Memorex 2007 Annual Report Download - page 42

required to introduce new products. If we are not successful in maintaining and developing new relationships with OEMs or
obtaining rights to use competitive technologies, we may become less competitive in certain markets.
Our financial success depends upon our ability to manufacture, source and deliver products to our
customers at acceptable quality, volume and cost levels. Our success depends on our ability to source, manufacture
and deliver products to our customers at acceptable quality, volume and cost levels. The manufacture of our products
involves complex and precise processes requiring production in highly controlled and clean environments. If we do not
manage these processes effectively, changes could significantly hurt our ability to meet our customers’ product volume and
quality needs at acceptable costs. Even within a clean room environment, minor equipment malfunctions in any one of the
many manufacturing process steps could halt production and lead to additional costs. Further, existing manufacturing
techniques may not achieve our volume and cost targets. In these cases, there can be no assurance that we will be able
to develop new manufacturing processes and techniques to achieve these targets. For sourced products, we must be able
to obtain quality products at a price that will allow us to sell the products at an acceptable gross margin. To the extent we
cannot control costs or price erosion is greater than expected, our financial results may be negatively impacted.
If we cannot obtain finished products, raw materials or critical components at projected costs, we may not
be able to maintain expected levels of profitability. We make significant purchases of finished products, raw materials,
critical components and energy from many domestic and foreign sources. No assurances can be given that acceptable
cost levels will continue in the future. In addition, some critical raw materials and key components have a limited number
of suppliers. If we cannot obtain those raw materials or critical components from the suppliers, we will not be able to
produce certain of our products. In the global consumer electronics market, flat panel displays are in high demand and if
our vendors fail to supply us with products we may not meet the demands of our customers and revenue could decline.
A material change in customer relationships or in customer demand for products could have a significant
impact on our business. We are transforming the Company into a brand and product management organization and
increasing our reliance on retail trade customers. Our success is dependent on our ability to successfully offer trade terms
that are acceptable to our customers and are aligned with our pricing and profitability targets. Our business could suffer if
we cannot reach agreements with key customers based on our trade terms and principles. In addition, our business would
be negatively impacted if key customers were to significantly reduce the range or inventory level of our products.
Our financial results may be affected by the political climate and laws in the countries in which we do
business and by fluctuations in world financial markets. Our products are sold in approximately 100 countries and
over half our revenue comes from sales outside the United States. Our international operations may be subject to various
risks which are not present in domestic operations, including political and economic instability, terrorist activity, the
possibility of expropriation, trade tariffs or embargoes, unfavorable tax laws, restrictions on royalties, dividend and currency
remittances, changes in foreign laws and regulations, requirements for governmental approvals for new ventures and local
participation in operations such as local equity ownership and workers’ councils. In addition, our business and financial
results are affected by fluctuations in world financial markets, including foreign currency exchange rates.
Our success depends in part on our ability to obtain and protect our intellectual property rights, including
the TDK Life on Record and Memorex brands, and to defend ourselves against intellectual property infringement
claims of others, including the Philips patent cross-license. Claims may arise from time to time alleging that we
infringe on the intellectual property rights of others. If we are not successful in defending ourselves against those claims,
we could incur substantial costs in implementing remediation actions, such as redesigning our products or processes,
paying for license rights or paying to settle disputes. The related costs or the disruption to our operations could have a
material adverse effect on us. See Item 3. Legal Proceedings for a description of our dispute with Philips.
In addition, we utilize valuable non-patented technical know-how and trade secrets in our product development and
manufacturing operations. There can be no assurance that confidentiality agreements and other measures we utilize to
protect such proprietary information will be effective, that these agreements will not be breached or that our competitors
will not acquire the information as a result of or through independent development. We enforce our intellectual property
rights against others who infringe those rights.
If we are unable to attract and retain employees and key talent, we may incur a material adverse impact on
our business and financial results. We operate in a highly competitive market for employees with specialized skill,
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