8x8 2004 Annual Report Download - page 29

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The success of our Packet8 service is dependent on the growth and public acceptance of VoIP telephony.
The success of our Packet8 voice and video communications service is dependent upon future demand for VoIP
telephony systems and services. In order for the IP telephony market to continue to grow, several things need to
occur. Telephone and cable service providers must continue to invest in the deployment of high speed broadband
networks to residential and commercial customers. VoIP networks must improve quality of service for real-time
communications, managing effects such as packet jitter, packet loss, and unreliable bandwidth, so that toll-quality
service can be provided. VoIP telephony equipment and services must achieve a similar level of reliability that users
of the public switched telephone network have come to expect from their telephone service. VoIP telephony service
providers must offer cost and feature benefits to their customers that are sufficient to cause the customers to switch
away from traditional telephony service providers. If any or all of these factors fail to occur, our business may not
grow.
Our future operating results may not follow past or expected trends due to many factors and any of these
could cause our stock price to fall.
Our historical operating results have fluctuated significantly and will likely continue to fluctuate in the future, and a
decline in our operating results could cause our stock price to fall. On an annual and a quarterly basis, there are a
number of factors that may affect our operating results, many of which are outside our control. These include, but
are not limited to:
• changes in market demand;
• the timing of customer orders;
• competitive market conditions;
• lengthy sales cycles and/or regulatory approval cycles;
• new product introductions by us or our competitors;
• market acceptance of new or existing products;
• the cost and availability of components;
• the mix of our 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.
Our gross margin is affected by a number of factors including product mix, the recognition of license and royalty
revenues for which there may be little or no corresponding cost of revenues, product pricing, the allocation between
international and domestic sales, the percentages of direct sales and sales to resellers, and manufacturing and
component costs. In the likely event that we encounter significant price competition in the markets for our products,
we could be at a significant disadvantage compared to our competitors, many of whom 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. Delivery schedules may
be deferred or canceled for a number of reasons, including changes in specific customer requirements or economic
conditions. The adverse impact of a shortfall in our revenues may be magnified by our inability to adjust spending to
compensate for such shortfall. Announcements by our competitors or us of new products and technologies could
cause customers to defer purchases of our existing products, which would also have a material adverse effect on our
business and operating results. As a result of these and other factors, it is likely that in some or all future periods our