8x8 2001 Annual Report Download - page 33

imposing tariffs or imposing regulations based on encryption concerns or the characteristics and quality of products and services, any of which
could restrict our business or increase our cost of doing business. The increasing growth of the broadband IP telephony market and popularity
of broadband IP telephony products and services heighten the risk that governments will seek to regulate broadband IP telephony and the
Internet. In addition, large, established telecommunication companies may devote substantial lobbying efforts to influence the regulation of the
broadband IP telephony market, which may be contrary to our interests.
WE MAY TRANSITION TO SMALLER GEOMETRY PROCESS TECHNOLOGIES AND HIGHER LEVELS OF DESIGN
INTEGRATION, WHICH COULD DISRUPT OUR BUSINESS
We continuously evaluate the benefits, on an integrated circuit, product-by-product basis, of migrating to smaller geometry process
technologies in order to reduce costs related to the development and production of our semiconductors. We believe that the transition of our
products to increasingly smaller geometries will be important for us to remain competitive. We have in the past experienced difficulty in
migrating to new manufacturing processes, which has resulted and could continue to result in reduced yields, delays in product deliveries, and
increased expense levels. Moreover, we are dependent on relationships with our foundries and their partners to migrate to smaller geometry
processes successfully. If any such transition is substantially delayed or inefficiently implemented, we may experience delays in product
introductions and incur increased expenses. As smaller geometry processes become more prevalent, we expect to integrate greater levels of
functionality, as well as customer and third party intellectual property, into our products. We cannot predict whether higher levels of design
integration or the use of third-
party intellectual property will adversely affect our ability to deliver new integrated products on a timely basis, or
at all.
WE DEPEND ON SUBCONTRACTED MANUFACTURERS TO MANUFACTURE SUBSTANTIALLY ALL OF OUR PRODUCTS, AND
ANY DELAY OR INTERRUPTION IN MANUFACTURING BY THESE CONTRACT MANUFACTURERS WOULD RESULT IN
DELAYED OR REDUCED SHIPMENTS TO OUR CUSTOMERS AND MAY HARM OUR BUSINESS
We outsource the manufacturing of our semiconductor products to independent foundries. Our primary semiconductor manufacturer is Taiwan
Semiconductor Manufacturing Corporation (TSMC). While TSMC has been a valuable and capable supplier, there are no assurances or supply
contracts guaranteeing that they will continue to supply us with our required wafer supply. Furthermore, Taiwan is always subject to geological
or geopolitical disturbances that could instantly cut off such supply. We also rely on other third party manufacturers for packaging and testing
of our semiconductors.
We do not have long-
term purchase agreements with our subcontract manufacturers or our component suppliers. There can be no assurance that
our subcontract manufacturers will be able or willing to reliably manufacture our products, in volumes, on a cost effective basis or in a timely
manner. For our semiconductor products, the time to port our technology to another foundry, the time to qualify the new versions of product,
and the cost of this effort as well as the tooling associated with wafer production would have a material adverse effect on our business,
operating results, and financial condition.
IF WE DISCOVER PRODUCT DEFECTS, WE MAY HAVE PRODUCT-RELATED LIABILITIES WHICH MAY CAUSE US TO
LOSE REVENUES OR DELAY MARKET ACCEPTANCE OF OUR PRODUCTS
Products as complex as those we offer frequently contain errors, defects, and functional limitations when first introduced or as new versions are
released. We have in the past experienced such errors, defects or functional limitations. We sell products into markets that are extremely
demanding of robust, reliable, fully functional products. Therefore, delivery of products with production defects or reliability, quality or
compatibility problems could significantly delay or hinder market acceptance of such products, which could damage our credibility with our
customers and adversely affect our ability to retain our existing customers and to attract new customers. Moreover, such errors, defects or
functional limitations could cause problems, interruptions, delays or a cessation of sales to our customers. Alleviating such problems may
require significant expenditures of capital and resources by us. Despite our testing, our suppliers or our customers may find errors, defects or
functional limitations in new products after commencement of commercial production. This could result in additional development costs, loss
of, or delays in, market acceptance, diversion of technical and other
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