EXHIBIT 99.1
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK
The Semiconductor Equipment Industry is Cyclical, has Recently Been in a Severe
and Prolonged Downturn, and Causes Our Operating Results to Fluctuate
Significantly.
The semiconductor industry is highly cyclical and has historically
experienced periodic downturns, whether the result of general economic changes
or capacity growth temporarily exceeding growth in demand for semiconductor
devices. During periods of declining demand for semiconductor manufacturing
equipment, customers typically reduce purchases, delay delivery of products
and/or cancel orders. Increased price competition may result, causing pressure
on our net sales, gross margin and net income. We have at times experienced
cancellations, delays and push-outs of orders, which reduced our revenues,
caused delays in our ability to recognize revenue on the orders and reduced our
backlog. If we have future order cancellations, reductions in order size or
delays in orders, it will materially adversely affect our business and results
of operations.
Following the very strong year in 2000, the semiconductor industry entered
a significant and prolonged downturn. The severity and duration of the downturn
are unknown, but is impairing our ability to sell our systems and to operate
profitably. If demand for semiconductor devices and our systems remains
depressed for an extended period, it will seriously harm our business.
As a result of acquisitions we made at the beginning of 2001, we grew to be
a larger, more geographically diverse company, less able to react quickly to the
cyclicality of the semiconductor business, particularly in Europe and other
regions where restrictive laws relating to termination of employees prohibited
us from quickly reducing costs in order to meet the downturn. Accordingly,
during this latest downturn we have been unable to reduce our expenses quickly
enough to avoid incurring a loss. For the fiscal years ended December 31, 2001
and 2002 and 2003, our net loss was $336.7 million, $94.3 million and $28.4
million, respectively, compared to net income of $1.5 million for the year ended
December 31, 2000. Our net losses in 2002 and the first three quarters of 2003
primarily reflect the impact of our continuing depressed level of net sales. If
our actions to date are insufficient to effectively align our cost structure
with prevailing market conditions, we may be required to undertake additional
cost-cutting measures, and may be unable to continue to invest in marketing,
research and development and engineering at the levels we believe are necessary
to maintain our competitive position in our remaining core businesses. Our
failure to make these investments could seriously harm our long-term business
prospects.
We are Exposed to the Risks Associated with Industry Overcapacity, Including
Reduced Capital Expenditures, Decreased Demand for Our Products, Increased Price
Competition and Delays by Our Customers in Paying for Our Products.
As a result of the current economic downturn, inventory buildups in
telecommunication products and slower than expected personal computer sales have
resulted in overcapacity of semiconductor devices and has caused semiconductor
manufacturers to reduce their capital spending. As our business depends in
significant part upon capital expenditures by manufacturers of semiconductor
devices, including manufacturers that open new or expand existing facilities,
continued overcapacity and reductions in capital expenditures by our customers
could cause further delays or decreased demand for our products. If existing
fabrication facilities are not expanded or new facilities are not built, demand
for our systems may not develop or increase, and we may be unable to generate
significant new orders for our systems. If we are unable to develop new orders
for our systems, we will not achieve anticipated net sales levels. In addition,
the reduced demand levels result in increased competition and may cause downward
pressure on our product prices and margins in order to win customer orders.
In addition, many semiconductor manufacturers are continuing to forecast
that revenues in the short-term will remain flat or lower than in previous
high-demand years. As a result, if customers are not successful generating
sufficient revenue or securing alternative financing arrangements, we may be
unable to close sales or collect accounts receivables from such customers or
potential customers, and may be required to take additional reserves against our
accounts receivables.
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We Depend on Large Purchases From a Few Customers, and Any Loss, Cancellation,
Reduction or Delay in Purchases By, or Failure to Collect Receivables From,
These Customers Could Harm Our Business.
