15. OUR LENGTHY AND VARIABLE SALES CYCLES MAKE IT DIFFICULT FOR US TO PREDICT
WHEN AND IF A DESIGN WIN WILL RESULT IN VOLUME SHIPMENTS.
We depend upon companies designing our
microprocessors into their products, which we refer to as design wins. Many of
our targeted customers consider the choice of a microprocessor to be a strategic
decision. Our targeted customers may take a long time to evaluate our products,
and many individuals may be involved in the evaluation process. We anticipate
that the length of time between our initial contact with a customer and the time
when we recognize revenue from that customer will vary. We expect our sales
cycles to range from six to twelve months from the time we achieve the design
win to the time the customer begins volume production of products that
incorporate our microprocessors. We do not have historical experience selling
our products that is sufficient for us to determine how our sales cycles will
affect our revenue. Variations in the length of our sales cycles could cause our
revenue to fluctuate widely from period to period. While potential customers are
evaluating our products and before they place an order with us, we may incur
sales and marketing expenses and expend significant management and engineering
resources without any assurance of success. The value of any design win depends
upon the commercial success of our targeted customers' products. Therefore, we
take risks related to project cancellations or changed product plans, which
could result in the loss of anticipated sales. We can offer no assurance that we
will achieve further design wins or that the products for which we achieve
design wins will be commercially successful.
16. IF WE DO NOT KEEP PACE WITH TECHNOLOGICAL CHANGE, OUR PRODUCTS MAY NOT BE
COMPETITIVE AND OUR REVENUE AND OPERATING RESULTS MAY SUFFER.
The semiconductor industry is
characterized by rapid technological change, frequent new product introductions
and enhancements and ongoing customer demands for greater performance. In
addition, the average selling price of any particular microprocessor product has
historically decreased over its life, and we expect that trend to continue. As a
result, our products may not be competitive if we fail to introduce new products
or product enhancements that meet evolving customer demands. The development of
new products is complex, and we may not be able to complete development in a
timely manner, or at all. To introduce products on a timely basis, we must: -
accurately define and design new products to meet market needs; - design
features that continue to differentiate our products from those of our
competitors; - transition our products to new manufacturing process
technologies; - identify emerging technological trends in our target markets; -
anticipate changes in end-user preferences with respect to our customers'
products; - bring products to market on a timely basis at competitive prices;
and - respond effectively to technological changes or product announcements by
others. We believe that we will need to continue to enhance our products and
develop new products to keep pace with competitive and technological
developments and to achieve market acceptance for our products.
17. OUR DEPENDENCE ON IBM TO FABRICATE WAFERS AND TO PROVIDE ASSEMBLY AND TEST
SERVICES LIMITS OUR CONTROL OVER THE PRODUCTION, SUPPLY AND DELIVERY OF OUR
The cost, quality and availability of
third-party manufacturing operations are essential to the successful production
of our products. We currently rely exclusively on IBM to fabricate our wafers.
Our contract with IBM does not obligate IBM to provide us with any specified
number of wafers at any specified price until IBM has accepted a purchase order.
The absence of dedicated capacity under our agreement means that, with little or
no notice, IBM could refuse to continue to fabricate all or some of the wafers
that we require or change the terms under which it fabricates wafers. If IBM
were to stop manufacturing for us, we would likely be unable to replace the lost
capacity on a timely basis, which would significantly harm our business.
Transferring to another manufacturer would require a significant amount of time,
and a smooth and timely transition would be unlikely. In addition, if IBM were
to change the terms under which it manufactures for us, our manufacturing costs
could increase. Our reliance on a third-party manufacturer exposes us to the
following risks outside our control: - unpredictability of manufacturing yields
and production costs; - interruptions in shipments; - potential lack of adequate
capacity to fill all or part of the services we require; - inability to control
quality of finished products; - inability to control product delivery schedules;
and - potential lack of access to key fabrication process technologies. Because
IBM provides substantially all of our required assembly and test services, we do
not directly control our product delivery schedules. This lack of control could
result in product shortages as IBM manufactures our current products in volume
and, in the future, as we introduce new products. Product shortages could
increase our fabrication, assembly or testing costs or delay delivery of our
products. We do not have a long-term contract with IBM for test and assembly
services, and we typically procure these services from IBM on a per order basis.
Therefore, we may not be able to obtain assembly and testing services for our
products on acceptable terms, or at all. If we are required to find and qualify
alternative assembly or testing services, we could experience delays in product
shipments or a decline in product quality.
18. WE MAY NOT ACHIEVE ACCEPTABLE MANUFACTURING YIELDS, WHICH COULD INCREASE THE
COST AND REDUCE THE SUPPLY OF OUR PRODUCTS.
The fabrication of wafers for our
microprocessors is a highly complex and precise process that requires production
in a tightly controlled, clean room environment. Minute impurities, difficulties
in the fabrication process, defects in the masks used to print circuits on a
wafer or other factors can cause numerous die on each wafer to be nonfunctional.
The proportion of functional die expressed as a percentage of total die on a
wafer is referred to as product "yield." Even with functional die, normal
variations in wafer fabrication can cause some die to run faster than others.
Semiconductor companies frequently encounter difficulties in achieving expected
product yields. If we do not achieve expected yields, our product costs would
increase. Variations in speed yield could lead to excess inventory of slower
products and insufficient inventory of faster products, depending upon customer
demand. Further, as our products mature, we may experience yield problems as we
migrate our manufacturing processes to smaller geometries. Yield problems may
not be identified and resolved until a product has been manufactured and can be
analyzed and tested, if ever. As a result, yield problems are often difficult,
time consuming and expensive to correct. Yield problems could hamper our ability
to deliver our products to our customers in a timely manner.