| IXIA Item 1A Risk Factors The statements that are not historical facts contained in this Annual Report on Form 10-K are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 |
| These statements reflect the current belief, expectations or intent of our management and are subject to and involve certain risks and uncertainties |
| Many of these risks and uncertainties are outside of our control and are difficult for us to forecast or mitigate |
| In addition to the risks described elsewhere in this Annual Report on Form 10-K and in certain of our other Securities and Exchange Act Commission filings, the following important factors, among others, could cause our actual results to differ materially from those expressed or implied by us in any forward-looking statements contained herein or made elsewhere by or on behalf of us |
| Because we depend on a limited number of customers for a majority of our revenues, any cancellation, reduction or delay in purchases by these customers could significantly harm our revenues and results of operations Historically, a small number of customers has accounted for a significant portion of our net revenues |
| Sales to Cisco Systems, our largest customer, accounted for 34dtta8prca of our net revenues in 2005, 31dtta8prca of our net revenues in 2004 and 29dtta1prca of our net revenues in 2003 |
| We expect that significant customer concentration will continue for the foreseeable future and that our operating results will continue to depend to a significant extent upon revenues from a small number of customers |
| Our dependence on large orders from a limited number of customers makes our relationships with these customers critical to the success of our business |
| We cannot be certain that we will be able to retain our largest customers, that we will be able to increase our sales to our other existing customers or that we will be able to attract additional customers |
| From time to time, we have experienced delays and reductions in orders from some of our major customers |
| In addition, our customers have sought price concessions from us and may continue to do so |
| We typically do not have long-term contracts with our customers, and our major customers can stop purchasing our products at any time without penalty and are free to purchase products from our competitors |
| The loss of one or more of our largest customers, any reduction or delay in sales to these customers, our inability to successfully 16 _________________________________________________________________ [66]Table of Contents develop and maintain relationships with existing and new customers, or requirements that we make price concessions could significantly harm our revenues and results of operations |
| Our quarterly and annual operating results may fluctuate significantly as a result of new product introductions and other factors which could cause our stock price to decline significantly Our quarterly and annual operating results have fluctuated and may fluctuate significantly due to a variety of factors, most of which are outside of our control |
| Some of the factors that could cause our quarterly and annual operating results to fluctuate include the other risks discussed in this “Risk Factors” section |
| We may experience a shortfall or delay in generating or recognizing revenues for a number of reasons |
| Orders on hand at the beginning of a quarter and orders generated in a quarter do not always result in the shipment of products and the recognition of revenues for that quarter |
| Failure to ship products by the end of the quarter in which they are ordered may adversely affect our operating results for that quarter |
| Our customer agreements typically provide that the customer may delay scheduled delivery dates and cancel orders within specified time frames without penalty |
| Because we incur operating expenses based on anticipated revenues and a high percentage of our expenses are fixed in the short term, any delay in generating or recognizing forecasted revenues could significantly harm our results of operations |
| Additionally, our operating results may vary as a result of the timing of our release of new products |
| The introduction of a new product in any quarter may cause an increase in revenues in that quarter that may not be sustainable in subsequent quarters |
| If we are unable to successfully introduce new products to keep pace with the rapid technological changes that characterize our market, our results of operations will be significantly harmed The market for our products is characterized by: • rapid technological change such as the recent development of optical fiber and wireless technologies; • frequent new product introductions such as higher speed and more complex routers; • evolving industry standards such as new internet protocols; • changing customer needs such as the increase in the levels of service agreed to between network service providers and their customers; and • short product life cycles as a result of rapid changes in our customers’ products |
| Our performance will depend on our successful development, introduction and market acceptance of new and enhanced performance analysis products that address new technologies and changes in customer requirements |
| If we experience any delay in the development or introduction of new products or enhancements to our existing products, our operating results may suffer |
| For instance, undetected software or hardware errors, which frequently occur when new products are first introduced, could result in the delay or loss of market acceptance of our products and the loss of credibility with our customers |
