3Ware 2004 Annual Report Download - page 58

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.
Changes in the accounting treatment of stock options could adversely affect our results of operations.
The Financial Accounting Standards Board has announced its tentative decision to require companies to
expense employee stock options in accordance with SFAS No. 123, Accounting for Stock-Based Compensation,
or SFAS 123, for financial reporting purposes. Such stock option expensing would require us to value our
employee stock option grants pursuant to an option valuation model, and then amortize that value against our
reported earnings over the vesting period in effect for those options. We currently account for stock-based
awards to employees in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees,and have adopted the disclosure-only alternative of SFAS 123 and FAS 128. If we are
required to expense employee stock options in the future, this change in accounting treatment would materially
and adversely affect our reported results of operations as the stock-based compensation expense would be
charged directly against our reported earnings. For an illustration of the effect of such a change on our recent
results of operations, see Note 1 of Notes to Consolidated Financial Statements.
Our future success depends in part on the continued service of our key senior management, design
engineering, sales, marketing, and manufacturing personnel and our ability to identify, hire and retain
additional, qualified personnel.
Our future success depends to a significant extent upon the continued service of our key senior management
personnel. The loss of a key senior executive could have a material adverse effect on us. There is intense
competition for qualified personnel in the semiconductor industry, in particular design, product and test
engineers, and we may not be able to continue to attract and retain engineers or other qualified personnel
necessary for the development of our business, or to replace engineers or other qualified personnel who may
leave our employment in the future. Periods of contraction in our business may inhibit our ability to attract and
retain our personnel. Loss of the services of, or failure to recruit, key design engineers or other technical and
management personnel could be significantly detrimental to our product development.
To manage operations effectively, we will be required to continue to improve our operational, financial and
management systems and to successfully hire, train, motivate, and manage our employees. The integration of
past and future potential acquisitions will require significant additional management, technical and administrative
resources. We cannot be certain that we would be able to manage our expanded operations effectively.
Our ability to supply 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 external foundries’ ability to manufacture our products could be impaired.
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