EXHIBIT 99.1
IMPORTANT FACTORS
FOREIGN OPERATIONS
The Company conducts a portion of its operations outside the United
States and its business is subject to risks associated with many factors beyond
its control, such as fluctuations in foreign currency rates, instability of
foreign economies and governments, and changes in U.S. and foreign laws and
policies affecting trade and investment. The Company owns or leases
manufacturing and assembling facilities in Ennis, Ireland; Bombay, India and
Hong Kong and is in the process of establishing a joint venture in The People's
Republic of China. Although the Company has not experienced any materially
adverse effects with respect to its foreign operations arising from such
factors, there can be no assurance that such problems will not arise in the
future.
SALES TO FOREIGN CUSTOMERS
Sales to foreign customers represented approximately 20%, 17% and 12%
of net sales for the 1995, 1994 and 1993 fiscal years, respectively. Foreign
sales may be subject to political and economic risks, including political
instability, changes in import/export regulations, tariffs and freight rates and
difficulties in collecting receivables and enforcing contracts generally.
Although the Company has not experienced any materially adverse effects with
respect to sales to foreign customers, changes in current tariff structures,
exchange rates or other trade policies could adversely affect the Company's
sales to foreign customers or the collection of receivables generated from such
sales.
ORDER BACKLOG
The Company's consolidated order backlog at October 1, 1995 (primarily
for delivery within nine months) was $62,700,000 as compared to $47,600,000 at
October 2, 1994. Although total backlog has increased by 32%, the mix of new
orders reflects a flat demand in military related business and an increase in
commercial, industrial, medical and space business. See discussion of changes in
military procurement practices in Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Lead times for the release of purchase orders depend upon the
scheduling practices of individual customers. The delivery times of new or
non-standard products can be affected by scheduling factors and other
manufacturing considerations. The rate of booking new orders can vary
significantly from month to month. For these reasons, and because of the
possibility of customer changes in delivery schedules or cancellations of
orders, the Company's backlog as of any particular date may not be
representative of actual sales for any succeeding period.
A portion of the Company's sales are to military and aerospace markets
which are subject to the business risk of changes in governmental appropriations
and changes in national defense policies and priorities. See discussion of
changes in military procurement practices in Management's Discussion and
Analysis of Financial Condition and Results of Operations. All of the Company's
contracts with prime U.S. Government's contractors contain customary provisions
permitting termination at any time at the convenience of the U.S. Government or
the prime contractor upon payment to the Company for costs incurred plus a
reasonable profit. Certain contracts are also subject to price renegotiation in
accordance with U.S. Government sole source procurement
provisions. No material contract of the Company has been terminated or
renegotiated.
COMPETITION
The Company competes primarily in the discrete semiconductor market,
particularly in the area of high reliability components. The Company has
numerous competitors across all of its product lines. In the defense market
sector, the Company possesses the major share of the market. In the
commercial/industrial arena, there are numerous competitors such as Motorola,
Inc., General Instruments Corp., ITT Corp. and National Semiconductor who are
significantly larger than Microsemi and have greater resources. Competition in
certain of its product lines is dependent on price and performance. Competition
in the high reliability area is dependent less on price and more on product
reliability and performance. The Company believes that it competes effectively
in all areas of business in which it is engaged.
CHANGES IN TECHNOLOGY
The power semiconductor market is subject to technological change and
changes in industry standards. To remain competitive, the Company must continue
to devote resources to advance process technologies, to increase product
performance, to improve manufacturing yields and to improve the mix between the
Company's shipment of military and commercial product and between its high cost
and low cost products. There can be no assurance that the Company's competitors
will not develop new technologies that are substantially equivalent or superior
to the Company's technology.