| In addition, if we are not able to develop, or license or acquire from third parties, the underlying core technologies necessary to create new products and enhancements, our existing products are likely to become technologically obsolete over time and our operating results will suffer |
| If the rate of development of new technologies and transmission protocols by our customers is delayed, the growth of the market for our products and therefore our sales and operating results may be harmed |
| Our ability to successfully introduce new products in a timely fashion will depend on several factors, including our ability to: • anticipate technological changes and industry trends; 17 _________________________________________________________________ [67]Table of Contents • properly identify customer needs; • innovate and develop new technologies and applications; • hire and retain necessary technical personnel; • successfully commercialize new technologies in a timely manner; • timely obtain key components for the manufacture of new products; • manufacture and deliver our products in sufficient volumes and on time; • price our products competitively; and • differentiate our offerings from our competitors’ offerings |
| The development of new, technologically advanced products is a complex and uncertain process requiring high levels of innovation and highly skilled engineering and development personnel, as well as the accurate anticipation of technology and market trends |
| We cannot be certain that we will be able to identify, develop, manufacture, market or support new or enhanced products successfully, if at all, or on a timely or cost-effective basis |
| Further, we cannot be certain that our new products will gain market acceptance or that we will be able to respond effectively to technological changes, emerging industry standards or product announcements by our competitors |
| If we fail to respond to technological change and the needs of our markets, we will lose revenues and our competitive position will suffer |
| We depend on sales of a narrow range of products and if customers do not purchase our products, our revenues and results of operations would be significantly harmed Our business and products are concentrated in the market for systems that analyze and measure the performance of network equipment and systems |
| This market is an evolving market and there is uncertainty regarding its size and scope |
| Our performance will depend on increased sales of our existing systems and the successful development, introduction and market acceptance of new and enhanced products |
| We cannot be certain that we will be successful in increasing these sales or in developing and introducing new products |
| Our failure to do so would significantly harm our revenues and results of operations |
| Competition in our market could significantly harm our results of operations The market for our products is highly competitive |
| We face competition primarily from test equipment manufacturers such as Agilent Technologies, Spirent Communications and Anritsu |
| We also compete with a number of small companies which are focused on network performance analysis and measurement |
| Additionally, some of our significant customers have developed, or may develop, in-house performance analysis products for their own use or for sale to others |
| For example, Cisco Systems, our largest customer, has used internally developed test products for a number of years |
| Although Cisco Systems has in the past accounted for a significant portion of our net revenues, we cannot be certain that it will continue to do so |
| As we broaden our product offerings, we may move into new markets and face additional competition |
| Moreover, our competitors may have more experience operating in these new markets and be better established with the customers in these new markets |
| Some of our competitors and potential competitors have greater brand name recognition and greater financial, technical, marketing, sales and distribution capabilities than we do |
| Moreover, our competitors may consolidate with each other, or with other companies, giving them even greater capabilities with which to compete against us |
| 18 _________________________________________________________________ [68]Table of Contents Increased competition in the network performance analysis and measurement market could result in increased pressure on us to reduce prices and could result in a reduction in our revenues and/or a decrease in our margins, each of which could significantly harm our results of operations |
| In addition, increased competition could prevent us from increasing our market share, or cause us to lose our existing market share, either of which would harm our revenues and profitability |
| We cannot predict whether our current or future competitors will develop or market technologies and products that offer higher performance or more features or are more cost-effective than our current or future products |
| To remain competitive, we must continue to develop cost-effective products and product enhancements which offer higher performance and more functionality |
| Our failure to do so will harm our revenues and results of operations |
| If we do not diversify our customer base, we may not be able to grow our business or increase our profitability Our growth depends in part on our ability to diversify our customer base by increasing sales to enterprises, government departments and agencies, internet and network service providers and communications chip manufacturers |