Currently, we derive most of our revenues from the sale of a relatively
small number of systems to a relatively small number of customers, which makes
our relationship with each customer critical to our business. The list prices on
our systems range from $500,000 to over $2.2 million. Our lengthy sales cycle
for each system, coupled with customers' capital budget considerations, make the
timing of customer orders uneven and difficult to predict. Any delay in
scheduled shipments or in acceptances of shipped products would delay our
ability to recognize revenue and collect outstanding accounts receivable, and
could materially adversely affect our operating results for that quarter. A
delay in a shipment or customer acceptance near the end of a quarter could cause
net sales in that quarter to fall below our expectations and the expectations of
market analysts or investors.
Our list of major customers changes substantially from year to year, and we
cannot predict whether a major customer in one year will make significant
purchases from us in future years. Accordingly, it is difficult for us to
accurately forecast our revenues and operating results from year to year. If we
are unable to collect a receivable from a large customer, our financial results
will be negatively impacted.
We May Not Achieve Anticipated Revenue Growth if We Are Not Selected as "Vendor
Of Choice" for New or Expanded Fabrication Facilities or If Our Systems and
Products Do Not Achieve Broader Market Acceptance.
Because semiconductor manufacturers must make a substantial investment to
install and integrate capital equipment into a semiconductor fabrication
facility, these manufacturers will tend to choose semiconductor equipment
manufacturers based on established relationships, product compatibility, and
proven financial performance.
Once a semiconductor manufacturer selects a particular vendor's capital
equipment, the manufacturer generally relies for a significant period of time
upon equipment from this "vendor of choice" for the specific production line
application. In addition, the semiconductor manufacturer frequently will attempt
to consolidate its other capital equipment requirements with the same vendor.
Accordingly, we may face narrow windows of opportunity to be selected as the
"vendor of choice" by substantial new customers. It may be difficult for us to
sell to a particular customer for a significant period of time once that
customer selects a competitor's product, and we may not be successful in
obtaining broader acceptance of our systems and technology. If we are unable to
achieve broader market acceptance of our systems and technology, we may be
unable to grow our business and our operating results and financial condition
will be adversely affected.
We Are Engaged in the Implementation of a New Enterprise Resource Planning
System, Which May Be More Difficult or Costly Than Anticipated, and Could Cause
Disruption to the Management of Our Business and the Preparation of Our
Financial Statements.
We are currently engaged in the implementation of a new enterprise resource
planning, or ERP, system, which is expected to become integral to our ability to
accurately and efficiently maintain our books and records, record our
transactions, provide critical information to our management, and prepare our
financial statements. However, the new ERP system could eventually become more
costly, difficult and time consuming to purchase and implement than we currently
anticipate. In addition, implementation of the new ERP system requires us to
change our internal business practices, transfer records to a new computer
system and train our employees in the correct use of and input of data into the
system, which could result in disruption of our procedures and controls and
difficulties achieving accuracy in the conversion of data. If we fail to manage
these changes effectively, our operations could be disrupted, which could result
in the diversion of management's attention and resources, cause us to improperly
state or delay reporting of our financial results, materially and adversely
affect our operating results, and impact our ability to manage our business. In
addition, to manage our business effectively, we may need to implement
additional and improved management information systems, further develop our
operating, administrative, financial and accounting systems and controls, add
experienced senior level managers, and maintain closer coordination among our
executive, engineering, accounting, marketing, sales and operations
organizations. We may incur additional unexpected costs and our systems,
procedures or controls may not be adequate to support our operations.
We Have Implemented New Financial Systems, and Will Need to Continue to Improve
or Implement New Systems, Procedures and Controls.
We have implemented new financial systems used in the consolidation of our
financial results, in order to further automate processes and align the
disparate systems used by our acquired businesses. We have recently implemented
new financial systems to aid in the consolidation of our financial reporting
operations. These financial systems are new and we have not had extensive
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experience with them. We may encounter unexpected difficulties, costs or other
challenges that make implementation and use of these systems more difficult or
costly than expected, may cause the consolidation and reporting of our financial
results to be more time-consuming than expected, and may require additional
management resources than expected before they are fully implemented and
operating smoothly. Continued improvement or implementation of new systems,
procedures and controls may be required, and could cause us to incur additional
costs, and place further burdens on our management and internal resources. If
our new financial systems do not result in the expected improvements, or if we
are unable to fully implement these systems, procedures and controls in a timely
manner, our business could be harmed.
