Adaptec 2007 Annual Report Download - page 16

Table of Contents
sales) in part because many of our OEM customers increased the use of Asia-based contract manufacturers for the assembly of their products. Sales to Cisco
Systems and EMC Corporation through distributors, contract manufacturers and direct sales each represented more than 10% of our total revenues in 2007.
Because we do business outside the United States, we are subject to risks related to changes in political and economic climate in the countries in which we
operate. Please refer to the risk factor “Changes in the political and economic climate in the countries we do business in may adversely affect our operating
results” set forth in Item 1A.
MANUFACTURING
PMC-Sierra is a fabless company, meaning that we do not own or operate foundries for the production of the silicon wafers from which our products are made.
Instead, we work with independent merchant foundries and chip assemblers for the manufacture of our products. We believe our fabless approach to
manufacturing provides us with the benefit of superior manufacturing capability, scalability, as well as the flexibility to move wafer manufacture, assembly and
test of our products to the vendors that offer the best technology and service, at a competitive price.
Our lead-time, or the time required to manufacture our devices, is typically 10 to 14 weeks. Based on this lead-time, our team of production planners initiates
purchase orders with our wafer suppliers and with our chip assemblers for the assembly and test of our parts so that, to the best of our ability, our products are
available to meet customer demand.
Wafer Fabrication
We manufacture our products at independent foundries using standard Complementary Metal Oxide Semiconductor (CMOS) process techniques. We have in the
past purchased substantially all of the silicon wafers from which we manufacture our products from Taiwan Semiconductor Manufacturing Corporation (TSMC),
and Chartered Semiconductor Manufacturing Ltd. (Chartered). These independent foundries produce the wafers for our networking products at feature sizes
down to 65 nanometer. By using independent foundries to fabricate our wafers, we are better able to concentrate our resources on designing, developing and
testing of new products. In addition, we avoid the fixed costs associated with owning and operating fabrication and chip assembly facilities, and the costs
associated with updating these facilities to manage constantly evolving process technologies.
We have supply agreements with both TSMC and Chartered that were renewed through December 30, 2008. PMC has a secured capacity agreement through
deposits with one of its foundry partners, which ensures continuous supply during periods of tight capacity. Under these supply agreements, the foundries must
supply certain quantities of wafers per year. Neither of these agreements have minimum unit volume requirements but we are obliged under one of the
agreements to purchase a minimum percentage of our total annual wafer requirements provided that the foundry is able to continue to offer competitive
technology, pricing, quality and delivery. These agreements may be terminated at any time if either party violates the terms of the agreements. We do not
currently anticipate any problems in renewing these supply agreements beyond the current expiry dates.
10
Source: PMC SIERRA INC, 10-K, February 22, 2008