the products designed for manufacture in the facility, which subjects us to substantial risks,
including:
• we may be unable to repair or replace defective products;
• we may be unable to fulfill customer orders for products which are not in our inventory;
• if we have not built or effectively stored products which we have committed to customers, we may incur
liability to these customers;
• if we are unable to successfully design and sell products manufactured in external foundries, our
revenues will decline; and
• costs and liabilities associated with closing the foundry may exceed our estimates.
A disruption in the manufacturing capabilities of our outside foundries would negatively impact the
production of certain of our products.
In the past, we relied on outside foundries for the manufacture of the majority of our products. Now that we
have closed our internal foundry, all of our products will be manufactured by outside foundries. These outside
foundries generally manufacture our products on a purchase order basis, and we generally do not have long-term
supply arrangements or contracts with these suppliers. A manufacturing disruption experienced by one or more
of our outside foundries or a disruption of our relationship with an outside foundry, including discontinuance of
our products by that foundry, would negatively impact the production of certain of our products for a substantial
period of time. The transition to the next generation of manufacturing technologies at one or more of our outside
foundries could be unsuccessful or delayed.
A majority of our products are only qualified for production at a single foundry. These suppliers can
allocate, and in the past have allocated, capacity to the production of other companies’ products while reducing
deliveries to us on a short notice. Because establishing relationships and ramping production with new outside
foundries may take over a year, there is no readily available alternative source of supply for these products.
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