In addition, new requirements adopted by the Securities and Exchange
Commission in response to the passage of the Sarbanes-Oxley Act of 2002, will
require annual review and evaluation of our internal control systems, and
attestation of these systems by our independent auditors. We are currently
reviewing our internal control procedures and considering further documentation
of such procedures that may be necessary. Any improvements in our internal
control systems or in documentation of such internal control systems could be
costly to prepare or implement, divert attention of management or finance staff,
and may cause our operating expenses to increase over the ensuing year.
We Are Increasingly Outsourcing Manufacturing and Logistics Activities to Third
Party Service Providers, Which Decreases Our Control Over the Performance of
These Functions.
We have already outsourced certain manufacturing and spare parts logistics
functions to third party service providers, and may outsource more of those
functions in the future. While we expect to achieve operational flexibility and
cost savings as a result of this outsourcing, outsourcing has a number of risks
and reduces our control over the performance of the outsourced functions.
Significant performance problems by these third party service providers could
result in cost overruns, delayed deliveries, shortages, quality issues or other
problems which could result in significant customer dissatisfaction and could
materially and adversely affect our business, financial condition and results of
operations.
If for any reason one or more of these third party service providers
becomes unable or unwilling to continue to provide services of acceptable
quality, at acceptable costs and in a timely manner, our ability to deliver our
products or spare parts to our customers could be severely impaired. We would
quickly need to identify and qualify substitute service providers or increase
our internal capacity, which could be expensive, time consuming and difficult
and could result in unforeseen operations problems. Substitute service providers
might not be available or, if available, might be unwilling or unable to offer
services on acceptable terms.
If customer demand for our products increases, we may be unable to secure
sufficient additional capacity from our current service providers on
commercially reasonable terms, if at all.
Our requirements are expected to represent a small portion of the total
capacities of our third party service providers, and they may preferentially
allocate capacity to other customers, even during periods of high demand for our
products. In addition, such manufacturers could suffer financial difficulties or
disruptions in their operations due to causes beyond our control.
Delays or Technical and Manufacturing Difficulties Incurred in the Introduction
of New Products Could Be Costly and Adversely Affect Our Customer Relationships.
From time to time, we have experienced delays in the introduction of, and
certain technical and manufacturing difficulties with, the introduction of new
systems and enhancements, and may experience such delays and technical and
manufacturing difficulties in future introductions or volume production of new
systems or enhancements. For example, our inability to overcome such
difficulties, to meet the technical specifications of any new systems or
enhancements, or to manufacture and ship these systems or enhancements in volume
and in a timely manner, would materially adversely affect our business and
results of operations, as well as our customer relationships. In addition, we
may from time to time incur unanticipated costs to ensure the functionality and
reliability of our products early in their life cycles, which costs can be
substantial. If new products or enhancements experience reliability or quality
problems, we could encounter a number of difficulties, including reduced orders,
higher manufacturing costs, delays in collection of accounts receivable, and
additional service and warranty expenses, all of which could materially
adversely affect our business and results of operations.
Unless We Can Continue To Develop and Introduce New Systems that Compete
Effectively On the Basis of Price and Performance, We May Lose Future Sales and
Customers, Our Business May Suffer, and Our Stock Price May Decline.
Because of continual changes in the markets in which our customers and we
compete, our future success will depend in part upon our ability to continue to
improve our systems and technologies. These markets are characterized by
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rapidly changing technology, evolving industry standards, and continuous
improvements in products and services. Due to the continual changes in these
markets, our success will also depend upon our ability to develop new
technologies and systems that compete effectively on the basis of price and
performance and that adequately address customer requirements. In addition, we
must adapt our systems and processes to support emerging target market industry
standards.
