8x8 2011 Annual Report Download - page 16

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• Make it more difficult for us to attract new customers.
Any of these events could materially increase our expenses or reduce our revenue, which would have a material adverse effect
on our operating results.
Increased energy costs, power outages, and limited availability of electrical resources may adversely affect our
operating results.
Our data centers are susceptible to increased costs of power and to electrical power outages. Our customer contracts do not
contain provisions that would allow us to pass on any increased costs of energy to our customers, which could affect our
operating margins. Any increases in the price of our services to recoup these costs could not be implemented until the end of a
customer contract term. Further, power requirements at our data centers are increasing as a result of the increasing power
demands of today’ s servers. Increases in our power costs could impact our operating results and financial condition. Since we
rely on third parties to provide our data centers with power sufficient to meet our needs, our data centers could have a limited
or inadequate amount of electrical resources necessary to meet our customer requirements. We attempt to limit exposure to
system downtime due to power outages by using backup generators and power supplies. However, these protections may not
limit our exposure to power shortages or outages entirely. Any system downtime resulting from insufficient power resources or
power outages could damage our reputation and lead us to lose current and potential customers, which would harm our
operating results and financial condition.
Increased Internet bandwidth costs and network failures may adversely affect our operating results.
Our success depends in part upon the capacity, reliability, and performance of our network infrastructure, including the
capacity leased from our Internet bandwidth suppliers. We depend on these companies to provide uninterrupted and error-free
service through their telecommunications networks. Some of these providers are also our competitors. We exercise little
control over these providers, which increases our vulnerability to problems with the services they provide. We have
experienced and expect to continue to experience interruptions or delays in network service. Any failure on our part or the part
of our third-party suppliers to achieve or maintain high data transmission capacity, reliability or performance could
significantly reduce customer demand for our services and damage our business.
As our customer base grows and their usage of telecommunications capacity increases, we will be required to make additional
investments in our capacity to maintain adequate data transmission speeds, the availability of which may be limited or the cost
of which may be on terms unacceptable to us. If adequate capacity is not available to us as our customers’ usage increases, our
network may be unable to achieve or maintain sufficiently high data transmission capacity, reliability or performance. In
addition, our business would suffer if our network suppliers increased the prices for their services and we were unable to pass
along the increased costs to our customers.
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 and we depend on a concentrated group of
contract manufacturers for a substantial portion of manufacturing our products. 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. If we cannot compete effectively for the business of these contract manufacturers, or if any of the contract
manufacturers experience financial or other difficulties in their businesses, our revenue and our business could be adversely
affected. In particular, if one of our contract manufacturers becomes subject to bankruptcy proceedings, we may not be able to
obtain any of our products held by the contract manufacturer.
We also rely on third party vendors for IP phones to utilize our service. We currently do not have long-term supply contracts
with any of these vendors. As a result, most of these third party vendors are not obligated to provide products or perform
services to us for any specific period, in any specific quantities or at any specific price, except as may be provided in a
particular purchase order. The inability of these third party vendors to deliver IP phones of acceptable quality and in a timely
manner, particularly the sole source vendors, could adversely affect our operating results or cause them to fluctuate more than
anticipated. Additionally, some of our products may require specialized or high-performance component parts that may not be
available in quantities or in time frames that meet our requirements.