3Ware 2005 Annual Report Download - page 47

resolution of yield problems may require cooperation between us and our manufacturer. This risk could be
compounded by the offshore location of certain of our manufacturers, increasing the effort and time required to
identify, communicate and resolve manufacturing yield problems. Manufacturing defects that we do not discover
during the manufacturing or testing process may lead to costly product recalls. These risks may lead to increased
costs or delayed product delivery, which would harm our profitability and customer relationships.
If the foundries or subcontractors we use to manufacture our products discontinue the manufacturing
processes needed to meet our demands, or fail to upgrade their technologies needed to manufacture our products,
we may be unable to deliver products to our customers, which could materially adversely affect our operating
results. The transition to the next generation of manufacturing technologies at one or more of our outside
foundries could be unsuccessful or delayed.
Our requirements typically represent a very small portion of the total production of the third-party foundries.
As a result, we are subject to the risk that a producer will cease production of an older or lower-volume process
that it uses to produce our parts. We cannot be certain our external foundries will continue to devote resources to
the production of our products or continue to advance the process design technologies on which the
manufacturing of our products are based. Each of these events could increase our costs and materially impact our
ability to deliver our products on time.
Some companies that supply our customers are similarly dependent on a limited number of suppliers to
produce their products. These other companies’ products may be designed into the same networking equipment
into which our products are designed. Our order levels could be reduced materially if these companies are unable
to access sufficient production capacity to produce in volumes demanded by our customers because our
customers may be forced to slow down or halt production on the equipment into which our products are
designed.
Our operating results depend on manufacturing output and yields of our ICs and PCBA’s, which may not
meet expectations.
The yields on wafers we have manufactured decline whenever a substantial percentage of wafers must be
rejected or a significant number of die on each wafer are nonfunctional. Such declines can be caused by many
factors, including minute levels of contaminants in the manufacturing environment, design issues, defects in
masks used to print circuits on a wafer, and difficulties in the fabrication process. Design iterations and process
changes by our suppliers can cause a risk of defects. Many of these problems are difficult to diagnose, are time
consuming and expensive to remedy, and can result in shipment delays.
We estimate yields per wafer and final packaged parts in order to estimate the value of inventory. If yields
are materially different than projected, work-in-process inventory may need to be revalued. We may have to take
inventory write-downs as a result of decreases in manufacturing yields. We may suffer periodic yield problems in
connection with new or existing products or in connection with the commencement of production at a new
manufacturing facility.
We may experience difficulties in transitioning to smaller geometry process technologies or in achieving
higher levels of design integration and that may result in reduced manufacturing yields, delays in product
deliveries and increased expenses.
We expect to transition our IC products to increasingly smaller line width geometries. This transition will
require us to redesign certain products and will require us and our foundries to migrate to new manufacturing
processes for our products. We periodically evaluate the benefits, on a product-by-product basis, of migrating to
smaller geometry process technologies to reduce our costs and increase performance, and we have designed IC
products to be manufactured at as little as .13 micron geometry processes. We have experienced some difficulties
in shifting to smaller geometry process technologies and new manufacturing processes. These difficulties
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