Our business faces significant risks. The risks described below may not be the only risks we face. Additional risks that we do not yet know of or that we currently think are immaterial also may impair
our business operations. If any of the events or circumstances described in the following risks actually occur, our business, financial condition and results of operation could suffer, and the trading price of our Common Stock could decline, and you
may lose all or a part of your investment.
Risks Related to our Business
We have recently experienced significant reductions in demand for our products by certain customers and if this continues, our
operating results will continue to be adversely impacted.
During fiscal 2011, we experienced a significant drop in our
revenues, which fell by over 25% from fiscal 2010. During the second half of fiscal 2011, our revenues fell by over 55% as compared to the first half of 2010. In addition, our revenues in the first nine months of fiscal 2012 fell to $127.8
million as compared to $384.3 million in the first nine months of fiscal 2011, a 67% reduction. We believe that the reductions in our revenues were due to several factors, including, without limitation, significant slowdowns in spending by network
operators in several of our markets, including North America, Europe and the Middle East. In addition, we experienced a significant reduction in demand from our original equipment manufacturing customers both as part of our strategy to reduce our
dependence on low-margin commodity type business with our original equipment manufacturer customers as well as reduced demand from this overall business. In addition, certain of our suppliers have reduced or limited the amount of credit that they
allocate to us, which has impacted our ability to obtain certain components, which has caused production and shipment delays that have negatively impacted revenues during the first nine months of 2012. Although we believe that quarterly revenue will
increase in the future, there is no assurance that this will occur. In addition, although we believe that our relations with our customers are good, it is possible that customers could reduce their orders to us because of concerns with our negative
financial results and liquidity concerns.
Also, in the past we have experienced significant unanticipated reductions in
wireless network operator demand as well as significant delays in demand for 3G and 4G, or next generation service based products, due to the high projected capital cost of building such networks, network operators deciding to slowdown or delay
network deployments, and market concerns regarding the interoperability of such network protocols. In addition, certain network operators may decide to consolidate all purchases of products for their network into a small group of companies in order
to gain further perceived cost savings. If we are not one of these selected companies, or are required to sell our products through such consolidators, our revenues and profits may be reduced which would have an adverse effect on our business,
financial condition and results of operations. In combination with these market issues, a majority of wireless network operators have, in the past, regularly reduced their capital spending plans in order to improve their overall cash flow. There is
a substantial likelihood that the ongoing economic weakness and uncertainty will have continuing effects throughout 2012 and beyond, thereby having a negative impact on network operator deployment spending plans. The impact of any future reduction
in capital spending by wireless network operators, coupled with any delays in the deployment of wireless networks, will result in further reduced demand for our products, which will have a material adverse effect on our business, financial condition
and results of operation.
Despite our recent issuance of senior secured term loans, we will likely need additional capital
in the future but additional financing may not be available on favorable terms or at all.
We have experienced net losses
and operating cash flow deficits for the past four quarters. As of September 30, 2012, we had approximately $16.3 million in unrestricted cash. In the first nine months of fiscal 2012 we used $84.8 million of cash in operating activities and in
all of fiscal 2011 we used $47.9 million. If we are not successful in reducing our use of cash and growing our revenues, reducing our manufacturing costs and operating expenses, reducing our inventories and accounts receivable, and managing the
worldwide aspects of our company, our operations may not generate positive cash flow, and we may consume our cash resources. We have initiated cost reduction measures to further lower our manufacturing costs, reduce our operating expenses and
conserve cash, principally through the use of targeted headcount reductions and office closures. However, there can be no assurance that these or any other restructuring activities will be successful in reducing our cash used in operating and
manufacturing activities.
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On July 3, 2012, we terminated our credit agreement with Wells Fargo and no longer have
the ability to make borrowings under that facility. In addition, on September 11, 2012, we entered into the Credit Agreement pursuant to which the Lenders provided us an initial $35,000,000 secured term loan and agreed to provide us with
additional secured term loans of up to $15,000,000, subject to the satisfaction of certain closing conditions. However, there can be no assurance that the initial $35,000,000 loan will be sufficient to allow us to achieve our financial
objectives. In addition, there can be no assurance that we will be able to satisfy the various conditions, including compliance with specific financial covenants, necessary to allow us to borrow the additional $15,000,000 (or any portion
thereof).
We are in the process of considering several financing alternatives, including the issuance of new debt securities
for cash or in exchange for existing debt securities. However, our recent financial and operating performance has made it more difficult to obtain new sources of financing. In addition, a number of macroeconomic factors, including the
ongoing worldwide economic uncertainty, concerns surrounding sovereign debt in certain countries in Europe, ongoing tight credit markets, and continuing high unemployment numbers, create additional difficulties for obtaining financing. As a result,
there is no assurance that we will be able to obtain new financing on favorable terms or at all or that the amount of cash raised in any such financing will be sufficient to allow us to comply with the covenants under our Credit Agreement or obtain
our financial objectives. In addition, it is possible that any financing will include the issuance of securities exercisable for or convertible into common stock for nominal consideration or other terms that are dilutive to existing
stockholders. It is also possible that funding under any debt financing may be contingent upon the successful fulfillments of certain milestones or covenants, which we may not be able to achieve.
If we are unable to generate positive cash flow from operating activities, reduce our manufacturing and operating costs, or secure
additional financing on acceptable terms, we may not be able to pursue our current business plan, repay our outstanding indebtedness or maintain operations at their current level or at all.
Our limited cash and negative operating results have impacted our supply chain.
As of September 30, 2012, we had approximately $16.3 million in unrestricted cash available for operations. Although we
recently entered into the Credit Agreement, we continue to take aggressive steps to preserve our cash resources, and we have extended the payment terms to our component suppliers and other vendors. In addition, our negative operating results
have caused certain of our suppliers to reduce credit terms extended to us and some suppliers have required us to pay for components more frequently than in the past. Some suppliers have put us on credit hold, and some suppliers are requiring
cash in advance payment terms. One supplier has filed a lawsuit to seek recovery of alleged past due amounts. As a result, we have experienced shortages of components, including single-sourced and limited source components, which have
impacted deliveries of products to our customers. While we are actively working to replace such suppliers and obtain multiple supply sources for single or limited source components, there can be no assurance that we will be able to obtain
sufficient quantities of such components in the desired time periods. In addition, our principal contract manufacturer, Tatfook, has restricted credit offered to us, which has led to a dispute and is negatively impacting the supply of finished
goods.
Due to these factors, we experienced production and shipment delays during the third quarter of 2012 and these delays
are continuing, which has had a negative impact on our ability to fulfill customer orders and our revenues. If the production and delivery delays continue such that we do not meet the agreed upon delivery date with our customers, the
delays could result in lost revenues due to customer cancellations as well as potential financial penalties payable to our customers. Any such loss of revenue or financial penalties would have a material adverse effect on our business,
financial condition and results of operations. If we are unable to generate more cash through operations or complete an additional financing, we will have further disruptions in our production capacity, which will have a negative impact on our
results of operations.