| To effectively compete for the business of these customers, we must develop new products and enhancements to existing products and expand our sales, marketing and customer service capabilities, which will result in increases in operating costs |
| If we cannot offset these increases in costs with an increase in our revenues, our net income may decrease |
| Some of our existing and potential competitors have existing relationships with many enterprise, government departments and agencies, internet and network service providers and communications chip manufacturers |
| We cannot be certain that we will be successful in increasing our sales presence in these markets |
| Any failure by us to increase sales in these markets would adversely affect our growth |
| Our business may be adversely affected by unfavorable general economic and market conditions Our business is subject to the effects of general economic conditions in the United States and globally and, in particular, market conditions in the communications and networking industries |
| In the past, our operating results were adversely affected as a result of unfavorable economic conditions and reduced capital spending in the United States, Europe and Asia |
| In particular, sales to network equipment manufacturers in North America were significantly and adversely affected by the downturn in the economy in the past |
| If there is a slowdown in the global economy and market conditions, we may experience material adverse impacts on our business, operating results and financial condition |
| The loss of any of our key personnel could significantly harm our results of operations and competitive position Our success depends to a significant degree upon the continuing contributions of our key management, technical, marketing and sales employees |
| There can be no assurance that we will be successful in retaining our key employees or that we can attract or retain additional skilled personnel as required |
| Failure to retain or attract key personnel could significantly harm our results of operations and competitive position |
| Continued rapid growth will strain our operations and require us to incur costs to maintain and upgrade our management and operational resources We have experienced and are continuing to experience a period of growth |
| Unless we manage our growth effectively, we may have difficulty in operating our business |
| As a result, we may inaccurately forecast sales and materials requirements, fail to integrate new personnel or fail to maintain adequate internal controls, which may result in fluctuations in our operating results and cause the price of our stock to decline |
| We plan to continue to expand our operations which may place a significant strain on our management and operational resources |
| In order to manage our growth effectively, we must implement and improve our operational systems, procedures and controls on a timely basis |
| If we cannot manage growth effectively, our profitability could be significantly harmed |
| 19 _________________________________________________________________ [69]Table of Contents If we are unable to expand our sales and distribution channels or are unable to successfully manage our expanded sales organization, our revenues and results of operations will be harmed Historically, we have relied primarily on a limited direct sales organization, supported by distributors, to sell our products |
| Our distribution strategy focuses primarily on developing and expanding our direct sales organization and our network of distributors |
| We may not be able to successfully expand our sales and distribution channels, and the cost of any expansion may exceed the revenues that we generate |
| To the extent that we are successful in expanding our sales and distribution channels, we cannot be certain that we will be able to compete successfully against the significantly larger and better-funded sales and marketing operations of many of our current or potential competitors |
| In some cases, we have granted exclusive rights to our distributors to market our products in their specified territories |
| Our distributors may not market our products effectively or devote the resources necessary to provide us with effective sales, marketing and technical support |
| Our inability to effectively manage the expansion of our sales and support staff, or to maintain existing or establish new relationships with successful distributors, would harm our revenues and results of operations |
| International activity may increase our cost of doing business or disrupt our business We plan to continue to expand our international operations and sales activities |
| Expansion of international operations will involve inherent risks that we may not be able to control, including: • supporting multiple languages; • recruiting and training international personnel; • increased complexity and costs of managing international operations; • increased exposure to foreign currency exchange rate fluctuations; • commercial laws and business practices that favor local competition; • changing governmental laws and regulations, including differing labor and employment laws and longer sales cycles; • difficulties in collecting receivables; • reduced or limited protections of intellectual property rights; • more complicated logistical and distribution arrangements; and • political and economic instability |
| Man-made problems such as computer viruses or terrorism may disrupt our operations and harm our operating results Despite our implementation of network security measures, our network may be vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems |
