Adaptec 2002 Annual Report Download - page 32

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As a result of these factors, we have very limited revenue visibility and the rate by which revenues are
booked and shipped within the same reporting period is typically volatile. In addition, our net bookings can
vary sharply up and down within a quarter.
Our revenues have declined due to reduced demand in the markets we
serve, and may decline further in 2003.
Several of our customers' clients have reported lower than expected demand for their services or products,
which has resulted in poor operating results and difficulty in accessing the capital needed to build their
networks or survive to profitability. Many of these companies are facing increased competition and have
either filed for bankruptcy or may become insolvent in the near future. Concurrently, many of our customers'
more viable network service provider clients have accumulated significant debt loads to finance capital
projects that have yet to generate significant positive cash flows. In addition, most of our customers'
clients have announced a shift in forecasted expenditures on the equipment our customers sell, which may
generate financial return in a shorter time horizon. This equipment to which they shift may not incorporate,
or may incorporate fewer, of our products.
In response to the actual and anticipated declines in networking equipment demand, many of our customers and
their contract manufacturers have undertaken initiatives to significantly reduce expenditures and excess
component inventories. Many platforms in which our products are designed have been cancelled as our
customers cancel or restructure product development initiatives or as ventureāˆ’financed startup companies
fail. Our revenues may be materially and adversely impacted in 2003 if these conditions continue or worsen.
Our customers' actions have materially and adversely impacted our revenues, reduced our visibility of future
revenue streams, caused an increase in our inventory levels, and made a portion of our inventory obsolete.
As most of our costs are fixed in the short term, a further reduction in demand for our products may cause a
further decline in our gross and net margins.
While we believe that our customers and their contract manufacturers are consuming a portion of their
inventory of PMC products, we believe that those inventories, as well as the weakened demand that our
customers are experiencing for their products, may further depress our revenues and profit margins beyond
2002 (see "Business Outlook" above). We cannot accurately predict when demand for our products will
strengthen or how quickly our customers will consume their inventories of our products.
Our customers may cancel or delay the purchase of our products for
reasons other than the industry downturn described above.
Many of our customers have numerous product lines, numerous component requirements for each product,
sizeable and complex supplier structures, and often engage contract manufacturers to supplement their
manufacturing capacity. This makes forecasting their production requirements difficult and can lead to an
inventory surplus of certain of their components.
Our customers often shift buying patterns as they manage inventory levels, decide to use competing products,
are acquired or divested, market different products, or change production schedules.
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