We rely upon a few customers for the majority of our revenues and the loss of any one or more of
these customers, or a significant loss, reduction or rescheduling of orders from any of these customers, would have a material adverse effect on our business, financial condition and results of operations.
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We sell most of our products to a small number of customers, and while we are continually
seeking to expand and diversify our customer base, we expect this will continue. For the first nine months of fiscal 2012, no customers accounted for 10% or more of our revenues. For fiscal 2011 sales to KMM Communications (formerly, Team Alliance),
one of our North American resellers, Nokia Siemens Networks, and Raycom, one of our European resellers, accounted for approximately 18%, 17% and 13% of our total sales respectively. Our revenues for the first nine months of fiscal 2012 versus the
first nine months of fiscal 2011 declined by 67%, and our revenues for fiscal 2011 declined by 25% from fiscal 2010, due to significant slowdowns in demand in several of our markets, including North America, Europe and the Middle East, as well as a
significant reduction of demand from our original equipment manufacturing customers. Any continued decline in business with our original equipment manufacturer customers, including Nokia Siemens Networks and Samsung, and our direct wireless network
operator customers and resellers, will have an adverse impact on our business, financial condition and results of operations. Our future success is dependent upon the continued purchases of our products by a small number of customers such as
AT&T Wireless, Sprint, and other wireless network operator customers and our resellers, such as KMM Communications and Raycom and our ability to continue to sell products into original equipment manufacturing customers such as Alcatel-Lucent,
Ericsson and Samsung. In addition, our future success is also dependent on our ability to sell our products into other market segments such as governmental, public safety, military and homeland security. Any fluctuation in demand from such customers
or other customers has and will negatively impact our business, financial condition and results of operations. If we are unable to broaden our customer base and expand relationships with major operators of wireless networks, our business will
continue to be impacted by unanticipated demand fluctuations due to our dependence on a small number of customers. Unanticipated demand fluctuations have a negative impact on our revenues and business, and an adverse effect on our business,
financial condition and results of operations. In addition, our dependence on a small number of major customers exposes us to numerous other risks, including:
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a slowdown or delay in deployment of wireless networks by any one or more customers could significantly reduce demand for our products;
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reductions in a single customers forecasts and demand could result in excess inventories;
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the recent recession and current economic weakness and uncertainty have negatively affected several of our customers and have caused them to
significantly reduce current demand for our products;
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the recent recession and current economic weakness and uncertainty could negatively affect one or more of our major customers and cause them to
significantly reduce operations, or file for bankruptcy;
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consolidation of customers can reduce demand as well as increase pricing pressure on our products due to increased purchasing leverage;
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each of our customers has significant purchasing leverage over us to require changes in sales terms including pricing, payment terms and product
delivery schedules;
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customers could decide to increase their level of internal design and/or manufacture of wireless communication network products and reduce their
purchases from us; and
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concentration of accounts receivable credit risk, which could have a material adverse effect on our liquidity and financial condition if one of our
major customers declares bankruptcy or delays payment of its receivables.
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Our ability to publicly or
privately sell equity securities and the liquidity of our Common Stock could be adversely affected if we are delisted from the NASDAQ Global Select Market or if we are unable to transfer our listing to another stock market.
Our Common Stock is listed for trading on the NASDAQ Global Market. NASDAQ has adopted a number of continued listing standards that are
applicable to the Common Stock, including a requirement that the bid price of the Common Stock be at least $1.00 per share. Failure to maintain the minimum bid price can result in the delisting of the Common Stock from the NASDAQ Global Market.
The bid price for our Common Stock on the NASDAQ Global Select Market was below $1.00 for a significant period of time during
fiscal 2009. In addition, during October 2011, the bid price of our Common Stock was again below $1.00. Effective October 28, 2011, we completed a 1-for-5 reverse stock split of our issued and outstanding Common Stock that raised our
price per share above $1.00. On June 15, 2012, we received a letter from NASDAQ notifying the Company that it fails to comply with NASDAQ Listing Rule 5450(a)(1) because the bid price for the Companys common stock,
over the last 30 consecutive business days, had closed below the minimum $1.00 per share requirement for continued listing. The NASDAQ letter had no immediate effect on the listing of the Companys common stock.
In accordance with NASDAQ Listing Rule 5810(c)(3)(A), we have a period of 180 calendar days, or until December 12, 2012,
to regain compliance with the NASDAQ minimum bid price rule. If at any time before December 12, 2012, the bid price of our common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days,
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we will regain compliance with the minimum bid price rule, subject to NASDAQs discretion to increase this time period. If compliance with the minimum bid price rule cannot be
demonstrated by December 12, 2012, NASDAQ will issue a Staff Delisting Determination Letter and our common stock will be subject to delisting from The Nasdaq Global Select Market.
If our Common Stock is delisted by NASDAQ, our Common Stock may be eligible to trade on the OTC Bulletin Board maintained by FINRA, or
another over-the-counter market. Any such alternative would likely result in it being more difficult for investors to dispose of, or obtain accurate quotations as to the market value of, our Common Stock. In addition, there can be no
assurance that our Common Stock would be eligible for trading on any such alternative exchange or markets.
In addition,
delisting from NASDAQ could adversely affect our ability to raise additional capital through the public or private sale of equity securities. Delisting from NASDAQ would also make trading our Common Stock more difficult for investors,
potentially leading to further declines in our share price and inhibiting the ability of our stockholders to liquidate all or part of their investments in the Company.
We have strategically focused our business and sales efforts on growing our sales of higher margin products and solutions, which has reduced our total sales.
Over the last two years, a period in which we have experienced a broad decline in the weighted sales price of our products, we have
implemented a revised business and sales strategy under which we do not actively pursue low-margin, high-volume business, also referred to as commodity-like business. This strategy is having the effect of reducing our overall sales to original
equipment manufacturer customers such as Alcatel-Lucent and Nokia Siemens Networks. Additionally, in May 2012, we sold assets and inventory associated with our OEM BTS filter business to Tatfook, which will likely further reduce revenues for this
product group. We have also targeted additional markets such as government, public safety, military and homeland security during this period. While we believe that we have made progress in addressing these new markets, we have not yet generated
significant revenue in these areas. Any continued reduction in demand from our original equipment manufacturer customers, if not offset by increased demand from other wireless network operator customers or customers in new markets, will have an
adverse effect on our business, financial condition and results of operations.
We have experienced, and will continue to
experience, significant fluctuations in sales and operating results from quarter to quarter.
Our quarterly results
fluctuate due to a number of factors, including:
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the concentration of our sales to a few large customers;
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the lack of any obligation by our customers to purchase their forecasted demand for our products;
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our suppliers may tighten or limit our available credit;
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variations in the timing, cancellation, or rescheduling of customer orders and shipments;
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production delays on new products that limit our revenue in a quarter;
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increased costs associated with rising raw material costs, including oil prices;
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activity relating to consolidations or proposed consolidations within our industry;
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high fixed expenses that increase operating expenses, especially during a quarter with a sales shortfall;
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product failures and associated warranty and in-field service support costs;
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discounts given to certain customers for large volume purchases;
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unanticipated increases in costs associated with projects in our coverage solutions product group; and
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shortages of materials and components to manufacture our products.
