Adaptec 2006 Annual Report Download - page 27

Table of Contents
Although our customers, our suppliers, and we rigorously test our products, our highly complex products may contain defects or bugs. We have in the past
experienced, and may in the future, experience defects and bugs in our products. If any of our products contain defects or bugs, or have reliability, quality or
compatibility problems that are significant to our customers, our reputation may be damaged and customers may be reluctant to buy our products. This could
materially and adversely affect our ability to retain existing customers or attract new customers. In addition, these defects or bugs could interrupt or delay sales to
our customers.
We may have to invest significant capital and other resources to alleviate problems with our products. If any of these problems are not found until after we have
commenced commercial production of a new product, we may be required to incur additional development costs and product recall, repair or replacement costs.
These problems may also result in claims against us by our customers or others. In addition, these problems may divert our technical and other resources from
other development efforts. Moreover, we would likely lose, or experience a delay in, market acceptance of the affected product or products, and we could lose
credibility with our current and prospective customers.
Our 2005 restructuring activities will increase our dependence on microprocessor cores licensed from third parties.
In June 2005, we implemented a workforce reduction plan that eliminated 63 positions from research and development in our Santa Clara design center. A
significant portion of our revenues is derived from sales of microprocessors that have been developed at this location. In the future, our microprocessor road map
will be dependent on successful acquisition and integration of microprocessor cores developed by third parties. If we experience difficulties in obtaining or
integrating intellectual property from these third parties, it could delay or prevent the development of microprocessor-based products in the future.
The loss of personnel could delay us from designing new products.
To succeed, we must retain and hire technical personnel highly skilled at the design and test functions needed to develop high-speed networking products. The
competition for such employees is intense.
We do not have employment agreements in place with many of our key personnel. As employee incentives, we issue common stock options that generally have
exercise prices at the market value at the time of grant and that are subject to vesting. As our stock price varies substantially, the stock options we grant to
employees are effective as retention incentives only if they have economic value.
We may not be able to meet customer demand for our products if we do not accurately predict demand or if we fail to secure adequate wafer
fabrication or assembly parts and capacity.
We currently do not have the ability to accurately predict what products our customers will need
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Source: PMC SIERRA INC, 10-K, March 01, 2007 Powered by Morningstar® Document Research℠