Adaptec 2003 Annual Report Download - page 38

schedules. Customers frequently request shipment of our products at less than our normal lead times. We may be unable to deliver
products to customers when they require them if we incorrectly estimate future demand, and this may lead to higher fluctuations in
shipments of our products.
In addition, we believe that uncertainty in our customers’ end markets and our customers’ increased focus on cash management has
caused our customers to delay product orders and reduce delivery lead−time expectations. This may increase the proportion of our
revenues in future periods that will be from orders placed and fulfilled within the same period. This will decrease our ability to
accurately forecast and may lead to greater fluctuations in operating results.
We rely on a few customers for a major portion of our sales, any one of which could materially impact our revenues should they
change their ordering pattern.
We depend on a limited number of customers for a major portion of our revenues. Through direct, distributor and subcontractor
purchases, Cisco Systems and Hewlett Packard each accounted for more than 10% of our fiscal 2003 revenues. We do not have
long−term volume purchase commitments from any of our major customers. Accordingly, our future operating results will continue to
depend on the success of our largest customers and on our ability to sell existing and new products to these customers in significant
quantities.
The loss of a key customer, or a reduction in our sales to any key customer or our inability to attract new significant customers could
materially and adversely affect our business, financial condition or results of operations.
We anticipate lower margins on high volume products, which could adversely affect our profitability.
We expect the average selling prices of our products to decline as they mature. Historically, competition in the semiconductor
industry has driven down the average selling prices of products. If we price our products too high, our customers may use a
competitor’s product or an in−house solution. To maintain profit margins, we must reduce our costs sufficiently to offset declines in
average selling prices, or successfully sell proportionately more new products with higher average selling prices. Yield or other
production problems, or shortages of supply may preclude us from lowering or maintaining current operating costs.
OEMs are increasingly price conscious as semiconductors sourced from third party suppliers comprise a greater portion of the total
materials cost in OEM equipment. We have experienced more aggressive price competition from competitors that wish to enter into
the market segments 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. We may lose design opportunities or may experience overall declines in
gross margins as a result of increased price competition.
In addition, our networking products range widely in terms of the margins they generate. A change in product sales mix could impact
our operating results materially.
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