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We regularly generate a large percentage of our revenues in the last month of a quarter. Because we attempt to ship products quickly
after we receive orders, we may not always have a significant backlog of unfilled orders at the start of each quarter and we may be required to book a substantial portion of our orders during the quarter in which these orders ship. When we introduce
new products into production, we may encounter production delays, such as we did in the first quarter of fiscal 2011, which limit our revenue and have an adverse effect on our business. In addition, during the third quarter of fiscal 2012, certain
of our suppliers reduced or limited our available credit, thereby limiting the amount of materials we could purchase which negatively impacted our revenue and had an adverse effect on our business, financial condition and results of operations. Our
major customers generally have no obligation to purchase forecasted amounts and may cancel orders, change delivery schedules or change the mix of products ordered with minimal notice and without penalty. As a result, we may not be able to accurately
predict our quarterly sales. Because our expense levels are partially based on our expectations of future sales, our expenses may be disproportionately large relative to our revenues, and we may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Any shortfall in sales relative to our quarterly expectations or any delay of customer orders would adversely affect our business, financial condition and results of operations.
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Order deferrals and cancellations by our customers, declining average sales prices, changes
in the mix of products sold, shortages of materials, reductions in the amount of credit our suppliers extend to us, delays in the introduction of new products and longer than anticipated sales cycles for our products have adversely affected our
business, financial condition and results of operations in the past. Despite these factors, we, along with our contract manufacturers, attempt to maintain significant finished goods, work-in-progress and raw materials inventory to meet estimated
order forecasts. If our customers purchase less than their forecasted orders or cancel or delay existing purchase orders, there will be higher levels of inventory that face a greater risk of obsolescence. If our customers choose to purchase products
in excess of the forecasted amounts or in a different product mix, there might be inadequate inventory or manufacturing capacity to fill their orders.
Due to these and other factors, our past results are not reliable indicators of our future performance. Future revenues and operating results may not meet the expectations of market analysts or investors.
In either case, the price of our Common Stock could be materially adversely affected.
Our operating results have been
adversely impacted by the recent worldwide economic crisis, current economic uncertainty and credit tightening.
Beginning
in the fourth quarter of 2008, worldwide economic conditions significantly deteriorated due to the credit crisis and other factors, including slower economic activity, increased energy costs, decreased consumer confidence, reduced corporate profits,
decreased property values, reduced or canceled capital spending, adverse business conditions and liquidity concerns. While economic conditions have showed some signs of improving, we believe that these factors continue to have a negative impact on
the availability of financial capital, which has contributed to a reduction in demand for infrastructure in the wireless communication market. We believe that these conditions make it difficult for our customers and vendors to accurately forecast
and plan future business activities, causing domestic and foreign businesses to slow or suspend spending on our products and services. Some of our customers continue to find it difficult to gain sufficient credit in a timely manner, which has
resulted in an impairment of their ability to place orders with us or to make timely payments to us for previous purchases. If the current economic weakness and uncertainty continues, or if there is another economic recession, our revenues could be
negatively impacted, thereby having a negative impact on our business, financial condition and results of operations. In addition, we may be forced to increase our allowance for doubtful accounts and our days sales outstanding may increase
significantly, which would have a negative impact on our cash position, liquidity and financial condition. We cannot predict the magnitude, timing or duration of the current economic uncertainty or of its impact on the wireless industry.
Negative conditions in the financial and credit markets may impact our liquidity.
The ongoing economic weakness and uncertainty, concerns about a double dip recession, concerns about sovereign debt issues in some
countries in the European Union and the resulting constrained credit markets have had, and we anticipate will continue to have, an impact on our liquidity. In particular, some of our customers face liquidity shortages which affect their payments to
us, and the general tightness in the credit markets limits credit available to us as well as some of our customers. There can be no assurance that global economic conditions or our operating performance may not worsen, or our operating performance
will improve, which would have a corresponding negative effect on our liquidity. In addition, while we believe that we have invested our financial assets in sound financial institutions, should these institutions limit access to our assets, breach
their agreements with us or fail, we may be adversely affected. In addition, volatile financial and credit markets may reduce our ability to raise capital or refinance our debt on favorable terms, if at all, which could materially impact our ability
to meet our obligations. As market conditions change, we continue to monitor our liquidity position.
We depend on single
sources or limited sources for key components and products, which exposes us to risks related to product shortages or delays, as well as potential product quality issues, all of which could increase the cost of our products thereby reducing our
operating profits.
During fiscal 2010, we experienced significant supply shortages of various electronic components as
well as significantly increased order lead times for such components due to delays from increased worldwide demand for electronic components following improved global economic conditions following the 2008 global recession. This combined supply
shortage and increase in material order lead times impacted our ability to timely produce products, which negatively impacted our revenues during fiscal 2010. While supply lead times have improved somewhat, we currently expect some level of supply
shortages and increased lead times to continue throughout 2012 and beyond. In addition, during the second and third quarters of fiscal 2012, certain of our suppliers have reduced or limited the amount of credit they extend to us, thereby limiting
the amount of materials such supplier will provide to us, thereby causing shortages in our supply. If these shortages and extended lead times continue, our future revenues may be negatively impacted and our manufacturing costs may significantly
increase.
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In addition, a number of our products, and certain parts used in our products, are available from only one or a limited number of outside suppliers due to unique component designs, as well as
certain quality and performance requirements, which in turn may be dependent upon a limited number of suppliers themselves. Any disruption in this supply chain can negatively affect the timely availability of key components and parts necessary for
the production of our products.
To take advantage of volume pricing discounts, we also purchase certain products, and along
with our contract manufacturers, purchase certain customized components, from single or limited sources. We have experienced, and expect to continue to experience, shortages of single-source and limited-source components. Shortages have compelled us
to adjust our product designs and production schedules and have caused us to miss customer requested delivery dates. Missed customer delivery dates have had a material adverse impact on our financial results. If single-source or limited-source
components become unavailable in sufficient quantities in the desired time periods, are discontinued or are available only on unsatisfactory terms, then we would be required to purchase comparable components from other sources and may be required to
redesign our products to use such components, which could delay production and delivery of our products. If the production and delivery of our products is delayed such that we do not meet the agreed upon delivery dates of our customers, such delays
could result in lost revenues due to customer cancellations, as well as potential financial penalties payable to our customers. Any such loss of revenue or financial penalties could have a material adverse effect on our business, financial condition
and results of operations.
Our reliance on certain single-source and limited-source components and products also exposes us
and our contract manufacturers to quality control risks if these suppliers experience a failure in their production process or otherwise fail to meet our quality requirements. A failure in a single-source or limited-source component or product could
force us to repair or replace a product utilizing replacement components. If we cannot obtain comparable replacements or redesign our products, we could lose customer orders or incur additional costs, which would have a material adverse effect on
our business, financial condition and results of operations.
