Adaptec 2005 Annual Report Download - page 28

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Table of Contents
We depend on third parties for assembly of our semiconductor products that could delay and limit our product shipments.
We depend on third parties in Asia for assembly of our semiconductor products. In addition, subcontractors in Asia assemble all of our semiconductor
products into a variety of packages. 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. Capacity in the assembly industry has become scarce and lead times have lengthened. This could
become more severe, which could in turn adversely affect our revenues. We have less control over delivery schedules, assembly processes, quality assurances,
raw material supplies, and costs than competitors that do not outsource these tasks.
Due to the amount of time that it usually takes us to qualify assemblers and testers, we could experience significant delays in product shipments if we are
required to find alternative assemblers or testers for our components. Any problems that we may encounter with the delivery, quality or cost of our products
could damage our customer relationships and materially and adversely affect our results of operations. We are continuing to develop relationships with additional
third-party subcontractors to assemble and test our products. However, even if we use these new subcontractors, we will continue to be subject to all of the risks
described above.
Our business is vulnerable to interruption by earthquake, fire, power loss, telecommunications failure, terrorist activity and other events beyond our
control.
We do not have sufficient business interruption insurance to compensate us for actual losses from interruption of our business that may occur, and any
losses or damages incurred by us could have a material adverse effect on our business. We are vulnerable to a major earthquake and other calamities. We have
operations in seismically active regions in California, and we rely on third-party wafer fabrication facilities in seismically active regions in Asia. We have not
undertaken a systematic analysis of the potential consequences to our business and financial results from a major earthquake in either region. We are unable to
predict the effects of any such event, but the effects could be seriously harmful to our business.
Our estimated restructuring accruals may not be adequate.
In 2005, 2006 and 2007, we implemented restructuring plans to streamline production and reduce and reallocate operating costs. In 2001 and 2003, we
implemented plans to restructure our operations in response to the decline in demand for our networking products. We reduced the workforce and consolidated or
shut down excess facilities in an effort to bring our expenses into line with our revenue expectations.
While management uses all available information to estimate these restructuring costs, particularly facilities costs, our estimated accruals may prove to be
inadequate. If our actual sublease revenues or the results of our exiting negotiations differ from our assumptions, we may have to record additional charges,
which could materially affect our results of operations, financial position and cash flow.
22
Source: PMC SIERRA INC, 10-K, February 22, 2008