Plantronics 2006 Annual Report Download - page 28

Item 1A. Risk Factors.
Investors or potential investors in our stock should carefully consider the risks described below. Our stock
price will reflect the performance of our business relative to, among other things, our competition,
expectations of securities analysts or investors, and general economic market conditions and industry
conditions. One should carefully consider the following factors in connection with any investment in our
stock. Our business, financial condition and results of operations could be materially adversely affected if
any of the following risks occur. Should any or all of the following risks materialize, the trading price of
our stock could decline, and investors could lose all or part of their investment.
Our operating results are difficult to predict and fluctuations may cause volatility in the trading
price of our common stock.
Given the nature of the markets in which we compete, our revenues and profitability are difficult to
predict for many reasons, including the following:
)Our operating results are highly dependent on the volume and timing of orders received during
the quarter, which are difficult to forecast. Customers generally order on an as-needed basis, and
we typically do not obtain firm, long-term purchase commitments from our customers. As a
result, our revenues in any quarter depend primarily on orders booked and shipped in that
quarter;
)We must incur a large portion of our costs in advance of sales orders because we must plan
research and production, order components and enter into development, sales and marketing,
and other operating commitments prior to obtaining firm commitments from our customers. In
the event we acquire too much inventory for certain products the risk of future inventory write-
downs increases. In the event we have inadequate inventory to meet the demand for particular
products we may miss significant revenue opportunities or may incur significant expenses such as
air freight, expediting shipments, and other negative variances in our manufacturing processes as
we attempt to make up for the shortfall. The foregoing difficulties are exacerbated in periods
such as the present when a significant portion of our revenue is derived from new products and
the difficulties of forecasting appropriate volumes of production are even more tenuous;
)Our Audio Communications Group profitability depends, in part, on the mix of our Busi-
ness-to-Business (‘‘B2B’’) and Business-to-Consumer (‘‘B2C’’) as well as our product mix. Our
prices and gross margins are generally lower for sales to B2C customers compared to sales to our
B2B customers. Our prices and gross margins can vary significantly by product line as well as
within product lines. The size and timing of opportunities in this market are difficult to predict;
)A significant portion of our annual retail sales for our Audio Entertainment Group generally
occur in the third fiscal quarter, thereby increasing the difficulty of predicting revenues and
profitability from quarter to quarter and in managing inventory levels;
)Fluctuations in currency exchange rates impact our revenues and profitability because we report
our financial statements in U.S. dollars, whereas a significant portion of our sales to customers
are transacted in other currencies, particularly the Euro. Furthermore, fluctuations in foreign
currencies impact our global pricing strategy resulting in our lowering or raising selling prices in
a currency in order to avoid disparity with U.S. dollar prices and to respond to currency-driven
competitive pricing actions; and
)Because we have significant manufacturing operations in Mexico and China, fluctuations in
currency exchange rates in those two countries can impact our gross profit and profitability.
Fluctuations in our operating results may cause volatility in the trading price of our common stock. For
example, in the second and fourth quarters of fiscal year 2006, our operating results did not meet our
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