Adaptec 2002 Annual Report Download - page 39

We currently do not have the ability to accurately predict what products our customers will need in the
future. Anticipating demand is difficult because our customers face volatile pricing and demand for their
end−user networking equipment, our customers are focusing more on cash preservation and tighter inventory
management, and because we supply a large number of products to a variety of customers and contract
manufacturers who have many equipment programs for which they purchase our products. Our customers are
frequently requesting shipment of our products earlier than our normal lead times. If we do not accurately
predict what mix of products our customers may order, we may not be able to meet our customers' demand in a
timely manner or we may be left with unwanted inventory.
A shortage in supply could adversely impact our ability to satisfy customer demand, which could adversely
affect our customer relationships along with our current and future operating results.
We rely on limited sources of wafer fabrication, the loss of which
could delay and limit our product shipments.
We do not own or operate a wafer fabrication facility. Three outside foundries supply greater than 90% of
our semiconductor device requirements. Our foundry suppliers also produce products for themselves and other
companies. In addition, we may not have access to adequate capacity or certain process technologies. We have
less control over delivery schedules, manufacturing yields and costs than competitors with their own
fabrication facilities. If the foundries we use are unable or unwilling to manufacture our products in
required volumes, we may have to identify and qualify acceptable additional or alternative foundries. This
qualification process could take six months or longer. We may not find sufficient capacity quickly enough,
if ever, to satisfy our production requirements.
Some companies that supply our customers are similarly dependent on a limited number of suppliers to produce
their products. These other companies' products may be designed into the same networking equipment into
which our products are designed. Our order levels could be reduced materially if these companies are unable
to access sufficient production capacity to produce in volumes demanded by our customers because our
customers may be forced to slow down or halt production on the equipment into which our products are
designed.
We depend on third parties in Asia for assembly of our semiconductor
products that could delay and limit our product shipments.
Sub−assemblers in Asia assemble all of our semiconductor products. Raw material shortages, political and
social instability, assembly house service disruptions, currency fluctuations, or other circumstances in the
region could force us to seek additional or alternative sources of supply or assembly. This could lead to
supply constraints or product delivery delays that, in turn, may result in the loss of revenues. We have
less control over delivery schedules, assembly processes, quality assurances and costs than competitors that
do not outsource these tasks.
We depend on a limited number of design software suppliers, the loss of
which could impede our product development.
A limited number of suppliers provide the computer aided design, or CAD, software we use to design our
products. Factors affecting the price, availability or technical capability of these products could affect
our ability to access appropriate CAD tools for the development of highly complex products. In particular,
the CAD software industry has been the subject of extensive intellectual property rights litigation, the
results of which could materially change the pricing and nature of the software we use. We also have limited
control over whether our software suppliers will be able to overcome technical barriers in time to fulfill
our needs.
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