TiVo 2009 Annual Report Download - page 37

Table of Contents
In connection with our manufacturing operations, we maintain a finished goods inventory of the DVR units we produce throughout the year. Due to the
seasonality in our business and our long-lead time product development and manufacturing cycles, we need to make forecasts of demand and commit
significant resources towards manufacturing of our DVR units well in advance of our peak selling periods. As such, we are subject to significant risks in
managing the inventory needs of our business during the year, including estimates of the appropriate mix of demand across our older and newer DVR models.
For example, due to lower than expected sales of standard definition DVRs and the resulting changes in our sales forecast, in the fiscal year ended January 31,
2008 we recorded an inventory related charge of $6.4 million for excess raw materials, finished goods inventory, and non-cancelable purchase commitments.
Subsequently, the actual sales of our standard definition DVRs exceeded our expectations and we utilized approximately $4.9 million and $1.5 million of
previously impaired inventory during the fiscal years ended January 31, 2009 and 2010, respectively. As of January 31, 2010 we have $2.2 million of
inventory reserves still remaining on the consolidated balance sheet. If we were to over estimate demand for our DVRs, we may end up with inventories that
exceed currently forecasted demand which would require us to record additional write-downs. Should actual market conditions differ from our estimates, our
future results of operations could be materially affected. In the future, we may be required to record additional write-downs of finished products and materials
on-hand and/or additional charges for excess purchase commitments as a result of future changes in our sales forecasts.
We have limited experience and face significant competition in providing service and operations internationally that are subject to different
competitors, laws, regulations, and requirements than those in the United States and our inability to compete or comply with such laws, regulations,
and requirements could harm our reputation, brand, and have a negative impact on revenues.
We have provided and expect to continue to provide the TiVo service in jurisdictions outside of the United States, such as the United Kingdom,
Mexico, Canada, Australia, and New Zealand. We have limited experience in international operations. We face significant competition and technological
challenges in competing with other consumer electronics manufacturers in these jurisdictions and in complying with international laws and technological
standards such the various digital over-the-air standards like DVB-T. If we are unable to properly manage our international operations or comply with
international laws, regulations, and requirements, we could suffer damage to our reputation, brand, and revenues and as a result our business could be harmed.
We have and expect to continue to partner with local broadcasters, cable television operators, and satellite providers to provide the TiVo service
internationally. Transactions with international partners may never materialize or may not result in significant revenue for us and may result in significant
costs.
We face significant risks to our business when we engage in the outsourcing of engineering work which, if not properly managed, could result
in the loss of valuable intellectual property which could harm our business.
We have from time-to-time outsourced engineering work related to the design, development, and manufacturing of our products. We have and expect to
in the future work with companies located in jurisdictions outside of the United States, including, but not limited to, Taiwan, India, Ukraine, United Kingdom,
and Mexico. We have limited experience in the outsourcing of engineering, manufacturing, and other work to third parties located internationally that operate
under different laws and regulations than those in the United States. If we are unable to properly manage and oversee the outsourcing of this engineering,
manufacturing and other work related to our products, we could suffer the loss of valuable intellectual property, or the loss of the ability to claim such
intellectual property, including patents, trademarks, trade secrets, and copyrights and as a result our business could be harmed.
Product defects, system failures, or interruptions to the TiVo service may have a negative impact on our revenues, damage our reputation and
decrease our ability to attract new customers.
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