| Any such event could have a material adverse effect on our business, operating results and financial condition |
| The continued threat of terrorism and heightened security and military action in response to this threat, or any future acts of terrorism, may cause further disruption to the economy and create further uncertainties in the economy |
| Energy shortages, such as gas or electricity shortages, could have similar negative impacts |
| To the extent that such disruptions or uncertainties result in delays or cancellations of customer orders, or the manufacture or shipment of our products, our business, operating results and financial condition could be materially and adversely affected |
| 20 _________________________________________________________________ [70]Table of Contents To the extent that our customers consolidate, they may reduce purchases of our products and demand more favorable terms and conditions from us, which would harm our revenues and profitability Consolidation of our customers could reduce the number of customers to whom our products could be sold |
| These merged customers could obtain products from a source other than us or demand more favorable terms and conditions from us, which would harm our revenues and profitability |
| In addition, our significant customers may merge with or acquire our competitors and discontinue their relationships with us |
| Acquisitions undertaken and any that we may undertake could be difficult to integrate, disrupt our business, dilute shareholder value and significantly harm our operating results Acquisitions are inherently risky and no assurance can be given that our previous or future acquisitions will be successful or will not materially and adversely affect our business, operating results or financial condition |
| We expect to continue to review opportunities to acquire other businesses or technologies that would complement our current products, expand the breadth of our markets, enhance our technical capabilities or otherwise offer growth opportunities |
| While we are not currently a party to any acquisition agreements, we may acquire additional businesses, products or technologies in the future |
| If we make any further acquisitions, we could issue stock that would dilute existing shareholders’ percentage ownership, and we could incur substantial debt or assume contingent liabilities |
| We have limited experience in acquiring other businesses and technologies |
| Acquisitions involve numerous risks, including the following: • problems assimilating the acquired operations, technologies or products; • unanticipated costs associated with the acquisition; • diversion of management’s attention from our core business; • adverse effects on existing business relationships with suppliers, contract manufacturers, customers and industry experts; • risks associated with entering markets in which we have no or limited prior experience; and • potential loss of the acquired organization’s or our own key employees |
| We cannot be certain that we would be successful in overcoming problems in connection with our past or future acquisitions, and our inability to do so could significantly harm our assets acquired in such acquisitions, revenues and results of operations |
| If we are unable to expand our international sales and distribution channels or manage them effectively, our results of operations would be harmed Historically, a significant portion of our sales have been made to customers in the United States |
| Sales in the United States accounted for 72dtta9prca of our net revenues in 2005, 73dtta7prca of our net revenues in 2004 and 69dtta7prca of our net revenues in 2003 |
| In the past, distributors have generated a significant portion of our international sales |
| In the past, we have had distributors enter bankruptcy and were therefore terminated as distributors of our products |
| Losses of one or more of our international distributors or their failure to sell our products would limit our ability to sustain and grow our revenues in international markets |
| We intend to expand into additional international markets in Europe and in the Asia Pacific region, by adding distributors and international sales and support personnel |
| Our failure in these efforts could significantly harm our results of operations and decrease the value of our stock |
| 21 _________________________________________________________________ [71]Table of Contents Changes in laws, regulations and financial accounting standards may affect our reported results of operations Changes in accounting regulations and standards can have a significant effect on our reported results |
| New pronouncements and varying interpretations of pronouncements have occurred in the past and are likely to occur in the future as a result of recent Congressional and regulatory actions |
| New laws, regulations and accounting standards, as well as the questioning of, or changes to, currently accepted accounting practices in the technology industry may adversely affect our reported financial results, which could have an adverse effect on our stock price |
| In particular, the FASB recently enacted SFAS Nodtta 123 (revised 2004), “Share-Based Payment,” or SFAS 123R, which requires the recording of compensation expense associated with stock option grants on our income statement |
| The current methodology for expensing such stock options is based on, among other things, the estimated volatility of the underlying stock |
| Our stock price has historically been volatile |
