iRobot 2007 Annual Report Download - page 59

• developers of small unmanned ground vehicles such as Foster-Miller, Inc. — a wholly owned subsidiary of
QinetiQ North America, Inc., Allen-Vanguard Corporation, and Remotec — a division of Northrop Grum-
man Corporation; and
• established government contractors working on unmanned systems such as Lockheed Martin Corporation,
BAE Systems, Inc. and General Dynamics Corporation.
In the event that the robot market expands, we expect that competition will intensify as additional competitors
enter the market and current competitors expand their product lines. Companies competing with us may introduce
products that are competitively priced, have increased performance or functionality, or incorporate technological
advances that we have not yet developed or implemented. Increased competitive pressure could result in a loss of
sales or market share or cause us to lower prices for our products, any of which would harm our business and
operating results.
The market for robots is highly competitive, rapidly evolving and subject to changing technologies, shifting
customer needs and expectations and the likely increased introduction of new products. Our ability to remain
competitive will depend to a great extent upon our ongoing performance in the areas of product development and
customer support. We cannot assure you that our products will continue to compete favorably or that we will be
successful in the face of increasing competition from new products and enhancements introduced by existing
competitors or new companies entering the markets in which we provide products. Our failure to compete
successfully could cause our revenue and market share to decline, which would negatively impact our results of
operations and financial condition.
Our business is significantly seasonal and, because many of our expenses are based on anticipated levels
of annual revenue, our business and operating results will suffer if we do not achieve revenue consistent
with our expectations.
Our home robots revenue is significantly seasonal. For the fiscal years ended December 29, 2007 and
December 30, 2006, we generated 74.6% and 64.5%, respectively, of our revenue from sales of consumer products
in the second half of the year. We expect a majority of such revenue will continue to be generated in the second half
of the year for the foreseeable future. As a result of this seasonality, we believe that quarter-to-quarter comparisons
of our operating results are not necessarily meaningful and that these comparisons cannot be relied upon as
indicators of future performance.
We base our current and future expense levels on our internal operating plans and sales forecasts, including
forecasts of holiday sales for our consumer products. A significant portion of our operating expenses, such as
research and development expenses, certain marketing and promotional expenses and employee wages and salaries,
do not vary directly with sales and are difficult to adjust in the short term. As a result, if sales for a quarter,
particularly the final quarter of a fiscal year, are below our expectations, we might not be able to reduce operating
expenses for that quarter and, therefore, we would not be able to reduce our operating expenses for the fiscal year.
Accordingly, a sales shortfall during a fiscal quarter, and in particular the fourth quarter of a fiscal year, could have a
disproportionate effect on our operating results for that quarter or that year. As a result of these factors, we may
report operating results that do not meet the expectations of equity research analysts and investors. This could cause
the trading price of our common stock to decline.
If critical components of our products that we currently purchase from a small number of suppliers
become unavailable, we may incur delays in shipment, which could damage our business.
We and our outsourced manufacturers obtain hardware components, various subsystems, raw materials and
batteries from a limited group of suppliers, some of which are sole suppliers. We do not have any long-term
agreements with these suppliers obligating them to continue to sell components or products to us. Our reliance on
these suppliers involves significant risks and uncertainties, including whether our suppliers will provide an adequate
supply of required components of sufficient quality, will increase prices for the components and will perform their
obligations on a timely basis. If we or our outsourced manufacturers are unable to obtain components from third-
party suppliers in the quantities and of the quality that we require, on a timely basis and at acceptable prices, we may
not be able to deliver our products on a timely or cost-effective basis to our customers, which could cause customers
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Form 10-K