8x8 2001 Annual Report Download - page 15

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COMPETITION --
The Company competes with other providers of enhanced service platforms, applications, and service creation solutions for
next-
generation communication networks. The applications generated by the SCE also compete with suppliers of traditional telecommunication
applications software that seek to sell such products to telecommunication equipment manufacturers and service providers. The main
competitors for the Company's SCE product line are Alcatel, Dynamicsoft, Inc., LongBoard, Inc., Nortel Networks, Pactolus Communications,
Pagoo, Sylantro Systems, Tekelec, Telcordia, Telsis, and Ubiquity Software. This market is characterized by rapid technological change,
intense competition, and first-mover advantage. Principal competitive factors in the market for the Company's SCE product include product
feature parity, interface design, product reliability, performance, time-to-market, adherence to standards, price, functionality, and IP network
delivery/design.
MANUFACTURING
NME outsources the manufacturing of its semiconductors to independent foundries. NME's primary semiconductor manufacturer is Taiwan
Semiconductor Manufacturing Corporation (TSMC). NME also relies on various independent third party companies for packaging and testing
of its semiconductors. NME does not have long-term purchase agreements with its subcontract manufacturers or its component suppliers.
RESEARCH AND DEVELOPMENT
Research and development expenses in the fiscal years ended March 31, 2001, 2000, and 1999 were $18.8 million, $11.9 million, and $9.9
million, respectively. The development of new products and the enhancement of existing products by the Company and its subsidiaries are
essential to their success.
The Company's current and future research and development efforts relate primarily to VoIP semiconductors and embedded software, hosted
iPBX systems, and service creation and execution technologies. Areas of emphasis will include:
enhanced versions of its Audacity-T2 semiconductor architecture to provide higher performance, enhanced functionality, and further
integration of certain essential system functions and interfaces; enhanced versions of its hosted iPBX business communication service to
include additional call control features, system management capabilities, additional protocol and telephony device support, and new graphical
user interface and web-based applications; and enhanced versions of the SCE to offer additional editor features and a performance-enhanced
version of the service logic execution environment, specifically tailored for high volume call switching environments. Future developments
may also focus on emerging audio and video telephony standards and protocols, quality and performance enhancements to multimedia
compression algorithms, and additional features supporting all of the Company's products.
LICENSING AND DEVELOPMENT ARRANGEMENTS
The Company has entered into licensing and development arrangements with its customers to promote the design, development, manufacture,
and sale of the Company's products. In order to encourage the use of its semiconductors, NME has licensed portions of its systems technology
and software object code for its semiconductors to virtually all of its semiconductor customers. Moreover, many of NME's OEM customers
have licensed portions of the source code to its software for its semiconductors. NME intends to continue to license its semiconductor,
companies to use NME's technology to produce products that compete with the Company's IP telephony and video products.
NME has also licensed the right to manufacture certain of its videoconferencing and IP telephony semiconductor products, subject to payment
of royalties, to several original equipment manufacturers (OEMs). Of these OEM licensees, only Alcatel Microelectronics, ESS Technology,
to sales of such semiconductors as part of multimedia communication systems or sub-systems. The obligation of ESS to pay royalties to the
Company with regard to the sale of semiconductors based on the licensed technology expired in October 2000.
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