| Therefore, the adoption of an accounting standard requiring companies to expense stock options will negatively impact our profitability and may adversely impact our stock price |
| In addition, the adoption of such a standard could limit our ability to continue to use stock options as an incentive and retention tool, which could, in turn, hurt our ability to recruit and retain employees |
| Additionally, the Sarbanes-Oxley Act of 2002 and related regulations may result in changes in accepted practices within our industry and may adversely impact our stock price |
| Additionally, these regulations may increase our cost of doing business and adversely impact our profitability |
| Some key components in our products come from sole or limited sources of supply, which exposes us to potential supply shortages that could disrupt the manufacture and sale of our products We and our contract manufacturers currently purchase a number of key components used to manufacture our products from sole or limited sources of supply for which alternative sources may not be available |
| From time to time, we have experienced shortages of key components, including chips, oscillators and optical modules |
| We and our contract manufacturers have no guaranteed or long-term supply arrangements for these or other components, including field programmable gate arrays, or FPGAs, which are integrated circuits that can be repeatedly reprogrammed to perform different sets of functions as required |
| Financial or other difficulties faced by our suppliers or significant changes in market demand for necessary components could limit the availability to us and our contract manufacturers of these components |
| Any interruption or delay in the supply of any of these components could significantly harm our ability to meet scheduled product deliveries to our customers and cause us to lose sales |
| In addition, the purchase of these components on a sole source basis subjects us to risks of price increases and potential quality assurance problems |
| Consolidation involving suppliers could further reduce the number of alternatives available to us and affect the cost of components |
| An increase in the cost of components could make our products less competitive and result in lower margins |
| There are limited substitute supplies available for many of these components, including field programmable gate arrays |
| All of these components are critical to the production of our products, and competition exists with other manufacturers for these key components |
| In the event that we can no longer obtain materials from a sole source supplier, we might not be able to qualify or identify alternative suppliers in a timely fashion, or at all |
| If we fail to accurately forecast our manufacturing requirements, we could incur additional costs and experience manufacturing delays We provide our contract manufacturers with rolling forecasts based on anticipated product orders to determine our manufacturing requirements |
| Some of the components used in our products have significant lead times or lead times which may unexpectedly increase depending on factors such as the specific supplier, contract terms and the demand for components at a given time |
| Because of these long lead times, we are often required to forecast and order products before we know what our specific manufacturing requirements will be |
| If we overestimate our product orders, our contract manufacturers may have excess inventory of completed products which we would be obligated to purchase |
| This will lead to increased costs and the risk of obsolescence |
| If we underestimate our product orders, our contract manufacturers may have inadequate inventory, which could result in 22 _________________________________________________________________ [72]Table of Contents delays in shipments, the loss or deferral of revenues and higher costs of sales |
| It may also add costs to our products to expedite delivery of our products to customers or those components with long lead times to our contract manufacturers |
| We cannot be certain that we will be able to accurately forecast our product orders and may in the future carry excess or obsolete inventory, be unable to fulfill customer demand, or both, thereby harming our revenues, results of operations and customer relationships |
| Failure by our contract manufacturers to provide us with adequate supplies of high quality products could harm our revenues, results of operations, competitive position and reputation We currently rely on a limited number of contract manufacturers to manufacture and assemble our products |
| We may experience delays in receiving product shipments from contract manufacturers or other problems, such as inferior quality and insufficient quantity of product |
| We cannot be certain that we will be able to effectively manage our contract manufacturers or that these manufacturers will meet our future requirements for timely delivery of products of sufficient quality and quantity |
| We intend to introduce new products and product enhancements, which will require that we rapidly achieve adequate production volumes by effectively coordinating with our suppliers and contract manufacturers |
| We do not have any long-term contracts with our contract manufacturers |
| The inability of our contract manufacturers to provide us with adequate supplies of high-quality products or the loss of any of our contract manufacturers would cause a delay in our ability to fulfill customer orders while we obtain a replacement manufacturer and would harm our revenues, results of operations, competitive position and reputation |