The success of any new systems we introduce is dependent on a number of
factors, including timely completion of new system designs accepted by the
market, and may be adversely affected by manufacturing inefficiencies and the
challenge of producing systems in volume which meet customer requirements. We
may not be able to improve our existing systems or develop new technologies or
systems in a timely manner. In particular, the transition of the market to 300
mm wafers will present us with both an opportunity and a risk. To the extent
that we are unable to introduce 300mm systems that meet customer requirements on
a timely basis, our business could be harmed. We may exceed the budgeted cost of
reaching our research, development and engineering objectives, and estimated
product development schedules may require extension. Any delays or additional
development costs could have a material adverse effect on our business and
results of operations. Because of the complexity of our systems, significant
delays can occur between the introduction of systems or system enhancements and
the commencement of commercial shipments.
Our Backlog Orders are Subject to Cancellation or Delay, and Our Current Backlog
is Relatively Low in Relation to Our Projected Revenues, so that we Must Book
and Ship Significant Orders Within the Same Quarter to Achieve Our Revenue
Goals.
Although we maintain a backlog of customer orders expected to be filled
within 12 months, customers may request cancellations or delivery delays. As a
result, our backlog may not be a reliable indication of our future revenues. In
addition, our backlog is relatively low in relation to our projected quarterly
revenues, so meeting our revenue goals requires that we book and ship
significant orders in the same quarter, in addition to shipping orders out of
backlog on schedule. Given our current limited bookings visibility, this makes
predicting revenues increasingly difficult. If we do not receive sufficient
orders that can be shipped within a relatively short time-frame, or if shipments
of such orders or of previously scheduled orders in backlog are cancelled or
delayed, our revenues could fall below our expectations and the expectations of
market analysts and investors.
Our Results of Operations May Suffer if We Do Not Effectively Manage Our
Inventory.
To achieve commercial success with our product lines, we need to manage
our inventory of component parts and finished goods effectively to meet changing
customer requirements. Some of our products and supplies have in the past and
may in the future become obsolete while in inventory due to rapidly changing
customer specifications. If we are not successfully able to manage our
inventory, including our spare parts inventory, we may need to write off
unsaleable or obsolete inventory, which would adversely affect our results of
operations.
Warranty Claims in Excess of Our Projections Could Seriously Harm Our Business.
We offer a warranty on our products. The cost associated with our warranty
is significant, and in the event our projections and estimates of this cost are
inaccurate our financial performance could be seriously harmed. In addition, if
we experienced product failures at an unexpectedly high level, our reputation in
the marketplace could be damaged, customers may decline to place new or
additional orders with us, and our business would suffer.
We May Not Be Able To Continue To Successfully Compete in the Highly Competitive
Semiconductor Equipment Industry.
The semiconductor equipment industry is both highly competitive and subject
to rapid technological change. Significant competitive factors include the
following:
o system performance;
o cost of ownership;
o size of installed base;
o breadth of product line;
o delivery availability; and
o customer support.
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The current economic downturn has increased competitive pressure in
several areas. In particular, there is increased price competition, and
customers are waiting to make purchase commitments, which are then placed with
demands for rapid delivery dates and increased product support. The following
characteristics of our major competitors' systems may give them a competitive
advantage over us:
o broader product lines;
o longer operating history;
o greater experience with high volume manufacturing;
o broader name recognition;
o substantially larger customer bases;
o substantially greater customer support resources; and
o substantially greater financial, technical, and marketing resources.
In addition, to expand our sales we must often replace the systems of
our competitors or sell new systems to customers of our competitors. Our
competitors may develop new or enhanced competitive products that will offer
price or performance features that are superior to our systems. Our competitors
may also be able to respond more quickly to new or emerging technologies and
changes in customer requirements, or to devote greater resources to the
development, promotion, sale and on-site customer support of their product
lines. We may not be able to maintain or expand our sales if competition
increases and we are unable to respond effectively.