We may fail to develop products that are of adequate quality
and reliability, which could negatively impact our ability to sell our products and could expose us to significant liabilities.
We have had quality problems with our products, including those we have acquired in acquisitions. We may have similar product quality problems in the future. We have replaced components in some products
and replaced entire products in accordance with our product warranties. We believe that our customers will demand that our products meet increasingly stringent performance and reliability standards. If we cannot keep pace with technological
developments, evolving industry standards and new communications protocols, if we fail to adequately improve product quality and meet the quality standards of our customers, or if our contract manufacturers fail to achieve the quality standards of
our customers, we risk losing business which would negatively impact our business, financial condition and results of operations. Design problems could also damage relationships with existing and prospective customers and could limit our ability to
market our products to large wireless infrastructure manufacturers, many of which build their own products and have stringent quality control standards. In addition, we have incurred significant costs addressing quality issues from products that we
have acquired in certain of our acquisitions, including warranty costs related to these products. While we seek recovery of amounts that we have paid, or may pay in the future to resolve warranty claims through indemnification from the original
manufacturer, this can be a costly and time consuming process. In our contracts with customers, we negotiate liability limits but not all of the contracts contain liability limits and some contracts contain limits which are greater than the price of
the products sold. As a result, if we have quality problems with our products that we cannot fix and our customers bring a claim against us, we could incur significant liabilities which would have a material adverse effect on our business, financial
condition and results of operations.
We may encounter unanticipated cost increases in coverage systems projects.
As part of our Coverage Solutions product group, we occasionally undertake installation projects in which we utilize
third party contractors in addition to our personnel to install and deploy Coverage Solutions. Installation projects can be very complex and unanticipated factors or events may occur during a project which significantly impacts the expected cost of
a project. Therefore, as part of these projects, we may encounter unanticipated deployment and installation costs, which if not reimbursed, will increase the overall costs of such projects and may have a negative impact on our gross margins,
financial condition and results of operations. We encountered such expenses in the first quarter of fiscal 2011 and may encounter them in the future.
We may be adversely affected by the financial difficulties or bankruptcy of our customers.
One of our original equipment manufacturer customers, Nortel, filed for bankruptcy protection in the first quarter of 2009. Given the continuing economic weakness and uncertainty, it is possible that one
or more of our other customers will suffer significant financial difficulties, including potentially filing for bankruptcy protection. In such an event, the demand for our products from these customers may decline significantly or cease completely.
We cannot guarantee that we will be
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able to continue to generate new demand to offset any such reductions from existing customers. If we are unable to continue to generate new demand, our revenues will decrease and our business,
financial condition and results of operations will be negatively impacted.
We may not successfully evaluate the
creditworthiness of our customers. While we maintain allowances for doubtful accounts and for estimated losses resulting from the inability of our customers to make required payments, greater than anticipated nonpayment and delinquency rates could
harm our financial results and liquidity. Given the continuing economic uncertainty, and the possibility of a future recession, there are potential risks of greater than anticipated customer defaults. If the financial condition of any of our
customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances would be required and would negatively impact our business, financial condition and results of operations.
We may incur unanticipated costs as we continue the restructuring of our business.
During fiscal 2011 and the first nine months of fiscal 2012, we experienced a significant drop in our revenues, which fell by over 25%
and 67%, respectively, from fiscal 2010 and the first nine months of fiscal 2011. We believe that the reduction in our revenues was due to several factors, including significant slowdowns in spending by network operators in several of our markets,
including North America, Europe and the Middle East. In addition, we experienced a significant reduction in demand from our original equipment manufacturing customers both as part of our strategic plan of not pursuing low margin commodity-type
business, as well as an overall reduction in demand by our original equipment manufacturing customers. In response to this reduction in revenues, we initiated cost reduction measures to both lower our manufacturing costs and reduce our operating
expenses, which resulted in restructuring charges in the fourth quarter of 2011 and the first nine months of fiscal 2012 and will likely result in additional charges in future periods. We announced in February 2012 that we intend to undertake
additional restructuring activities to further reduce our cost structure and operating costs. In April 2012, we announced the sale of certain assets of our China manufacturing operation which is part of our 2012 restructuring plan. The failure to
timely complete and implement our restructuring activities as well as to ultimately achieve operating expense reductions could undermine the anticipated benefits of the restructuring, which could adversely affect our business, financial condition
and results of operations. These anticipated benefits are based on projections and assumptions and our actual results may vary from our projections. Also, in the future we may need to initiate additional restructuring actions that could result in
additional restructuring charges which could have a material impact on our business, financial condition, liquidity and results of operations. Such potential restructuring actions could include cash expenditures that would reduce our available cash
balances, which would have a negative impact on our business and our ability to repay our outstanding convertible subordinated debt.
The potential for increased commodity and energy costs may adversely affect our business, financial condition and results of operations.
The worldwide economy has experienced significant fluctuations in the price of oil and energy during the last four years and shortages of
steel, copper and rare earth materials. Such fluctuations and shortages have resulted in significant price increases which translated into higher freight and transportation costs and higher raw material supply costs. These higher costs have
negatively impacted our production costs. We are not normally able to pass on these higher costs to our customers, and if we insist on raising prices, our customers may curtail their purchases from us. The costs of energy and items directly related
to the cost of energy will fluctuate due to factors that may not be predictable, such as the economy, political conditions and the weather. Further increases in energy prices, raw material costs or the onset of inflationary pressures could
negatively impact our business, financial condition and results of operations.
Our average sales prices have declined, and
we anticipate that the average sales prices for our products will continue to decline and negatively impact our gross profit margins.
Wireless service providers are continuing to place pricing pressure on wireless infrastructure manufacturers, which in turn, has resulted in lower selling prices for our products, with certain competitors
aggressively reducing prices in an effort to increase their market share. The consolidation of original equipment manufacturers such as Alcatel-Lucent and Nokia Siemens Networks has concentrated purchasing power at the surviving entities, placing
further pricing pressures on the products we sell to such customers. Moreover, the recent recession and current economic uncertainty have caused wireless service providers to become more aggressive in demanding price reductions as they attempt to
reduce costs. As a result, we are forced to further reduce our prices to such customers, which has negatively impacted our business, financial condition and results of operations. If we do not agree to lower our prices as some customers request,
those customers may stop purchasing our products, which would significantly impact our business. We believe that the average sales prices of our products will continue to decline for the foreseeable future. The weighted average sales price for our
products declined in the range of 0% to 11%, depending on the product line, from fiscal 2010 to fiscal 2011 and we expect that this will continue going forward. Since wireless infrastructure manufacturers frequently negotiate supply arrangements far
in advance of delivery dates, we
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must often commit to price reductions for our products before we know how, or if, we can obtain such cost reductions. In addition, average sales prices are affected by price discounts negotiated
without firm orders for large volume purchases by certain customers. To offset declining average sales prices, we must reduce manufacturing costs and ultimately develop new products with lower costs or higher average sales prices. If we cannot
achieve such cost reductions or increases in average selling prices, our gross margins will decline.