PROPRIETARY RIGHTS
The Company generally does not have, nor does it generally intend to
apply for, patent protection on any aspect of its technology. The Company
believes that patents often provide only narrow protection and patents require
public disclosure of information which may otherwise be subject to trade secret
protection. The Company's reliance upon protection of some of its technology as
"trade secrets" will not necessarily protect the Company from the use by other
persons of its technology, or their use of technology that is similar or
superior to that which is embodied in the Company's trade secrets. There can be
no assurance that others will not be able to independently duplicate or exceed
the Company's technology in whole or in part. No assurances can be made that the
Company will be able to maintain the confidentiality of the Company's
technology, dissemination of which could have a material adverse effect on the
Company's business. In addition, litigation may be necessary to determine the
scope and validity of the Company's proprietary rights. In instances in which
the Company holds any patents on a product line, the patents are not known to
have any material current value. Also there can be no assurance that any patents
held by the Company will not be challenged, invalidated or circumvented, or that
the rights granted thereunder will provide competitive advantages to the
Company.
MANUFACTURING RISKS
The Company's manufacturing processes are highly complex, require
advanced and costly equipment and are continuously being modified in an effort
to improve yields and product performance. Minute impurities or other
difficulties in the manufacturing process can lower yields. In addition,
California and the Pacific Rim are known to contain various earthquake faults.
The Company's operations could be materially adversely affected if production at
any of its major facilities were interrupted. There can be no assurance that
the Company will not experience manufacturing difficulties in the future.
DEPENDENCE ON KEY PERSONNEL
The Company's future performance is significantly dependent on the
continued active participation of members of its current management. The Company
does not have written employment contracts with its employees. Should one or
more of the Company's key management employees leave or otherwise become
unavailable to the Company, the Company's business and results of operations may
be materially adversely affected.
POSSIBLE VOLATILITY OF STOCK PRICES
The market prices of securities issued by technology companies,
including the Company, have been volatile. The securities of many technology
companies have experienced extreme price and volume fluctuations, which have
often been not necessarily related to the companies' respective operating
performances. Quarter to quarter variations in operating results, changes in
earnings estimates by analysts, announcements of technological innovations or
new products, announcements of major contract awards, events involving other
companies in the industry and other events or factors may have a significant
impact on the market price of the Company's Common Stock.
PRODUCT LIABILITY
The Company's business exposes it to potential liability risks that are
inherent in the manufacturing and marketing of high-reliability electronic
components for critical applications. No assurances can be made that the
Company's product liability insurance coverage is adequate or that present
coverage will continue to be available at acceptable costs, or that a product
liability claim would not adversely affect the business or financial condition
of the Company.
CHANGE OF CONTROL PROVISIONS
The Company's Certificate of Incorporation, Bylaws, Shareholder Rights
Plan and certain employment compensation plans contain provisions that make it
more difficult for a third party to acquire, or that may discourage a third
party from attempting to acquire, control of the Company. In addition, as a
Delaware corporation, the Company is subject to the restrictions imposed under
Section 203 of the Delaware General Corporation Law which prevent the Company
from engaging in certain change of control transactions with certain of its
stockholders under certain circumstances.
ENVIRONMENTAL REGULATION
While the Company believes that it has the environmental permits
necessary to conduct its business and that its activities conform to present
environmental regulations, increased public attention has been focused on the
environmental impact of semiconductor operations. The Company, in the conduct of
its manufacturing operations, has handled and does handle materials that are
considered hazardous, toxic or volatile under federal, state and local laws and,
therefore, is subject to regulations relating to their use,
storage, discharge and disposal. No assurances can be made that the risk of
accidental release of such materials can be completely eliminated. In addition,
the Company operates or owns facilities located on or near real property that
may formerly have been used in ways that involved such materials. In the event
of a violation of environmental laws, the Company could be held liable for
damages and the costs of remediation, and, along with the rest of the
semiconductor industry, is subject to variable interpretations and governmental
priorities concerning environmental laws and regulations. Environmental statutes
have been interpreted to provide for joint and several liability and strict
liability regardless of actual fault. There can be no assurance that the Company
and its subsidiaries will not be required to incur costs to comply with, or that
the operations, business, or financial condition of the Company will not be
materially adversely affected by, current or future environmental laws or
regulations.