Logitech 2005 Annual Report Download - page 49

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pressure and revalue its currency in the near future has persisted this year. Should the Chinese government allow
a significant RMB appreciation, our component and other raw material costs could increase and could adversely
affect our financial results and cash flows.
Product quality issues could adversely affect our reputation and could impact our operating results.
The market for our products is characterized by rapidly changing technology and evolving industry
standards. To remain competitive, we must continually introduce new products and technologies. The products
that we sell may contain defects in design and manufacture. Defects may also occur in the products or
components that are supplied to us. There can be no assurance we will be able to detect and fix all defects in the
hardware and software Logitech sells. Failure to do so could result in product recalls, lost revenue, loss of
reputation, and significant warranty and other expense to remedy.
We depend on original design manufacturers and contract manufacturers who may not have adequate
capacity to fulfill our needs or may not meet our quality and delivery objectives.
Original design manufacturers and contract manufacturers produce key portions of our product lines for us.
Our reliance on them involves significant risks, including reduced control over quality and logistics management,
the potential lack of adequate capacity and discontinuance of the contractors’ assembly processes. Financial
instability of our manufacturers or contractors could result in our having to find new suppliers, which could
increase our costs and delay our product deliveries. These manufacturers and contractors may also choose to
discontinue building our products for a variety of reasons. Consequently, we may experience delays in the
timeliness, quality and adequacy in product deliveries, any of which could harm our business and operating
results.
We purchase key components and products from single or limited sources, and our business and
operating results could be harmed if supply were delayed or constrained or if there were shortages of required
components.
Lead times for materials and components ordered by us or by our contract manufacturers can vary
significantly and depend on factors such as contract terms, demand for a component, and supplier capacity. From
time to time, we have experienced component shortages. We continue to experience extended lead times on
semiconductors and base metals used in our products. While we are trying to manage our component levels
through the purchase of buffer stock, there is no guarantee that we will be able to maintain the inventory levels
sufficient to meet our product demand. Currently, the shortages have not significantly impacted our product cost.
In addition, we may be at risk for these components if our customers reject or cancel orders unexpectedly or with
inadequate notice. Shortages or interruptions in the supply of components or subcontracted products, or our
inability to procure these components or products from alternate sources at acceptable prices in a timely manner,
could delay shipment of our products or increase our production costs, which could harm our business, financial
condition and operating results.
At various times, we have experienced fluctuations in component prices due to supply, demand and price
trends of certain markets. In particular, prices for petroleum-based materials have increased in recent periods. We
have generally been able to minimize the impact of such price increases by managing inventory levels, increasing
production efficiencies and negotiating competitive prices with our suppliers. While we will continue to
implement such actions, price fluctuations could have an impact on the cost of our products during a particular
period and could impact our gross margins.
We purchase certain products and key components from single or limited sources. In particular, a significant
portion of our cordless keyboards is single-sourced. If the supply of these products or key components were to be
delayed or constrained, we may be unable to find a new supplier on acceptable terms, or at all, or our new and
existing product shipments could be delayed, any of which could harm our business, financial condition and
operating results.
11
CG
20-F
LISA