Plantronics 2005 Annual Report Download - page 67

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part ii
would a company serving a broader market. Any decrease in the demand for contact centers and related
headset products could cause a decrease in the demand for our products, which would materially
adversely affect our business, financial condition and results of operations.
In addition, we are seeing a proliferation of speech-activated and voice interactive software in the market
place. We have been re-assessing long-term growth prospects for the contact center market given the
growth rate and the advancement of these new voice recognition-based technologies. Businesses that first
embraced them to resolve labor shortages at the peak of the last economic up cycle are now increasing
spending on these technologies in hopes of reducing total costs. We may experience a decline in our sales
to the contact center market if businesses increase their adoption of speech-activated and voice interactive
software as an alternative to customer service agents. Should this trend continue, it could cause a net
reduction in contact center agents and our revenues to this market segment could decline rather than
grow in future years.
If we do not match production to demand, we will be at risk of losing business or our gross margins
could be materially adversely affected.
Historically, we have generally been able to increase production to meet increasing demand. However,
the demand for our products is dependent on many factors and such demand is inherently difficult to
forecast. We have experienced sharp fluctuations in demand, especially for headsets for wireless and
cellular phones. Significant unanticipated fluctuations in demand and the global trend towards consign-
ment of products could cause the following operating problems, among others:
)If forecasted demand does not develop, we could have excess inventory and excess capacity. Over
forecast of demand could result in higher inventories of finished products, components and
subassemblies. If we were unable to sell these inventories, we would have to write off some or all
of our inventories of excess products and unusable components and subassemblies. Excess
manufacturing capacity could lead to higher production costs and lower margins.
)If demand increases beyond that forecasted, we would have to rapidly increase production. We
depend on suppliers to provide additional volumes of components and subassemblies, and are
experiencing greater dependencies on single source suppliers. Therefore, we might not be able to
increase production rapidly enough to meet unexpected demand. This could cause us to fail to
meet customer expectations. There could be short-term losses of sales while we are trying to
increase production. If customers turn to competitive sources of supply to meet their needs, there
could be a long-term impact on our revenues.
)Rapid increases in production levels to meet unanticipated demand could result in higher costs
for components and subassemblies, increased expenditures for freight to expedite delivery of
required materials, and higher overtime costs and other expenses. These higher expenditures
could lower our profit margins. Further, if production is increased rapidly, there may be
decreased manufacturing yields, which may also lower our margins.
)The introduction of Bluetooth and other wireless headsets presents many significant manufac-
turing, marketing and other operational risks and uncertainties, including: developing and
marketing these wireless headset products; unforeseen delays or difficulties in introducing and
achieving volume production of such products; our dependence on third parties to supply key
components, many of which have long lead times; and our ability to forecast demand and
customer return rates accurately for this new product category for which relevant data is
incomplete or not available. We have longer lead times with certain suppliers than commitments
from some of our customers. In particular, a major customer only provides us with a 45 day
commitment while we commit to inventory purchases beyond this time period. As this inventory
is unique to this customer and we have no alternative means of selling any finished products, this
could potentially result in significant write-downs of excess inventories.
AR 2005 ⯗39