3Ware 2005 Annual Report Download - page 43

companies attempt to strengthen or hold their positions in evolving markets. Consolidation may result in stronger
competitors, fewer customers and reduced demand, which in turn could have a material adverse effect on our
business, operating results, and financial condition.
Our operating results are subject to fluctuations because we rely heavily on international sales.
International sales account for a significant part of our revenues and may account for an increasing portion
of our future revenues. The revenues we derive from international sales may be subject to certain risks,
including:
• foreign currency exchange fluctuations;
• changes in regulatory requirements;
• tariffs and other barriers;
• timing and availability of export licenses;
• political and economic instability;
• difficulties in accounts receivable collections;
• difficulties in staffing and managing foreign operations;
• difficulties in managing distributors;
• difficulties in obtaining governmental approvals for communications and other products;
• reduced or uncertain protection for intellectual property rights in some countries;
• longer payment cycles to collect accounts receivable in some countries;
• the burden of complying with a wide variety of complex foreign laws and treaties; and
• potentially adverse tax consequences.
We are subject to risks associated with the imposition of legislation and regulations relating to the import or
export of high technology products. We cannot predict whether quotas, duties, taxes or other charges or
restrictions upon the importation or exportation of our products will be implemented by the United States or
other countries. Because sales of our products have been denominated to date primarily in United States dollars,
increases in the value of the United States dollar could increase the price of our products so that they become
relatively more expensive to customers in the local currency of a particular country, leading to a reduction in
sales and profitability in that country. Future international activity may result in increased foreign currency
denominated sales. Gains and losses on the conversion to United States dollars of accounts receivable, accounts
payable and other monetary assets and liabilities arising from international operations may contribute to
fluctuations in our results of operations. Some of our customer purchase orders and agreements are governed by
foreign laws, which may differ significantly from United States laws. We may be limited in our ability to enforce
our rights under such agreements.
Our cash and cash equivalents and portfolio of short-term investments are exposed to certain market
risks.
We maintain an investment portfolio of various holdings, types of instruments and maturities. These
securities are recorded on our consolidated balance sheets at fair value with unrealized gains or losses reported as
a separate component of accumulated other comprehensive income (loss), net of tax. Our investment portfolio is
exposed to market risks related to changes in interest rates, credit ratings of the issuers, as well as the risk of
default by the issuer. Substantially all of these securities are subject to interest rate and credit rating risk and will
decline in value if interest rates increase or one of the issuer’s credit ratings is reduced. Increases in interest rates,
decreases in the credit worthiness of one or more of the issuers in our investment portfolio could have a material
adverse impact on our financial condition or results of operations.
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