8x8 2002 Annual Report Download - page 40

Substantially all of our current semiconductor and system-
level products are, and substantially all of our future
products will be, manufactured, assembled, and tested by independent third parties in foreign countries. International
sales and manufacturing are subject to a number of risks, including general economic conditions in regions such as
Asia, changes in foreign government regulations and telecommunication standards, export license requirements, tariffs
and taxes, other trade barriers, fluctuations in currency exchange rates, difficulty in collecting accounts receivable, and
difficulty in staffing and managing foreign operations. We are also subject to geopolitical risks, such as political, social,
and economic instability, potential hostilities, and changes in diplomatic and trade relationships, in connection with our
international operations. Taiwan in particular is subject to a high rate of natural disasters, such as earthquakes or
typhoons, which could have significant impact on our suppliers and customers due to a delay in operations within that
country. In addition, Taiwan's tenuous relationship with mainland China is a source of continuing concern due to
potential hostilities. A significant decline in demand from foreign markets could have a material adverse effect on our
business, operating results, and financial condition.
We need to retain key personnel to support our products and ongoing operations
The development and marketing of our IP telephony products will continue to place a significant strain on our limited
personnel, management, and other resources. While the pace of economic growth in the San Francisco Bay Area
(where our corporate headquarters are located) has slowed in recent months, competition for highly skilled engineering,
sales, marketing, and support personnel has remained strong. Any failure to retain qualified personnel could adversely
affect our financial results and impair our growth. We have no written employment contracts with employees but we
have provided Joe Parkinson, our Chairman and former Chief Executive Officer, through a resolution of our Board of
Directors, with severance benefits that vest over time as a retention device. Similarly, the Board of Directors authorized
severance arrangements with Bryan R. Martin, Dr. Philip Bednarz, David M. Stoll, and certain other vice-
presidents of
Netergy Microelectronics, Inc., which are all fully vested. We primarily rely on equity compensation plans and
compensation policies to retain our key personnel. We currently do not maintain key person life insurance policies on
any of our employees.
We may not be able to manage our inventory levels effectively, which may lead to inventory obsolescence that
would force us to lower our prices
Our products have lead times of up to several months, and are built to forecasts that are necessarily imprecise. Because
of our practice of building our products to necessarily imprecise forecasts, it is likely that, from time to time, we will
have either excess or insufficient product inventory. Excess inventory levels would subject us to the risk of inventory
obsolescence and the risk that our selling prices may drop below our inventory costs, while insufficient levels of
inventory may negatively affect relations with customers. Any of these factors could have a material adverse effect on
our business, operating results, and financial condition.
Our stock price has been highly volatile
The market price of the shares of our common stock has been and is likely to be highly volatile. It may be significantly
affected by factors such as:
1
actual or anticipated fluctuations in our operating results;
1
announcements of technical innovations;
1
loss of key personnel;
1
new products or new contracts by us, our competitors or their customers; and
1
developments with respect to patents or proprietary rights, general market conditions, changes in financial
estimates by securities analysts, and other factors which could be unrelated to, or outside our control.
The stock market has from time to time experienced significant price and volume fluctuations that have particularly
affected the market prices for the common stocks of technology companies and that have often been unrelated to the
operating performance of particular companies. These broad market fluctuations may adversely affect the market price
of our common stock. In the past, following periods of volatility in the market price of a company's securities,
securities class action litigation has often been initiated against the issuing company. If our stock price is volatile, we
may also be subject to such litigation. Such litigation could result in substantial costs and a diversion of management's
attention and resources, which would disrupt business and could cause a decline in our operating results. Any