8x8 1999 Annual Report Download - page 22

DEPENDENCE ON FUTURE BROADBAND TELEPHONY REVENUE
The Company believes that its business and future profitability will be largely dependent on widespread market acceptance of its Broadband
Telephony products.* Neither the Company's Videoconferencing Semiconductor business nor its Video Monitoring business have provided,
nor are they expected to provide sufficient revenues to profitably operate the Company. To date, the Company has not sold any significant
quantities of broadband telephony products. If the Company is not able to generate revenue selling into the broadband telephony market, it
would have a material adverse effect on the Company's business and operating results.
POTENTIAL FLUCTUATIONS IN FUTURE OPERATING RESULTS
The Company's historical operating results have fluctuated significantly and will likely continue to fluctuate in the future. On an annual and a
quarterly basis there are a number of factors that may affect the operating results of the Company, many of which are outside the Company's
control. These include, but are not limited to, changes in market demand, the timing of customer orders, competitive market conditions, lengthy
sales cycles, regulatory approval cycles, new product introductions by the Company or its competitors, market acceptance of new or existing
products, the cost and availability of components, the mix of the Company's customer base and sales channels, the mix of products sold, the
management of inventory, the level of international sales, continued compliance with industry standards and general economic conditions.
The Company's gross margin is affected by a number of factors including, product mix, the recognition of license and other revenues for which
there may be no or little corresponding cost of revenues, product pricing, the allocation between international and domestic sales, the
percentage of direct sales and sales to resellers, and manufacturing and component costs. The markets for the Company's products are
characterized by falling average selling prices. The Company expects that, as a result of competitive pressures and other factors, gross profit as
a percentage of revenue for the Company's semiconductor products will likely decrease for the foreseeable future.* The market for IP
telephony semiconductors is likely to be a high volume market characterized by commodity pricing. The Company will not be able to generate
ASP's or gross margins for its Broadband Telephony semiconductors similar to those that it has historically commanded for its
videoconferencing semiconductors. In addition, the gross margins for the Company's Video Monitoring and Broadband systems products are,
and will likely continue to be, substantially lower than the gross margins for its semiconductors. In the likely event that the Company
encounters significant price competition in the markets for its products, the Company could be at a significant disadvantage compared to its
competitors, many of which have substantially greater resources, and therefore may be better able to withstand an extended period of
downward pricing pressure.
Variations in timing of sales may cause significant fluctuations in future operating results. In addition, because a significant portion of the
Company's business may be derived from orders placed by a limited number of large customers, including OEM customers, the timing of such
orders can also cause significant fluctuations in the Company's operating results. For example, 3Com, which purchased approximately 34% of
ViaTV videophones sold by the Company in the year ended March 31, 1998, has not ordered additional products from the Company since
delivery of its purchases in the quarter ended December 31, 1997. Anticipated orders from customers may fail to materialize. Delivery
schedules may be deferred or canceled for a number of reasons, including changes in specific customer requirements or international economic
conditions. The adverse impact of a shortfall in the Company's revenues may be magnified by the Company's inability to adjust spending to
compensate for such shortfall. Announcements by the Company or its competitors of new products and technologies could cause customers to
defer purchases of the Company's
* This statement is a forward looking statement reflecting current expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. See "Manufacturing" commencing on page 15, "Competition" commencing on
page 13 and "Factors That May Affect Future Results" commencing on page 17 for a discussion of certain factors that could affect future
performance.
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