Our suppliers,
contract manufacturers or customers could become competitors.
Many of our customers, particularly our original equipment
manufacturer customers, internally design and/or manufacture their own wireless communications network products. These customers also continuously evaluate whether to manufacture their own wireless communications network products or utilize contract
manufacturers to produce their own internal designs. Certain of our customers regularly produce or design wireless communications network products in an attempt to replace products manufactured by us. In addition, some customers threaten to
undertake such activities if we do not agree to their requested price reductions. We believe that these practices will continue. In the event that our customers manufacture or design their own wireless communications network products, these
customers might reduce or eliminate their purchases of our products, which would result in reduced revenues and would adversely impact our business, financial condition and results of operations. Wireless infrastructure equipment manufacturers with
internal manufacturing capabilities, including many of our customers, could also sell wireless communications network products externally to other manufacturers, thereby competing directly with us. In addition, our suppliers or contract
manufacturers may decide to produce competing products directly for our customers and, effectively, compete against us. If, for any reason, our customers produce their wireless communications network products internally, increase the percentage of
their internal production, require us to participate in joint venture manufacturing with them, require us to reduce our prices, engage our suppliers or contract manufacturers to manufacture competing products, or otherwise compete directly against
us, our revenues would decrease, which would adversely impact our business, financial condition and results of operations.
Our success is tied to the growth of the wireless services communications market and our future revenue growth is dependent upon the
expected increase in the size of this market.
Our revenues come principally from the sale of wireless communications
network products and coverage solutions. Our future success depends upon the growth and increased availability of wireless communications services. Wireless communications services may not grow at a rate fast enough to create demand for our
products, as we have experienced periodically throughout the past several years. In addition, some of our network operator customers rely heavily on the availability of credit to finance the build-out or expansion of their wireless networks. We
believe that the ongoing economic weakness and uncertainty and constrained credit markets have resulted in lower demand for our products in fiscal 2009, 2010, 2011 and the first nine months of fiscal 2012 and will likely result in a continuing
reduction of demand from some of our customers in the near term. In addition, during 2011 a major North America wireless network operator significantly reduced demand while it pursued plans for a significant acquisition. Another example of
unanticipated reductions occurred during fiscal 2006 and fiscal 2007, when a major North American wireless network operator significantly reduced demand for new products. In addition, during the same period, several major equipment manufacturers
began a process of consolidating their operations, which significantly reduced their demand for our products. This reduced spending on wireless networks had a negative impact on our operating results. If wireless network operators delay or
reduce levels of capital spending, our business, financial condition and results of operations would be negatively impacted.
Our reliance on contract manufacturers exposes us to risks of excess inventory or inventory carrying costs as well as late or missed
customer deliveries.
We use contract manufacturers to produce printed circuit boards for our products and to manufacture
finished products. Following the completion of our transaction with Tatfook, we use contract manufacturers more to manufacture our finished products. If our contract manufacturers are unable to respond in a timely fashion to changes in customer
demand, we may be unable to produce enough products to respond to sudden increases in demand, resulting in lost revenues. Alternatively, in the case of order cancellations or decreases in demand, we may be liable for excess or obsolete inventory or
cancellation charges resulting from contractual purchase commitments that we have with our contract manufacturers. We regularly provide rolling forecasts of our requirements to our contract manufacturers for planning purposes, pursuant to our
agreements, a portion of which is binding upon us. Additionally, we are committed to accept delivery on the forecasted terms for a portion of the rolling forecast. Cancellations of orders or changes to the forecasts provided to any of our contract
manufacturers may result in cancellation costs payable by us. In the past, we have been required to take delivery of materials from our suppliers and subcontractors that were in excess of our requirements, and we have previously recognized charges
and expenses related to such excess material. We expect that we will incur such costs in the future.
In addition, greater
reliance on contract manufactures such as Tatfook exposes us to potential late deliveries to customers if the contract manufacture delays production of product for any reason. We have had disputes with contract manufacturers which have caused them
to slow down production which have impacted deliveries to our customers. Such
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disputes have concerned pricing terms and payment terms for example. While we endeavor to avoid any potential dispute with our contract manufacturing suppliers, there can be no assurance that
future disputes will not impact customer deliveries. If the production and delivery of our products are delayed such that we do not meet the agreed upon delivery date of our customers, such delays could result in lost revenue due to customer
cancellations, as well as potential financial penalties payable to our customers. Any such loss of revenue or financials penalties would have a material adverse effect on our business, financial condition, and results of operations.
By using contract manufacturers, our ability to directly control the use of all inventories is reduced because we do not have full
operating control over their operations. If we are unable to accurately forecast demand for our contract manufacturers and manage the costs associated with our contract manufacturers, we may be required to purchase excess inventory and incur
additional inventory carrying costs. If we or our contract manufacturers are unable to utilize such excess inventory in a timely manner, and are unable to sell excess components or products due to their customized nature, our business, financial
condition and results of operations would be negatively impacted.
Future additions to, or consolidations of manufacturing
operations may present risks, and we may be unable to achieve the financial and strategic goals associated with such actions.
We have previously added new manufacturing locations, as well as consolidated existing manufacturing locations, in an attempt to achieve operating cost savings and improved operating results. We
continually evaluate these types of opportunities. We may acquire or invest in new locations, or we may consolidate existing locations into either existing or new locations in order to reduce our manufacturing costs. For example, in 2009, we
established a new manufacturing location in Thailand, and in 2012, as part of the transaction with Tatfook, Tatfook took over the operations of our former manufacturing facility in Suzhou, China. The addition, consolidation or closing of
manufacturing locations subjects us to numerous risks and uncertainties, including the following:
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difficulty integrating the new locations into our existing operations;
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the possibility of severance costs and lease termination payments associated with consolidating or closing manufacturing facilities;
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difficulty consolidating existing locations into one location;
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inability to achieve the anticipated financial and strategic benefits of the specific new location or consolidation;
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significant unanticipated additional costs incurred to start up a new manufacturing location;
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inability to attract key technical and managerial personnel to a new location;
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inability to retain key technical and managerial personnel due to the consolidation of locations to a new location;
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diversion of our managements attention from other business issues; and
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failure of our review and approval process to identify significant issues, including issues related to manpower, raw material supplies, legal and
financial contingencies.
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If we are unable to manage these risks effectively as part of any investment in a
new manufacturing location or consolidation of locations, our business would be adversely affected.
Future acquisitions,
or strategic alliances, may present risks, and we may be unable to achieve the financial and strategic goals intended at the time of any acquisition or strategic alliance.
