Adaptec 2007 Annual Report Download - page 39

Table of Contents
(7) Results include $5.4 million purchase accounting adjustments to inventory and $0.5 million stock-based compensation expense included in Cost of
revenues, $4.0 million stock-based compensation expense included in Research and development expenses, $5.5 million stock-based compensation
expense included in Selling, general and administrative expenses and $3.3 million foreign exchange loss on Canadian taxes.
(8) Results include $2.8 million purchase accounting adjustments to inventory, $0.5 million in additional contractor costs, and $0.4 million stock-based
compensation expense included in Cost of revenues; $2.5 million stock-based compensation expense included in Research and Development expenses;
$3.0 million stock-based compensation expense and $0.2 million relocation expenses included in Selling, General and administrative expenses; $0.1
million foreign exchange gain on Canadian taxes; and $7.0 million withholding and other taxes on repatriation of funds.
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of the financial condition and results of our operations should be read in conjunction with the Consolidated Financial Statements and
notes thereto included elsewhere in this Annual Report.
OVERVIEW
We generate revenues from the sale of semiconductor devices and solutions that we have acquired, designed and developed. Almost all of our revenues in any
given year come from the sale of semiconductors that are developed prior to that year. For example, the majority of our revenues in 2007 came from products
that were acquired through business combinations in 2006 or developed in 2005 and earlier. After an individual product is completed and announced it may take
several years before that device generates any significant revenues. Our products’ success is dependent on the market acceptance of our customers’ products into
which our products are designed. Our current revenue is generated by a portfolio of approximately 350 products.
In addition to incurring costs for the marketing, sales and administration of selling existing products, we expend a substantial amount every year for the
development of new semiconductor devices. We determine the amount to invest in the development of new semiconductors based on our assessment of the future
market opportunities for those components, and the estimated return on investment. To compete globally we must invest in the businesses and technologies that
are both growing in demand and cost competitive in the geographic markets that we serve. We continue to aggressively focus on cost reduction and finding ways
to improve on operational efficiencies.
We are benefiting from the acquisitions that we completed in 2006. We are experiencing product synergies between the Fibre Channel controllers acquired from
the Storage Semiconductor Business we acquired from Avago in 2006 and our Fibre Channel and SAS disk-interconnect products. We have introduced 8 gigabit
Fibre Channel Controller products into the market, which improve data access times that have been made more challenging by data consolidation through
virtualization and fixed content storage. These products are backward compatible with our 4 Gbps Fibre Channel products, allowing our customers to preserve
their software investments.
We will continue to expand our FTTH product offerings for the Asian market in the coming year. Our largest end market for EPON solutions is Japan which is
the worldwide leader in FTTH deployment. In China, our EPON products are gaining traction in the marketplace due to the maturity and stability of this
technology. We expect revenue growth in our FTTH business in
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Source: PMC SIERRA INC, 10-K, February 22, 2008