iRobot 2007 Annual Report Download - page 60

to terminate their contracts with us, reduce our gross profit and seriously harm our business, results of operations
and financial condition. Moreover, if any of our suppliers become financially unstable, we may have to find new
suppliers. It may take several months to locate alternative suppliers, if required, or to re-tool our products to
accommodate components from different suppliers. We may experience significant delays in manufacturing and
shipping our products to customers and incur additional development, manufacturing and other costs to establish
alternative sources of supply if we lose any of these sources. We cannot predict if we will be able to obtain
replacement components within the time frames that we require at an affordable cost, or at all. In particular, the
prices of ABS plastic and nickel (for batteries) have fluctuated greatly and we cannot provide assurance that the
prices of these components will not materially impact our results of operations.
Our products are complex and could have unknown defects or errors, which may give rise to claims
against us, diminish our brand or divert our resources from other purposes.
Our robots rely on the interplay among behavior-based artificially intelligent systems, real-world dynamic
sensors, user-friendly interfaces and tightly-integrated, electromechanical designs to accomplish their missions.
Despite testing, our new or existing products have contained defects and errors and may in the future contain
defects, errors or performance problems when first introduced, when new versions or enhancements are released, or
even after these products have been used by our customers for a period of time. These problems could result in
expensive and time-consuming design modifications or warranty charges, delays in the introduction of new
products or enhancements, significant increases in our service and maintenance costs, exposure to liability for
damages, damaged customer relationships and harm to our reputation, any of which could materially harm our
results of operations and ability to achieve market acceptance. Our quality control procedures relating to the raw
materials and components that it receives from third-party suppliers as well as our quality control procedures
relating to its products after those products are designed, manufactured and packaged may not be sufficient. In
addition, increased development and warranty costs, including the costs of any mandatory or voluntary recall or
product upgrades, could be substantial and could reduce our operating margins. Moreover, because military robots
are used in dangerous situations, the failure or malfunction of any of these robots, including our own, could
significantly damage our reputation and support for robot solutions in general. The existence of any defects, errors,
or failures in our products could also lead to product liability claims or lawsuits against us. A successful product
liability claim could result in substantial cost, diminish our brand and divert management’s attention and resources,
which could have a negative impact on our business, financial condition and results of operations.
The robot industry is and will likely continue to be characterized by rapid technological change,which
will require us to develop new products and product enhancements, and could render our existing prod-
ucts obsolete.
Continuing technological changes in the robot industry and in the markets in which we sell our robots could
undermine our competitive position or make our robots obsolete, either generally or for particular types of services.
Our future success will depend upon our ability to develop and introduce a variety of new capabilities and
enhancements to our existing product offerings, as well as introduce a variety of new product offerings, to address
the changing needs of the markets in which we offer our robots. Delays in introducing new products and
enhancements, the failure to choose correctly among technical alternatives or the failure to offer innovative
products or enhancements at competitive prices may cause existing and potential customers to forego purchases of
our products and purchase our competitors’ products. Moreover, the development of new products has required, and
will require, that we expend significant financial and management resources. We have incurred, and expect to
continue to incur, significant research and development expenses in connection with our efforts to expand our
product offerings. If we are unable to devote adequate resources to develop new products or cannot otherwise
successfully develop new products or enhancements that meet customer requirements on a timely basis, our
products could lose market share, our revenue and profits could decline, or we could experience operating losses.
Moreover, if we are unable to offset our product development costs through sales of existing or new products or
product enhancements, our operating results and gross margins would be negatively impacted.
26