Adaptec 2007 Annual Report Download - page 21

Table of Contents
our customers’ demand and accurately monitor their inventory levels of our products. If customer forecasts are not accurate, we may build too much inventory,
potentially leaving us with excess and obsolete inventory, which would reduce our profit margins and adversely affect our operating results. Conversely, we may
build too little inventory to meet customer demand causing us to miss revenue-generating opportunities.
Our customers often shift buying patterns as they manage inventory levels, market different products, or change production schedules. This makes
forecasting their production requirements difficult and can lead to an inventory surplus or shortage of certain of their components. In addition, our products vary
in terms of profit margins they generate. If our customers purchase a greater proportion of our lower margin parts in a particular period, it would adversely
impact our results of operations.
Further, our distributors provide us with periodic reports of their backlog to end customers, sales to end customers and quantities of our products that they
have on hand. If the data that is provided to us is inaccurate, it could lead to inaccurate forecasting of our revenues or errors in our reported revenues, gross profit
and net income.
While backlog is our best estimate of our next quarter’s revenues, it is industry practice to allow customers to cancel, change or defer orders with limited
advance notice prior to shipment. As such, backlog may be an unreliable indicator of future revenue levels. Because a significant portion of our operating
expenses are fixed, even a small revenue shortfall can have a disproportionately negative effect on our operating results.
If the demand for our customers’ products declines, demand for our products will be similarly affected and our revenues, gross margins and operating
performance will be adversely affected.
Our customers are subject to their own business cycles, most of which are unpredictable in commencement, depth and duration. We cannot accurately
predict the continued demand of our customers’ products and the demands of our customers for our products. In the past, networking customers have reduced
capital spending without notice, adversely affecting our revenues. As a result of this uncertainty, our past operating results may not be indicative of our future
operating results. It is possible that, in future periods, our results may be below the expectations of public market analysts and investors. This could cause the
market price of our common stock to decline.
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. The loss of a key customer could materially impact our results of operations.
We depend on a limited number of customers for a major portion of our revenues. Through direct, distributor and subcontractor purchases, Cisco Systems
and EMC Corporation each accounted for more than 10% of our revenues in 2007. We do not have long-term volume purchase commitments from any of our
major customers. We sell our products solely on the basis of purchase orders. Those customers could decide to cease purchasing products with little or no notice
and without significant penalties. A number of factors could cause our customers to cancel or defer orders, including interruptions to their operations due to a
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Source: PMC SIERRA INC, 10-K, February 22, 2008