Adaptec 2002 Annual Report Download - page 11

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OEMs are becoming more price conscious than in the past as a result of the downturn in the
telecommunications industry, and as semiconductors sourced from third party suppliers comprise a greater
portion of the total materials cost in OEM equipment. We have also experienced aggressive price competition
from competitors that are seeking to enter into the markets in which we participate. These circumstances may
make some of our products less competitive, and we may be forced to decrease our prices significantly to win
a design.
In addition to price, OEMs will also consider the quality of the supplier when determining which component
to include in a design. Many of our customers will consider the breadth and depth of the supplier's
technology, as using one supplier for a broad range of technologies can often simplify and accelerate the
design of next generation equipment. OEMs will also consider a supplier's design execution reputation, as
many OEMs design their next generation equipment concurrently with the component design. As well,
consideration is given to whether the OEM has pre−qualified the supplier, as this ensures that components
made by that supplier will meet the OEM's quality standards.
Our competitors may be classified into three major groups. First, we compete against established peer−group
semiconductor companies that focus on the communications semiconductor business. These companies include
Agere Systems, Applied Micro Circuits Corporation, Broadcom, Exar Corporation, Conexant Systems, Marvell
Technology Group, Multilink Technology Corporation, Silicon Image, Transwitch and Vitesse Semiconductor.
These companies are well financed, have significant communications semiconductor technology assets, have
established sales channels, and depend on the market in which we participate for the bulk of their revenues.
Other competitors include major domestic and international semiconductor companies, such as Agilent, Cypress
Semiconductor, Intel, IBM, Infineon, Integrated Device Technology, Maxim Integrated Products, Motorola,
Nortel Networks and Texas Instruments. These companies are concentrating an increasing amount of their
substantial financial and other resources on the markets in which we participate.
Emerging companies also provide competition in our segment of the semiconductor market. We are aware of
venture−backed companies that focus on specific portions of our broad range of products. These companies
could introduce technologies that may make one or more of our integrated circuits obsolete.
Over the next few years, we expect additional competitors, some of which may also have greater financial and
other resources, to enter the market with new products.
We are also expanding into some markets, such as the storage and wireless infrastructure and generic
microprocessor markets, that have established incumbents with substantial financial and other resources.
Some of these incumbents derive a majority of their earnings from these markets. We expect a strong increase
in competition in these markets.
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