Plantronics 2009 Annual Report Download - page 26

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18
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 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 UC have moved the platform for certain of our products from our customers’ closed
proprietary systems to open platforms such as the PC. In turn, the PC 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:
• anticipate technology and market trends;
• develop innovative new products and enhancements on a timely basis;
• distinguish our products from those of our competitors;
• create industrial design that appeals to our customers and end-users;
• manufacture and deliver high-quality products in sufficient volumes; and
• price 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 which could have an adverse effect on our business.
Original design manufacturers and contract manufacturers produce key portions of our product lines for us, including all of our
Bluetooth products and most of our AEG products. 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 resulting from the global recession or otherwise 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.