| We may not be able to expand our contract manufacturing capacity or our internal testing or quality assurance functions as required to keep up with demand for our products |
| Any such failure would in turn hinder our growth |
| If we do not expand these capacities and functions effectively or in a timely manner, we may experience disruptions in product flow which could limit our revenues, adversely affect our competitive position and reputation and result in additional cost, cancellation of orders or both |
| Because of intense competition for technical personnel, we may not be able to recruit or retain necessary personnel on a cost-effective basis Our success will depend in large part upon our ability to identify, hire, retain and motivate highly skilled employees |
| We plan to increase the number of our research and development, marketing, sales, customer service and operations employees |
| Competition for highly skilled employees in our industry is intense |
| In addition, employees may leave our company and subsequently compete against us |
| Our failure to attract and retain these qualified employees could significantly harm our ability to develop new products and maintain customer relationships |
| Volatility or lack of positive performance in our stock price may also adversely affect our ability to attract and retain highly skilled employees who may look to stock options as a key component of their compensation |
| The loss of the services of any of our qualified employees, the inability to attract or retain qualified personnel in the future or delays in hiring required personnel could hinder the development and introduction of new and enhanced products and harm our ability to sell our products |
| Moreover, companies in our industry whose employees accept positions with competitors frequently claim that those competitors have engaged in unfair hiring practices |
| We may be subject to such claims as we seek to retain or hire qualified personnel, some of whom may currently be working for our competitors |
| Some of these claims may result in material litigation |
| We could incur substantial costs in defending ourselves against these claims, regardless of their merits |
| Such claims could also discourage potential employees who currently work for our competitors from joining us |
| Our products may contain defects which may cause us to incur significant costs, divert our attention from product development efforts and result in a loss of customers Our existing products and any new or enhanced products we introduce may contain undetected software or hardware defects when they are first introduced or as new versions are released |
| These problems may cause us to incur significant damages or warranty and repair costs, divert the attention of our engineering personnel from our product development efforts and cause significant customer relation problems or loss of customers and reputation, all of which would harm our results of operations |
| A successful claim against us for an amount exceeding the limit on our product liability insurance policy would force us to use our own resources, to the extent available, to pay the 23 _________________________________________________________________ [73]Table of Contents claim, which could result in an increase in our expenses and a reduction of our working capital available for other uses, thereby harming our profitability and capital resources |
| Our failure to protect our intellectual property may significantly harm our results of operations and reputation Our success and ability to compete is dependent in part on our ability to patent, protect and maintain our proprietary rights to our intellectual property |
| We currently rely on a combination of patent, trade secret, trademark and copyright laws to establish and protect our intellectual property |
| To date, we have relied primarily on trade secret laws to protect our proprietary processes and know-how |
| We have eight US patents and have filed applications for additional patents in the US, Japan and the European Union |
| We cannot be certain that any of these applications will issue into patents or that any such patents, if issued, or our existing patents, will be upheld |
| We also cannot be certain that our existing patents and any such additional patents, if issued, will be effective in protecting our proprietary technology |
| We generally enter into confidentiality agreements with our officers, employees and consultants |
| We also generally limit access to and distribution of our source code and further limit the disclosure and use of our other proprietary information |
| However, these measures provide only limited protection of our intellectual property rights |
| In addition, we may not have signed agreements containing adequate protective provisions in every case, and the contractual provisions that are in place may not provide us with adequate protection in all circumstances |
| Any infringement of our proprietary rights could result in significant litigation costs, and any failure to adequately protect our proprietary rights could result in our competitors offering similar products, potentially resulting in loss of one or more competitive advantages and decreased revenues |
| Despite our efforts to protect our proprietary rights, existing trade secret, copyright, patent and trademark laws afford us only limited protection |
| In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States |
| Accordingly, we may not be able to prevent misappropriation of our technologies or to deter others from developing similar technologies |
