Plantronics 2008 Annual Report Download - page 23

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17
Our business will be materially adversely affected if we are not able to develop, manufacture and market new products in response
to changing customer requirements and new technologies.
The market for our products is characterized by rapidly changing technology, evolving industry standards, short product life cycles
and frequent new product introductions. As a result, we must continually introduce new products and technologies and enhance
existing products in order to remain competitive, particularly with respect to our AEG business.
The technology used in our products is evolving more rapidly now than it has historically, and we anticipate that this trend may
accelerate. Historically, the technology used in lightweight communications headsets and speakers has evolved slowly. New products
have primarily offered stylistic changes and quality improvements rather than significant new technologies. Our increasing reliance
and focus on the consumer market has resulted in a growing portion of our products incorporating new technologies, experiencing
shorter lifecycles and a need to offer deeper product lines. We believe this is particularly true for our newer emerging technology
products especially in the speaker, mobile, computer, residential and certain parts of the office markets. In particular, we anticipate a
trend towards more integrated solutions that combine audio, video, and software functionality, while currently our focus is limited to
audio products.
We are also experiencing a trend away from corded headsets to cordless products. In general, our corded headsets have had higher
gross margins than our cordless products, but the margin on cordless headsets, particularly in mobile, is trending higher. In addition,
we expect that office phones will begin to incorporate Bluetooth functionality, which would open the market to consumer Bluetooth
headsets and reduce the demand for our traditional office telephony headsets and adapters as well as impacting potential revenues
from our own wireless headset systems, resulting in lost revenue and lower margins. Should we not be able to maintain the higher
margins on our cordless products that we recently achieved, our revenue and profits will decrease.
In addition, innovative technologies such as unified communications have moved the platform for certain of our products from our
customers’ closed proprietary systems to open platforms such as the personal computer. In turn, the personal computer has become
more open as a result of such technologies as cloud computing and open source code development. As a result we are exposed to the
risk that current and potential competitors could enter our markets and commoditize our products by offering similar products.
The success of our products depends on several factors, including our ability to:
xanticipate technology and market trends;
xdevelop innovative new products and enhancements on a timely basis;
xdistinguish our products from those of our competitors;
xcreate industrial design that appeals to our customers and end-users;
xmanufacture and deliver high-quality products in sufficient volumes;
xprice our products competitively.
If we are unable to develop, manufacture, market and introduce enhanced or new products in a timely manner in response to changing
market conditions or customer requirements, including changing fashion trends and styles, it will materially adversely affect our
business, financial condition and results of operations. Furthermore, as we develop new generations of products more quickly, we
expect that the pace of product obsolescence will increase concurrently. The disposition of inventories of excess or obsolete products
may result in reductions to our operating margins and materially adversely affect our earnings and results of operations.
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. Beginning in the fourth
quarter of fiscal 2008, most of our AEG products were produced by contract manufacturers. Our reliance on these original design
manufacturers and contract manufacturers involves significant risks, including reduced control over quality and logistics management,
the potential lack of adequate capacity and loss of services. 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 of product deliveries, any of which could harm our business and operating results.