Our Lengthy Sales Cycle Increases Our Costs and Reduces the Predictability of
Our Revenue.
Sales of our systems depend upon the decision of a prospective customer
to increase or replace manufacturing capacity, typically involving a significant
capital commitment. Accordingly, the decision to purchase our systems requires
time consuming internal procedures associated with the evaluation, testing,
implementation, and introduction of new technologies into our customers'
manufacturing facilities. Potential new customers evaluate the need to acquire
new semiconductor manufacturing equipment infrequently. Even after the customer
determines that our systems meet their qualification criteria, we experience
delays finalizing system sales while the customer obtains approval for the
purchase and constructs new facilities or expands its existing facilities. We
may expend significant sales and marketing expenses during this evaluation
period. The time between our first contact with a customer regarding a specific
potential purchase and the customer's placing its first order may last from nine
to twelve months or longer. In this difficult economic climate, the average
sales cycle has lengthened even further and is expected to continue to make it
difficult to accurately forecast future sales. If sales forecasted from a
specific customer for a particular quarter are not realized, we may experience
an unplanned shortfall in revenues and our quarterly and annual revenue and
operating results may fluctuate significantly from period to period.
The Timing of the Transition to 300mm Technology is Uncertain and Competition
May Be Intense.
We have invested, and are continuing to invest, substantial resources
to develop new systems and technologies to automate the processing of 300mm
wafers. However, the timing of the industry's transition to 300mm manufacturing
technology is uncertain, partly as a result of the recent period of reduced
demand for semiconductors. Delay in the transition to 300mm manufacturing
technology could adversely affect our potential revenues and opportunities for
future growth. Moreover, delay in the transition to 300mm technology could
permit our competitors to introduce competing or superior 300mm products at more
competitive prices, causing competition to become more vigorous.
We Are Highly Dependent on Our International Sales, and Face Significant
Economic and Regulatory Risks Because a Majority of Our Net Sales Are From
Outside the United States.
Asia has been a particularly important region for our business, and we
anticipate that it will continue to be important as we expand our sales and
marketing efforts by opening an office in China. Our sales to customers located
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in Taiwan, Japan, other Asian countries and recently China accounted for 71% of
our total sales in 2003, 47% in 2002 and 47% in 2001. During 2001, Europe also
emerged as an important region for our business. During 2003, 2002 and 2001,
sales to customers in Europe accounted for 16%, 27% and 31%, respectively. Our
international sales accounted for 87% of our total net sales in 2003, 74% in
2002 and 78% in 2001 and we anticipate international sales will continue to
account for a significant portion of our future net sales. Because of our
continuing dependence upon international sales, however, we are subject to a
number of risks associated with international business activities, including:
o unexpected changes in law or regulations resulting in more burdensome
governmental controls, tariffs, restrictions, embargoes, or export
license requirements;
o exchange rate volatility;
o the need to comply with a wide variety of foreign and U.S. export
laws;
o political and economic instability, particularly in Asia;
o differing labor regulations;
o reduced protection for intellectual property;
o difficulties in accounts receivable collections;
o difficulties in managing distributors or representatives;
o difficulties in staffing and managing foreign subsidiary operations;
and
o changes in tariffs or taxes.
In the U.S., our sales to date have been denominated primarily in U.S.
dollars, while our sales in Japan are usually denominated in Japanese Yen. Our
sales to date in Europe have been denominated in various currencies, currently
primarily U.S. dollars and the Euro. Our sales in foreign currencies are subject
to risks of currency fluctuation. For U.S. dollar sales in foreign countries,
our products become less price-competitive where the local currency is declining
in value compared to the dollar. This could cause us to lose sales or force us
to lower our prices, which would reduce our gross margins.
In addition, we are exposed to the risks of operating a global
business, and maintain certain manufacturing facilities in Germany. Managing our
global operations presents challenges, including varying business conditions and
demands, political instability, export restrictions and fluctuations in interest
and currency exchange rates.