| Others may attempt to copy or reverse engineer aspects of our products or to obtain and use information that we regard as proprietary |
| Further, monitoring the unauthorized use of our products and our proprietary rights is difficult |
| Litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others |
| Litigation of this type could result in substantial costs and diversion of resources and could significantly harm our results of operations and reputation |
| Claims that we infringe third-party intellectual property rights could result in significant expenses or restrictions on our ability to sell our products From time to time, other parties may assert patent, copyright, trademark and other intellectual property rights to technologies that are important to our business |
| We cannot provide assurance that others will not claim that we are infringing their intellectual property rights or that we do not in fact infringe those intellectual property rights |
| We have not conducted a search to determine whether the technology we have in our products infringes or misappropriates intellectual property held by third parties |
| Any claims asserting that our products infringe or may infringe proprietary rights of third parties, if determined adversely to us, could significantly harm our results of operations |
| Any claims, with or without merit, could: • be time-consuming; • result in costly litigation; • divert the efforts of our technical and management personnel; • require us to develop alternative technology, thereby causing product shipment delays and the loss or deferral of revenues; 24 _________________________________________________________________ [74]Table of Contents • require us to cease selling the products containing the infringing intellectual property; • require us to pay substantial damage awards; • damage our reputation; or • require us to enter into royalty or licensing agreements which, if required, may not be available on terms acceptable to us, if at all |
| In the event a claim against us were successful and we could not obtain a license to the relevant technology on acceptable terms or license a substitute technology or redesign our products to avoid infringement, our revenues, results of operations and competitive position could be harmed |
| If we fail to maintain our relationships with industry experts, our products may lose industry and market recognition and sales could decline Our relationships with industry experts in the field of performance analysis and measurement of networks and network equipment are critical for maintaining our industry credibility and for developing new products and testing methodologies in a timely fashion |
| These experts have established standard testing methodologies that evaluate new network equipment products and technologies |
| We provide these experts and their testing labs with our products and engineering assistance to perform tests on these new network equipment products and technologies |
| These industry experts refer to our products in their publications which has given our products industry recognition |
| In addition, these labs offer us the opportunity to test our products on the newest network equipment and technologies, thereby assisting us in developing new products that are designed to meet evolving technological needs |
| We cannot be certain that we will be able to maintain our relationships with industry experts or that our competitors will not obtain similar or superior relationships with industry experts |
| If we are unable to maintain our relationships with industry experts, our products may lose industry and market recognition which could harm our reputation and competitive position and cause our sales to decline |
| Our headquarters, many of our customers and some of our contract manufacturers and suppliers are located in California where natural disasters have occurred and may occur in the future Currently, our corporate headquarters, many of our customers and some of our contract manufacturers and suppliers are located in California |
| California historically has been vulnerable to natural disasters and other risks, such as earthquakes, fires and floods, which at times have disrupted the local economy and posed physical risks to our property |
| We and some of our customers, contract manufacturers and suppliers do not have redundant, multiple site capacity |
| In the event of a natural disaster, our ability to conduct business could be significantly disrupted, thereby harming our results of operations |
| Provisions of our articles of incorporation and bylaws may make it difficult for a third party to acquire us, despite the possible benefits to our shareholders Our board of directors has the authority to issue up to one million shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the shareholders |
| The rights of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of any preferred stock that we may issue |
| The issuance of preferred stock could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock |
| Furthermore, some provisions of our articles of incorporation and bylaws could delay or make more difficult a merger, tender offer or proxy contest involving us |
| These provisions of our articles of incorporation and bylaws may have the effect of delaying, deferring or preventing a change in our control despite possible benefits to our shareholders, may discourage bids at a premium over the market price of our common stock and may harm the market price of our common stock and the voting and other rights of our shareholders |