8x8 2003 Annual Report Download - page 12

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9
assurance that the technology licensed by us will continue to provide competitive features and functionality or that
licenses for technology currently utilized by us or other technology which we may seek to license in the future will
be available to us on commercially reasonable terms or at all. The loss of, or inability to maintain existing licenses
could result in shipment delays or reductions until equivalent technology or suitable alternative products could be
developed, identified, licensed and integrated, and could harm our business. These licenses are on standard
commercial terms made generally available by the companies providing the licenses. The cost and terms of these
licenses individually are not material to our business.
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, Netergy has licensed portions of its systems technology and
software object code for its semiconductors to virtually all of its semiconductor customers. Moreover, many of
Netergy's OEM customers have licensed portions of the software source code for its semiconductors currently being
sold and under development. Netergy intends to continue to license its semiconductor, software, and systems
technology to other companies, many of which are current or potential competitors. Such arrangements may enable
these companies to use Netergy's technology to produce products that compete with the Company's IP telephony and
video products.
Netergy has also licensed the right to manufacture certain of its videoconferencing and IP telephony semiconductor
products to several original equipment manufacturers, or OEMs. These licenses generally provide for the payment of
royalties. Only certain of these OEM licensees, such as STM, may sell semiconductors based on the licensed
technology to third parties, while other licensees are limited to sales of such semiconductors as part of multimedia
communication systems or sub-systems. Item 13 of this Report provides further information regarding the
Company’s license and other arrangements with STM. In addition, in April 2002, Netergy licensed all of its
Veracity software and the H.264 and MPEG software under development to a third party, and granted that party
rights to use the technology on Netergy’s semiconductors.
Centile may, in the future, license its source code for portions or all of the hosted iPBX technology to other
companies. For example, the license and distribution agreement between Centile and AGCS, provides AGCS with
the opportunity to purchase a source code license under certain conditions. Such arrangements may enable these
companies to use the technology to produce products that compete with Centile’s products.
In March 2002, 8x8 licensed certain Very Long Instruction Word, or VLIW, microprocessor cores, related tools and
MPEG4 video compression firmware from STM for use in Netergy's IP video communication processor
development initiatives. Additionally, the Company agreed to license STM certain of its existing and future H.263
and H.264 firmware implementations for use with STM's semiconductor products. The licenses are non-exclusive,
non-transferable and non-assignable and provide for the sharing of updates and enhancements to the licensed
technology, subject to certain limitations. The agreement includes provisions that allow the Company to
manufacture semiconductor devices that contain the STM VLIW core at STM or at other third-party fabrication
facilities. The Company is required to pay STM per-unit royalties based upon shipments of products that incorporate
the VLIW technology. In addition, STM is required to pay the Company certain per-unit royalties based upon
shipments of STM semiconductor products that contain the Company's H.263 and H.264 video technology.
The Company expects to continue licensing its technology to others, many of whom may be located outside of the
United States. In addition to licensing its technology to others, the Company from time to time will take a license to
technology owned by third parties and currently relies upon certain technology, including hardware and software,
licensed from third parties.
INFORMATION ABOUT SEGMENTS AND GEOGRAPHIC AREAS
Financial information relating to our segments and information on revenues generated in different geographic areas
are set forth in Note 12 to our consolidated financial statements contained in Part II, Item 8 of this Report. In
addition, information regarding risks attendant to our foreign operations are set forth under the heading “Factors that
May Affect Future Results” later in this Report.