We Depend Upon a Limited Number of Suppliers for Some Components and
Subassemblies, and Supply Shortages or the Loss of These Suppliers Could Result
In Increased Cost or Delays in Manufacture and Sale of Our Products.
We rely to a substantial extent on outside vendors to provide many of
the components and subassemblies of our systems. We obtain some of these
components and subassemblies from a sole source or a limited group of suppliers.
Because of our anticipated reliance on outside vendors generally, and on a sole
or a limited group of suppliers in particular, we may be unable to obtain an
adequate supply of required components. Although we currently experience minimal
delays in receiving goods from our suppliers, when demand for semiconductor
equipment is strong, as it was in 2000, our suppliers strained to provide
components on a timely basis.
In addition, during periods of shortages of components, we may have
reduced control over pricing and timely delivery of components. We often quote
prices to our customers and accept customer orders for our products prior to
purchasing components and subassemblies from our suppliers. If our suppliers
increase the cost of components or subassemblies, we may not have alternative
sources of supply and may no longer be able to increase the cost of the system
being evaluated by our customers to cover all or part of the increased cost of
components.
The manufacture of some of these components and subassemblies is an
extremely complex process and requires long lead times. As a result, we have in
the past and we may in the future experience delays or shortages. If we are
unable to obtain adequate and timely deliveries of our required components or
subassemblies, we may have to seek alternative sources of supply or manufacture
such components internally. This could delay our ability to manufacture or
timely ship our systems, causing us to lose sales, incur additional costs, delay
new product introductions, and harm our reputation.
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We Are Highly Dependent on Our Key Personnel to Manage Our Business and Their
Knowledge of Our Business, Management Skills, and Technical Expertise Would Be
Difficult to Replace.
Our success will depend to a large extent upon the efforts and
abilities of our executive officers, our current management and our technical
staff, any of whom would be difficult to replace. In past years have had
significant turnover among our executive officers and key employees, and several
have recently joined us or have assumed new responsibilities at the company. The
addition, reassignment or loss of key employees could limit or delay our ability
to develop new products and adapt existing products to our customers' evolving
requirements and result in lost sales and diversion of management resources.
As a Result of the Industry Downturn, We Have Implemented Restructuring and
Workforce Reductions, Which May Adversely Affect the Morale and Performance of
our Personnel and our Ability to Hire New Personnel.
In connection with our efforts to streamline operations, reduce costs
and bring our staffing and structure in line with current demand for our
products, during 2002 and 2003 we restructured our organization and reduced our
workforce by 257 and 508 positions, respectively. We incurred costs associated
with these workforce reductions, and may incur further costs if additional
restructuring is needed to right size our business further or bring our costs
down to respond to continued industry and economic slowdowns. Our restructuring
may also yield unanticipated consequences, such as attrition beyond our planned
reduction in workforce and loss of employee morale and decreased performance.
The effects of the restructuring may be further exacerbated by our sale of the
Wet Business to SCP, which involved the transfer or termination of employment of
our employees engaged in the Wet Business. In addition, the declines in our
common stock price since mid-2000 have decreased the value of the stock options
we granted to employees pursuant to our stock option plan. As a result of these
factors, our remaining personnel may seek employment with larger, more
established companies or companies they perceive as having less volatile
operations or stock prices. Continuity of personnel can be an important factor
in the successful sales of our products and completion of our development
projects in our ongoing core businesses, and turnover in our sales and research
and development personnel could materially and adversely impact our sales,
development and marketing efforts. We believe that hiring and retaining
qualified individuals at all levels is essential to our success, and there can
be no assurance that we will be successful in attracting and retaining the
necessary personnel.
Because of Competition for Additional Qualified Personnel, We May Not Be Able To
Recruit or Retain Necessary Personnel, Which Could Impede Development or Sales
of Our Products.