In the past, we have acquired and made investments in other companies, products and technologies and entered into strategic alliances with other companies. We continually evaluate these types of
opportunities. We may acquire or invest in other companies, products or technologies, or we may enter into joint ventures, mergers or strategic alliances with other companies. Such transactions subject us to numerous risks, including the following:
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difficulty integrating the operations, technology and personnel of the acquired company;
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inability to achieve the anticipated financial and strategic benefits of the specific acquisition or strategic alliance;
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significant additional warranty costs due to product failures and or design differences that were not identified during due diligence, which could
result in charges to earnings if they are not recoverable from the seller;
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inability to retain key technical and managerial personnel from the acquired company;
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difficulty in maintaining controls, procedures and policies during the transition and integration process;
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diversion of our managements attention from other business concerns;
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failure of our due diligence process to identify significant issues, including issues with respect to product quality, product architecture, legal and
financial contingencies, and product development; and
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significant exit charges if products acquired in business combinations are unsuccessful.
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If we are unable to manage these risks effectively as part of any acquisition or joint venture, our business would be adversely affected.
We may fail to develop products that are sufficiently manufacturable, which could negatively impact our ability to sell
our products.
Manufacturing our products is a complex process that requires significant time and expertise to meet
customers specifications and expectations. Successful manufacturing is substantially dependent upon the ability to assemble and tune these products to meet specifications in an efficient manner. In this regard, we largely depend on our staff
of assembly workers and trained technicians at our internal manufacturing operations in the U.S. and Asia, as well as our contract manufacturers staff of assembly workers and trained technicians. We have previously experienced problems in the
manufacturing of new products where our actual costs have exceeded our expectations and our production yields have not met our internal expectations. Such issues have had a negative impact on gross margins and results of operations. If we cannot
design our products to minimize the manual assembly and tuning process, or if we or our contract manufacturers lose a number of trained assembly workers and technicians or are unable to attract additional trained assembly workers or technicians, we
may be unable to have our products manufactured in a cost effective manner.
If we are unable to hire and retain
highly-qualified technical and managerial personnel, we may not be able to sustain or grow our business.
Competition for
personnel, particularly qualified engineers, is intense. The loss of a significant number of qualified engineers, as well as the failure to recruit and train additional technical personnel in a timely manner, could have a material adverse effect on
our business, financial condition and results of operations. The departure of any of our management and technical personnel, the breach of their confidentiality and non-disclosure obligations to us, or the failure to achieve our intellectual
property objectives may also have a material adverse effect on our business.
We believe that our success depends upon the
knowledge and experience of our management and technical personnel and our ability to market our existing products and to develop new products. Our employees are generally employed on an at-will basis and do not have non-compete agreements.
Consequently, we have had employees leave us to work for competitors, and we may continue to experience this.
There are
significant risks related to our internal and contract manufacturing operations in Asia and Europe.
As part of our
manufacturing strategy, we utilize contract manufacturers to make finished goods and supply printed circuit boards in China, Europe, India, Singapore and Thailand. We also maintain our own manufacturing operations in the U.S. and Thailand. There are
particular risks of doing business in each jurisdiction and to doing business in foreign jurisdictions generally.
For
example, the Chinese legal system lacks transparency, which gives the Chinese central and local government authorities a higher degree of control over our business in China than is customary in the U.S., which makes the process of obtaining
necessary regulatory approval in China inherently unpredictable. In addition, the protection accorded our proprietary technology and know-how under the Chinese and Thai legal systems is not as strong as in the U.S. and, as a result, we may lose
valuable trade secrets and competitive advantage. Also, manufacturing our products and utilizing contract manufacturers, as well as other suppliers throughout the Asia region, exposes our business to the risk that our proprietary technology and
ownership rights may not be protected or enforced to the extent that they may be in the U.S. Although the Chinese government has been pursuing economic reform and a policy of welcoming foreign investments during the past two decades, it is possible
that the Chinese government will change its current policies in the future, making continued business operations in China difficult or unprofitable.
As another example, in September 2006, Thailand experienced a military coup which overturned the existing government. In late 2008, anti-government protests and civilian occupations culminated with a
court-ordered ouster of Thailands prime minister. In 2009 and 2010, continuing turmoil impacted the government of Thailand. To date, this has not had a significant impact on our operations in Thailand. In 2011, Thailand experienced significant
flooding that disrupted many companies operations in Thailand. While we did not experience any direct disruptions, these types of natural disasters could impact our operations in the future. If there are future coups or some other type of
political unrest, such activity may impact the ability to manufacture products in this region and may prevent shipments from entering or leaving the country. Any such disruptions could have a material negative impact on our business, financial
condition and results of operations.
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Furthermore, we require air or ocean transport to deliver products built in our various
manufacturing locations to our customers. High energy costs have increased our transportation costs which have had a negative impact on our production costs. Transportation costs would also escalate if there were a shortage of air or ocean cargo
space and any significant increase in transportation costs would cause an increase in our expenses and negatively impact our business, financial condition and results of operations. In addition, if we are unable to obtain cargo space or secure
delivery of components or products due to labor strikes, lockouts, work slowdowns or work stoppages by longshoremen, dock workers, airline pilots or other transportation industry workers, our delivery of products could be delayed.
The initial sales cycle associated with our products is typically lengthy, often lasting from nine to eighteen months, which could
cause delays in forecasted sales and cause us to incur substantial expenses before we record any associated revenues.
Our
customers normally conduct significant technical evaluations, trials and qualifications of our products before making purchase commitments. This qualification process involves a significant investment of time and resources from both our customers
and us in order to ensure that our product designs are fully qualified to perform as required. The qualification and evaluation process, as well as customer field trials, may take longer and be more expensive than initially forecasted, thereby
delaying the shipment of sales forecasted for a specific customer for a particular quarter and causing our operating results for the quarter to be less than originally forecasted. Such a sales shortfall would reduce our profitability and negatively
impact our business, financial condition and results of operations.
We conduct a significant portion of our business
internationally, which exposes us to increased business risks.
For fiscal years 2011, 2010 and 2009, international
revenues (excluding North American sales) accounted for approximately 60%, 63% and 73% of our net sales, respectively. There are many risks that currently impact, and will continue to impact, our international business and multinational operations,
including the following:
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compliance with multiple and potentially conflicting regulations in Europe, Asia and North and South America, including export requirements, tariffs,
import duties and other trade barriers, as well as health and safety requirements;
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potential labor strikes, lockouts, work slowdowns and work stoppages at U.S. and international ports;
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differences in intellectual property protection rights throughout the world;
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difficulties in staffing and managing foreign operations in Europe, Asia and South America, including relations with unionized labor pools in Europe
and in Asia;
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longer accounts receivable collection cycles in Europe, Asia and South America;
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currency fluctuations and resulting losses on currency translations;
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terrorist attacks on American companies;
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economic instability, including inflation and interest rate fluctuations, such as those previously seen in South Korea and Brazil;
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competition for foreign-based suppliers and from foreign-based competitors throughout the world;
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overlapping or differing tax structures;
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the complexity of global tax and transfer pricing rules and regulations and our potential inability to benefit/offset losses in one tax jurisdiction
with income from another;
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cultural and language differences between the U.S. and the rest of the world; and
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political or civil turmoil, such as that occurring in Thailand.
