Plantronics 2007 Annual Report Download - page 28

24 P l a n t r o n i c s
other offerings with their headsets. We are also experiencing additional competition from other consumer
electronics companies that currently manufacture and sell mobile phones or computer peripheral
equipment. These competitors generally are larger, offer broader product lines, bundle or integrate with
other products’ communications headset tops and bases manufactured by them or others, offer products
containing bases that are incompatible with our headset tops and have substantially greater financial,
marketing and other resources than we do.
Competitors in audio devices vary by product line. In the PC speaker business, competitors include
Logitech and Creative Labs. In the PC and office and contact center markets, a significant competitor is
Sennheiser Communications. In the PC and console headset, telephony and microphone business, our
primary competitor is Logitech. In the Audio Entertainment speaker business, competitors include Bose,
Apple, Logitech, Creative Labs, iHome, and Harman International. Since our entry into the mobile
phone headset business, we have been competing against mobile phone and accessory companies such as
Jabra, Motorola, Nokia, Sony−Ericsson, and Samsung, some of whom have substantially greater resources
than we have, and each of whom has established market positions in this business.
Our product markets are intensely competitive and market leadership changes frequently as a result of
new products, designs and pricing. The growing focus of telephony service providers on the resale and
profit from headsets and other accessories threatens the price structure of the industry, margins and
market share. We also expect to face additional competition from companies, principally located in the
Far East, which offer very low cost headset products, including products that are modeled on, or are direct
copies of our products. These new competitors are likely to offer very low cost products, which may result
in pricing pressure in the market. If market prices are substantially reduced by such new entrants into the
headset market, our business, financial condition or results of operations could be materially adversely
affected.
Further, we expect to continue to experience increased competitive pressures in our retail business,
particularly in the terms and conditions that our competitors offer to our customers, which may be more
favorable than our terms. For example, some of our competitors are beginning to offer to consign products
rather than sell them directly to their customers. In order to compete effectively, we are offering similar
terms to select customers within our ACG products space. Offering more products on a consignment
basis could potentially delay the timing of our revenue recognition, increase inventory balances as well as
require changes in our systems to track inventory and point of sale.
If we do not continue to distinguish our products, particularly our retail products, through distinctive,
technologically advanced features, and design, as well as continue to build and strengthen our brand
recognition, our business could be harmed. In particular, Microsoft’s entry into the Universal Audio
Architecture open access platform, provides more value in software and, as a result, reduces the
opportunities for us to provide distinctive, technologically advanced features, further commoditizing
headsets. If we do not otherwise compete effectively, demand for our products could decline, our gross
margins could decrease, we could lose market share, and our revenues and earnings could decline.
While we believe we comply with environmental laws and regulations, we are still exposed to potential
risks associated with environmental regulations.
There are multiple initiatives in several jurisdictions regarding the removal of certain potential
environmentally sensitive materials from our products to comply with the European Union Directives on
Restrictions on certain Hazardous Substances on electrical and electronic equipment (“ROHS”) and on
Waste Electrical and Electronic Equipment (“WEEE”). In certain jurisdictions the ROHS legislation
has already been enacted as of July 1, 2006; however, other jurisdictions have delayed implementation.
Some of our customers are requesting that we implement these new compliance standards sooner than the
legislation would require. While we believe that we will have the resources and ability to fully meet our
customers’ requests, and the requirements of the ROHS and WEEE directives, if unusual occurrences
arise, or, if we are wrong in our assessment of what it will take to fully comply, there is a risk that we will