3Ware 2004 Annual Report Download - page 49

Our customers are concentrated. The loss of one or more key customers, the diminished demand for our
products from a key customer, or the failure to obtain certifications from a key customer or its
distribution channel could significantly reduce our revenues and profits.
Arelatively 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
avariety 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;
•acustomer’s product line using our products may rapidly decline or be phased out;
•our agreements with customers typically are non-exclusive and do not require them to purchase a
minimum amount of our products;
•many of our customers have pre-existing relationships with current or potential competitors that may
cause them to switch from our products to competing products;
•some of our OEM customers may develop products internally that would replace our products;
•wemay not be able to successfully develop relationships with additional network equipment vendors;
•our relationship with some of our larger customers may deter other potential customers (who compete
with these customers) from buying our products;
•the impact of terminating certain sales representatives or sales personnel; and
•the continued viability of these customers.
The occurrence of any one of the factors above could have a material adverse effect on our business,
financial condition and results of operations.
In addition, before we can sell our SAN products to an OEM, either directly or through the OEM’s
associated distribution channel, that OEM must certify our products. The certification process can take up to 12
months. This process requires the commitment of OEM personnel and test equipment, and we compete with
other suppliers for these resources. Any delays in obtaining these certifications or any failure to obtain these
certifications would adversely affect our ability to sell our SAN products.
Any significant order cancellations or order 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
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