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Any failure on our part to manage these risks effectively would seriously reduce our competitiveness in the wireless infrastructure
marketplace.
Protection of our intellectual property is limited.
We rely upon trade secrets and patents to protect our intellectual property. We execute confidentiality and non-disclosure agreements
with certain employees and our suppliers, as well as limit access to and distribution of our proprietary information. We have an ongoing program to identify and file applications for U.S. and other international patents.
The departure of any of our management and technical personnel, the breach of their confidentiality and non-disclosure obligations to us,
or the failure to achieve our intellectual property objectives could have a material adverse effect on our business, financial condition and results of operations. We do not have non-compete agreements with our employees who are
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generally employed on an at-will basis. Therefore, we have had employees leave us and go to work for competitors and we may continue to experience this. If we are not successful in prohibiting
the unauthorized use of our proprietary technology or the use of our processes by a competitor, our competitive advantage may be significantly reduced which would result in reduced revenues.
We are at risk of third-party claims of infringement that could harm our competitive position.
We have received third-party claims of infringement in the past and have been able to resolve such claims without having a material
impact on our business. As the number of patents, copyrights and other intellectual property rights in our industry increases, and as the coverage of these rights and the functionality of the products in the market further overlap, we believe that
we may face additional infringement claims. These claims, whether valid or not, could result in substantial cost and diversion of our resources. A third-party claiming infringement may also obtain an injunction or other equitable relief, which could
effectively block the distribution or sale of allegedly infringing products, which would adversely affect our customer relationships and negatively impact our revenues.
The communications industry is heavily regulated. We must obtain regulatory approvals to manufacture and sell our products, and our customers must obtain approvals to operate our products. Any failure
or delay by us or any of our customers to obtain these approvals could negatively impact our ability to sell our products.
Various governmental agencies have adopted regulations that impose stringent radio frequency emissions standards on the communications
industry. Future regulations may require that we alter the manner in which radio signals are transmitted or otherwise alter the equipment transmitting such signals. The enactment by governments of new laws or regulations or a change in the
interpretation of existing regulations could negatively impact the market for our products.
The increasing demand for
wireless communications has exerted pressure on regulatory bodies worldwide to adopt new standards for such products, generally following extensive investigation and deliberation over competing technologies. The delays inherent in this type of
governmental approval process have caused, and may continue to cause, the cancellation, postponement or rescheduling of the installation of communications systems by our customers. These types of unanticipated delays may result in delayed or
canceled customer orders.
We are subject to numerous governmental regulations concerning the manufacturing and use of our
products. We must stay in compliance with all such regulations and any future regulations. Any failure to comply with such regulations, and the unanticipated costs of complying with future regulations, may adversely affect our business, financial
condition and results of operations.
We manufacture and sell products which contain electronic components, and as such
components may contain materials that are subject to government regulation in both the locations that we manufacture and assemble our products, as well as the locations where we sell our products. An example of a regulated material is the use of
lead in electronic components. We maintain compliance with all current government regulations concerning the materials utilized in our products, for all the locations in which we operate. Since we operate on a global basis, this is a complex process
which requires continual monitoring of regulations and an ongoing compliance process to ensure that we and our suppliers are in compliance with all existing regulations. There are areas where future regulations may be enacted which could increase
our cost of the components that we utilize. While we do not currently know of any proposed regulation regarding components in our products, which would have a material impact on our business, if there is an unanticipated new regulation which
significantly impacts our use of various components or requires more expensive components, that would have a material adverse impact on our business, financial condition and results of operations.
Our manufacturing process is also subject to numerous governmental regulations, which cover both the use of various materials as well as
environmental concerns. We maintain compliance with all current government regulations concerning our production processes, for all locations in which we operate. Since we operate on a global basis, this is also a complex process which requires
continual monitoring of regulations and an ongoing compliance process to ensure that we and our suppliers are in compliance with all existing regulations. There are areas where future regulations may be enacted which could increase our manufacturing
costs. One area which has a large number of potential changes in regulations is the environmental area. Environmental areas such as pollution and climate change have had significant legislative and regulatory efforts on a global basis, and there are
expected to be additional changes to the regulations in these areas. These changes could directly increase the cost of energy which may have an impact on the way we manufacture products or utilize energy to produce our products. In addition, any new
regulations or laws in the environmental area might increase the cost of raw materials we use in our products. While future changes in regulations appears likely, we are currently unable to predict how any such changes will impact us and if such
impacts will be material to our business. If there is a new law or regulation that significantly increases our costs of manufacturing or causes us to significantly alter the way that we manufacture our products, this would have a material adverse
effect on our business, financial condition and results of operations.
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The wireless communications infrastructure equipment industry is extremely competitive
and is characterized by rapid technological change, frequent new product development, rapid product obsolescence, evolving industry standards and significant price erosion over the life of a product. If we are unable to compete effectively, our
business, financial condition and results of operations would be adversely affected.
Our products compete on the basis of
the following characteristics:
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designs that can be efficiently manufactured in large volumes;
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time-to-market delivery capabilities; and
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compliance with industry standards.
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If we fail to address one or more of the above factors in the design and manufacturing of our products, there could be a material adverse effect on our business, financial condition and results of
operations.
Our current competitors include Comba Telecom Systems Holdings Ltd, CommScope, Inc., Fujitsu Limited, Hitachi
Kokusai Electric Inc., Japan Radio Co., Ltd., Kathrein-Werke KG, Radio Frequency Systems, and Tyco Electronics in addition to a number of privately held companies throughout the world, subsidiaries of certain multinational corporations and the
internal manufacturing operations and design groups of the leading wireless infrastructure manufacturers such as Alcatel-Lucent, Ericsson, Huawei, Motorola, Nokia Siemens Networks and Samsung. Some competitors have adopted aggressive pricing
strategies in an attempt to gain market share, which in turn, has caused us to lower our prices in order to remain competitive. Such pricing actions have had an adverse effect on our business, financial condition and results of operations. In
addition, some competitors have significantly greater financial, technical, manufacturing, sales, marketing and other resources than we do and have achieved greater name recognition for their products and technologies than we have. If we are unable
to successfully increase our market penetration or our overall share of the wireless communications infrastructure equipment market, our revenues will decline, which would negatively impact our business, financial condition and results of
operations.
Our failure to enhance our existing products or to develop and introduce new products that meet changing
customer requirements and evolving technological standards could have a negative impact on our ability to sell our products.
