Adaptec 2009 Annual Report Download - page 18

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.
Industry consolidation may lead to increased competition and may harm our operating results.
There has been a trend toward industry consolidation in our markets for several years. We expect this trend
to continue as companies attempt to improve the leverage of growing research and development costs, strengthen
or hold their market positions in an evolving industry and as companies are acquired or are unable to continue
operations. Companies that are strategic alliance partners in some areas of our business may acquire or form
alliances with our competitors, thereby reducing their business with us. We believe that industry consolidation
may result in stronger competitors that are better able to compete as sole-source vendors for customers. This
could lead to more variability in our operating results and could have a material adverse effect on our business,
operating results and financial condition.
Our business may be adversely affected if our customers or suppliers cannot obtain sufficient supplies of
other components needed in their product offerings to meet their production projections and target
quantities.
Some of our products are used by customers in conjunction with a number of other components, such as
transceivers, microcontrollers and digital signal processors. If, for any reason, our customers experience a
shortage of any component, their ability to produce the 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. In 2009, two outside wafer foundries supplied 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
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