8x8 2006 Annual Report Download - page 20

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We are a small company with limited resources compared to some of our current and potential competitors
and we may not be able to compete effectively and increase market share.
Most of our current and potential competitors have longer operating histories, significantly greater resources and
name recognition and a larger base of customers than we have. As a result, these competitors may have greater
credibility with our existing and potential customers. They also may be able to adopt more aggressive pricing
policies and devote greater resources to the development, promotion and sale of their products than we can to ours.
Our competitors may also offer bundled service arrangements offering a more complete product despite the
technical merits or advantages of our products. These competitors include traditional telephone service providers,
such as AT&T, SBC and Verizon, cable television companies, such as Cablevision, Comcast, Cox and Time
Warner, and other VoIP service providers such as EBay/Skype,Vonage and Yahoo!. Competition could decrease our
prices, reduce our sales, lower our gross profits or decrease our market share.
Our success depends on third parties in our distribution channels.
We currently sell our products direct to consumers and through resellers, and are focusing efforts on diversifying
and increasing our distribution channels. Our future revenue growth will depend in large part on sales of our
products through reseller and other distribution relationships. We may not be successful in developing additional
distribution relationships. Agreements with distribution partners generally provide for one-time and recurring
commissions based on our list prices, and do not require minimum purchases or restrict development or distribution
of competitive products. Therefore, entities that distribute our products may compete with us. In addition,
distributors and resellers may not dedicate sufficient resources or give sufficient priority to selling our products. Our
failure to develop new distribution channels, the loss of a distribution relationship or a decline in the efforts of a
material reseller or distributor could have a material adverse effect on our business, financial condition or results of
operations.
We need to retain key personnel to support our products and ongoing operations.
The development and marketing of our VoIP products will continue to place a significant strain on our limited
personnel, management, and other resources. Our future success depends upon the continued services of our
executive officers and other key employees who have critical industry experience and relationships that we rely on
to implement our business plan. None of our officers or key employees are bound by employment agreements for
any specific term. The loss of the services of any of our officers or key employees could delay the development and
introduction of, and negatively impact our ability to sell our products which could adversely affect our financial
results and impair our growth. We currently do not maintain key person life insurance policies on any of our
employees.
We depend on contract 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 do not have long-term purchase agreements with our contract manufacturers. There can be no assurance that our
contract 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 videophones, cordless handsets and terminal adaptors that are used with our
Packet8 service, we rely on the availability of certain semiconductor products. These devices are also sourced solely
from certain overseas contract manufacturers and partners, and are currently not available from any other
manufacturer. Any of these factors could have a material adverse effect on our business, financial condition or
results of operations.
We rely on third party network service providers to originate and terminate substantially all of our public
switched telephone network calls.
Our Packet8 service depends on the availability of third party network service providers that provide telephone
numbers and public switched telephone network (PSTN) call termination and origination services for our customers.
Many of these network service providers have been affected by the downturn in the telecommunications industry
and may be forced to terminate the services that we depend on. The time to interface our technology to another
network service provider, if available, and qualify this new service could have a material adverse effect on our
business, operating results or financial condition.