To succeed, we must improve current products and develop and introduce new products that are competitive in terms of the various factors outlined in the risk factor above. These products must adequately
address the requirements of wireless infrastructure manufacturing customers and end-users. To develop new products, we invest in the research and development of wireless communications network products and coverage solutions. We target our research
and development efforts on major wireless network deployments worldwide, which cover a broad range of frequency and transmission protocols. In addition, we are currently working on products for next generation networks, as well as development
projects for products requested by our customers and improvements to our existing products. The deployment of a wireless network may be delayed which could result in the failure of a particular research or development effort to generate a revenue
producing product. Additionally, the new products we develop may not achieve market acceptance or may not be able to be manufactured cost effectively in sufficient volumes. Our research and development efforts are generally funded internally and our
customers do not normally pay for our research and development efforts. These costs are expensed as incurred. Therefore, if our efforts are not successful at creating or improving products that are purchased by our customers, there will be a
negative impact on our business, financial condition and results of operations due to high research and development expenses.
We may experience significant variability in our quarterly and annual effective tax rate.
Variability in the mix and profitability of domestic and international activities, repatriation of earnings from foreign affiliates,
identification and resolution of various tax uncertainties and the inability to realize net operating losses and other carry-forwards included in deferred tax assets, among other matters, may significantly impact our effective income tax rate in the
future. A significant increase in our effective income tax rate could have a material adverse impact on our business, financial condition and results of operations.
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Our business is subject to the risks of earthquakes and other natural catastrophic
events, and to interruptions by man-made problems such as computer viruses or terrorism.
Our corporate headquarters and a
large portion of our U.S.-based research and development operations are located in the State of California in regions known for seismic activity. In addition, we have production facilities and have outsourced some of our production to contract
manufacturers in Asia, another region known for seismic activity. In addition, we have a manufacturing location in Thailand, a country that suffered significant flooding during 2011. A significant natural disaster, such as an earthquake or flooding,
in either of these regions could have a material adverse effect on our business, financial condition and results of operations. In addition, despite our implementation of network security measures, our servers are 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, financial condition and results of operations.
The price of our Common Stock has been, and may continue to be, volatile and our shareholders may not be able to resell shares of our
Common Stock at or above the price paid for such shares.
The price for shares of our Common Stock has exhibited high
levels of volatility with significant volume and price fluctuations, which makes our Common Stock unsuitable for many investors. For example, for the three years ended September 30, 2012, the closing price of our Common Stock ranged from a high
of $23.45 to a low of $0.33 per share (as adjusted for the 1-for-5 share Reverse Stock Split). At times, the fluctuations in the price of our Common Stock may have been unrelated to our financial condition and operating performance. These broad
fluctuations may negatively impact the market price of shares of our Common Stock.
The price of our Common Stock may continue
to fluctuate greatly in the future due to a variety of factors, including:
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fluctuations in our results of operations or the operations of our competitors or customers;
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the loss of a key customer or significant reductions in the amount or value of orders from key customers;
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failure of our results of operations and sales revenues to meet the expectations of stock market analysts and investors;
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the aggregate amount of our outstanding debt and perceptions about our ability to make debt service payments;
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reductions in wireless infrastructure demand or expectations regarding future wireless infrastructure demand by our customers;
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delays or postponement of wireless infrastructure deployments, or larger than anticipated costs associated with such deployments;
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changes in stock market analyst recommendations regarding us, our competitors or our customers;
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the timing and announcements of technological innovations, new products or financial results by us or our competitors;
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increases in the number of shares of our Common Stock outstanding, including upon the conversion of outstanding debt securities;
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changes in the wireless industry;.
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changes in general financial and other market conditions; and
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domestic and international economic and regulatory conditions.
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In addition, the potential conversion of our outstanding convertible debt and other instruments could result in a significant increase in
the number of outstanding shares of our Common Stock. Such an increase may lead to sales of shares or the perception that sales may occur, either of which may adversely affect the market for, and the market price of, our Common Stock. Any potential
future sale or issuance of shares of our Common Stock or instruments convertible or exchangeable into shares of our Common Stock, or the perception that such sales or transactions could occur, could adversely affect the market price of our Common
Stock. Based on the foregoing factors, we expect that our stock price will continue to be extremely volatile. Therefore, we cannot guarantee that our investors will be able to resell our Common Stock at or above the price at which they purchased it.
A material decline in the price of our Common Stock may result in the assertion of certain claims against us, and/or the
commencement of inquiries and/or investigations against us. See Item 1 of Part II of this quarterly report under the heading Legal Proceedings. A prolonged decline in the price of our Common Stock could result in a reduction in the
liquidity of our Common Stock or a reduction in our ability to raise capital. Any reduction in our ability to raise equity capital in the future may force us to allocate funds from other planned uses and could have a significant negative effect on
our business plans and operations.
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Issuance of shares of our Common Stock upon conversion of our outstanding convertible
instruments and future sales of our Common Stock could adversely affect our Common Stock price.
As of November 2,
2012, an aggregate of 3,107,270 shares of our Common Stock were issuable upon exercise of outstanding stock options under our stock option plans, and an additional 2,922,013 shares of our Common Stock were reserved for the issuance of additional
options and shares under these plans. Additionally, an aggregate of 3,444,315 shares of our Common Stock were issuable upon conversion of our 3.875% Notes, an aggregate of 6,406,150 shares of our Common Stock were issuable upon conversion of our
2.75% Notes and an aggregate of 920 shares of our Common Stock issuable upon conversion of our 1,875% Notes. Also, there are 2,625,000 shares of Common Stock issuable upon exercise of the warrants issued to the Agent in connection with the Initial
Draw under the Credit Agreement.
Future sales of our Common Stock and instruments convertible or exchangeable into our Common
Stock, or the perception that such sales or transactions could occur, may adversely affect the market price of our Common Stock. In addition, this may also make it more difficult for us to sell equity securities in the future at an appropriate time
and price.
Certain provisions contained in our charter and bylaws could make it more difficult for a third-party to
acquire us, even if doing so would be beneficial to our stockholders.
Certain provisions of our certificate of
incorporation, as amended, and bylaws, as amended, are intended to encourage potential acquirers to negotiate with us and allow our Board of Directors the opportunity to consider alternative proposals in the interest of maximizing shareholder value.
These provisions may have the effect of deterring hostile takeovers or delaying or preventing changes in control or our management. For example, our bylaws provide that special meetings of stockholders may be called only by our board of directors or
certain officers, and may not be called by our stockholders. In addition, our bylaws provide that stockholders seeking to present proposals before, or nominate candidates for election as directors at, a meeting of stockholders must provide advanced
notice to us in writing and must provide specified information. Our certificate of incorporation grants our board of directors the authority to issue preferred stock, which could potentially be used to discourage attempts by third parties to obtain
control of us through a merger, tender offer, proxy or consent solicitation or otherwise, by making those attempts more difficult to achieve or more costly. Furthermore, Section 203 of the Delaware General Corporation Law, which continues to
apply to us, prohibits a public Delaware corporation from engaging in certain business combinations with an interested stockholder (as defined in such section) for a period of three years following the time that such stockholder became
an interested stockholder without the prior consent of our board of directors. This section, as well as certain provisions of our certificate of incorporation, may make the removal of management more difficult and may discourage transactions that
otherwise could involve the payment of a premium over prevailing market prices for our securities.
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