Adaptec 2006 Annual Report Download - page 29

Table of Contents
forecasted quantity of their product offerings may be affected adversely and our product sales would decline until the shortage is remedied. Such a situation could
harm our operating results, cash flow and financial condition.
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 wafer foundries supply more than 95% of our semiconductor wafer requirements. Our wafer
foundry suppliers also make products for other companies and some make products for themselves, thus 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
wafer foundries we use are unable or unwilling to manufacture our products in required volumes, or at specified times, 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, at an acceptable cost, 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.
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, lengthening lead times. 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.
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.
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Source: PMC SIERRA INC, 10-K, March 01, 2007 Powered by Morningstar® Document Research℠