8x8 2006 Annual Report Download - page 21

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While we believe that relations with our current service providers are good and we have contracts in place, there can
be no assurance that these service providers will be able or willing to supply cost-effective services to us in the
future or that we will be successful in signing up alternative or additional providers. While we believe that we could
replace our current providers, if necessary, our ability to provide service to our subscribers would be impacted
during this timeframe, and this could have an adverse effect on our business, financial condition or results of
operations. The loss of access to, or requirement to change, the telephone numbers we provide to our customers
could have a material adverse effect on our business.
We may not be able to manage our inventory levels effectively, which may lead to inventory obsolescence that
would force us to incur inventory write-downs.
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, while insufficient levels of inventory may negatively affect relations with customers.
For instance, our customers rely upon our ability to meet committed delivery dates, and any disruption in the supply
of our products could result in legal action from our customers, loss of customers or harm to our ability to attract
new customers. Any of these factors could have a material adverse effect on our business, operating results or
financial condition.
If our products do not interoperate with our customers' networks, orders for our products will be delayed or
canceled and substantial product returns could occur, which could harm our business.
Many of the potential customers for our Packet8 service have requested that our products and services be designed
to interoperate with their existing networks, each of which may have different specifications and use multiple
standards. Our customers' networks may contain multiple generations of products from different vendors that have
been added over time as their networks have grown and evolved. Our products must interoperate with these products
as well as with future products in order to meet our customers' requirements. In some cases, we may be required to
modify our product designs to achieve a sale, which may result in a longer sales cycle, increased research and
development expense, and reduced operating margins. If our products do not interoperate with existing equipment or
software in our customers' networks, installations could be delayed, orders for our products could be canceled or our
products could be returned. In addition, contractual obligations may require us to continue to provide services that
interoperate whether cost effective or in our interests. Any of these factors could harm our business, financial
condition or results of operations.
We may have difficulty identifying the source of the problem when there is a problem in a network.
Our Packet8 service must successfully integrate with products from other vendors, such as gateways to traditional
telephone systems. As a result, when problems occur in a network, it may be difficult to identify the source of the
problem. The occurrence of hardware and software errors, whether caused by our Packet8 service or another
vendor's products, may result in the delay or loss of market acceptance of our products and any necessary revisions
may force us to incur significant expenses. The occurrence of some of these types of problems may seriously harm
our business, financial condition or results of operations.
Intense competition in the markets in which we compete could prevent us from increasing or sustaining our
revenue and prevent us from achieving profitability
We expect our competitors to continue to improve the performance of their current products and introduce new
products or new technologies. If our competitors successfully introduce new products or enhance their existing
products, this could reduce the sales or market acceptance of our products and services, increase price competition
or make our products obsolete. For instance, our competitors, such as local exchange carriers and cable television
providers, may be able to bundle services and products that we do not offer together with long distance or VoIP
telephony services. These services could include wireless communications, voice and data services, Internet access
and cable television. This form of bundling would put us at a competitive disadvantage if these providers can
combine a variety of services offerings at a single attractive price. To be competitive, we must continue to invest
significant resources in research and development, sales and marketing, and customer support. We may not have
sufficient resources to make these investments or to make the technological advances necessary to be competitive,
which in turn will cause our business to suffer.