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The Company conducts business with its other current foundries by
delivering written purchase orders specifying the particular product ordered,
quantity, price, delivery date and shipping terms and, therefore, such foundries
are generally not obligated to supply products to the Company for any specific
period, in any specific quantity or at any specified price, except as may be
provided in a particular purchase order. To the extent a foundry terminates its
relationship with the Company or should the Company's supply from a foundry be
interrupted or terminated for any other reason, such as a natural disaster or an
injunction arising from alleged violations of third party intellectual property
rights, the Company may not have a sufficient amount of time to replace the
supply of products manufactured by that foundry. There can be no assurance that
the Company will obtain sufficient advanced process technology foundry capacity
to meet customer demand in the future. The Company is continuously evaluating
potential new sources of supply. However, the qualification process and the
production ramp-up for additional foundries has in the past taken, and could in
the future take, longer than anticipated, and there can be no assurance that
such sources will be able or willing to satisfy the Company's requirements on a
timely basis or at acceptable quality or per unit prices.
Two of the Company's principal foundries, TSMC and UMC, and the
Company's foundry joint venture, USC, are located in the Science-Based
Industrial Park in Hsin Chu City, Taiwan. The Company currently expects these
three foundries to supply the substantial portion of the Company's products in
1997 and 1998. Disruption of operations at these foundries for any reason,
including work stoppages, fire, earthquakes or other natural disasters, would
cause delays in shipments of the Company's products, and could have a material
adverse effect on the Company's results of operations. In addition, as a result
of the rapid growth of the semiconductor industry based in the Science-Based
Industrial Park, severe constraints have been placed on the water and
electricity supply in that region. Any shortages of water or electricity could
adversely affect the Company's foundries' ability to supply the Company's
products, which could have a material adverse effect on the Company's results of
operations.
The Company is using multiple sources for certain of its products, which
may require the Company's customers to perform separate product qualifications.
The Company has not, however, developed alternate sources of supply for certain
other products, and its newly introduced products are typically produced
initially by a single foundry until alternate sources can be qualified. The
requirement that a customer perform separate product qualifications or a
customer's inability to obtain a sufficient supply of products from the Company
may cause that customer to satisfy its product requirements from the Company's
competitors, which would adversely affect the Company's results of operations.
The Company's products are assembled and tested by a variety of
independent subcontractors. The Company's reliance on independent assembly and
testing houses to provide these services involves a number of risks, including
the absence of adequate availability of certain packaging technologies, the
absence of guaranteed capacity and reduced control over delivery schedules,
quality assurance and costs. The Company also is subject to the risks of
shortages and increases in the cost of raw materials used in the manufacture or
assembly of the Company's products.
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Constraints or delays in the supply of the Company's products, whether
because of capacity constraints, unexpected disruptions at the foundries or
assembly or testing houses, delays in obtaining additional production at
existing foundries or in obtaining production from new foundries, shortages of
raw materials, or other reasons, could result in the loss of customers and other
material adverse effects on the Company's operating results, including effects
that may result should the Company be forced to purchase products from higher
cost foundries or pay expediting charges to obtain additional supply.
Transactions to Obtain Manufacturing Capacity; Future Capital Needs
In order to obtain an adequate supply of wafers, especially wafers
manufactured using advanced process technologies, the Company has entered into
and may consider in the future various transactions, including the use of "take
or pay" contracts that commit the Company to purchase specified quantities of
wafers over extended periods, equity investments in or advances or issuances of
equity securities to wafer manufacturing companies in exchange for guaranteed
production capacity, or the formation of joint ventures to own and operate or
construct foundries or to develop certain products. Any of such transactions
would involve financial risk to the Company and could require the Company to
commit substantial capital or provide technology licenses in return for
guaranteed production capacity. In particular, the Company has entered into a
"take or pay" contract with TSMC and has entered into the USC joint venture. The
need to commit substantial capital may require the Company to seek additional
equity or debt financing. The sale or issuance of additional equity or
convertible debt securities could result in additional dilution to the Company's
stockholders. There can be no assurance that such additional financing, if
required, will be available when needed or, if available, will be on terms
acceptable to the Company. |