Our growth will depend on our ability to attract and retain qualified,
experienced employees. There is substantial competition for experienced
engineering, technical, financial, sales, and marketing personnel in our
industry. In particular, we must attract and retain highly skilled design and
process engineers. Historically, competition for such personnel has been intense
in all of our locations, but particularly in the San Francisco Bay Area where
our headquarters is located. If we are unable to retain existing key personnel,
or attract and retain additional qualified personnel, we may from time to time
experience inadequate levels of staffing to develop and market our products and
perform services for our customers. As a result, our growth could be limited due
to our lack of capacity to develop and market our products to our customers, or
we could fail to meet our delivery commitments or experience deterioration in
service levels or decreased customer satisfaction.
If the current downturn ends suddenly, we may not have enough personnel
to promptly return to our previous production levels. If we are unable to expand
our existing manufacturing capacity to meet demand, a customer's placement of a
large order for our products during a particular period might deter other
customers from placing similar orders with us for the same period. It could be
difficult for us to rapidly recruit and train substantial numbers of qualified
technical personnel to meet increased demand.
We Manufacture Many of Our Products at Two Primary Manufacturing Facilities and
are Thus Subject to Risk of Disruption.
Although we outsource the manufacturing for certain of our products to
third parties, we continue to produce our latest generation products at our two
principal manufacturing plants in Fremont, California and Dornstadt, Germany. We
have limited ability to interchangeably produce our products at either facility,
and in the event of a disruption of operations at one facility, our other
facility would not be able to make up the capacity loss. Our operations are
subject to disruption for a variety of reasons, including, but not limited to
natural disasters, work stoppages, operational facility constraints and
terrorism. Such disruption thus could cause delays in shipments of products to
our customers, result in cancellation of orders or loss of customers and
seriously harm our business.
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If We Are Unable to Protect Our Intellectual Property, We May Lose a Valuable
Asset, Experience Reduced Market Share, and Efforts to Protect Our Intellectual
Property May Require Additional Costly Litigation.
We rely on a combination of patents, copyrights, trademark and trade
secret laws, non-disclosure agreements, and other intellectual property
protection methods to protect our proprietary technology. Despite our efforts to
protect our intellectual property, our competitors may be able to legitimately
ascertain the non-patented proprietary technology embedded in our systems. If
this occurs, we may not be able to prevent the use of such technology. Our means
of protecting our proprietary rights may not be adequate and our patents may not
be sufficiently broad to protect our technology. In addition, any patents owned
by us could be challenged, invalidated, or circumvented and any rights granted
under any patent may not provide adequate protection to us. Furthermore, we may
not have sufficient resources to protect our rights. Our competitors may
independently develop similar technology, duplicate our products, or design
around patents that may be issued to us. In addition, the laws of some foreign
countries may not protect our proprietary rights to as great an extent as do the
laws of the United States and it may be more difficult to monitor the use of our
products in such foreign countries. As a result of these threats to our
proprietary technology, we may have to resort to costly litigation to enforce
our intellectual property rights.
We Might Face Intellectual Property Infringement Claims that May Be Costly to
Resolve and Could Divert Management Attention Including the Potential for Patent
Infringement Litigation.
We may from time to time be subject to claims of infringement of other
parties' proprietary rights. In addition, we on occasion receive notification
from customers who believe that we owe them indemnification or other obligations
related to infringement claims made against the customers by third parties. Our
involvement in any patent dispute or other intellectual property dispute or
action to protect trade secrets, even if the claims are without merit, could be
very expensive to defend and could divert the attention of our management.
Adverse determinations in any litigation could subject us to significant
liabilities to third parties, require us to seek costly licenses from third
parties, and prevent us from manufacturing and selling our products. Royalty or
license agreements, if required, may not be available on terms acceptable to us
or at all. Any of these situations could have a material adverse effect on our
business and operating results in one or more countries.
Our Failure to Comply with Environmental Regulations Could Result in Substantial
Liability.
We are subject to a variety of federal, state, local, and foreign laws,
rules, and regulations relating to environmental protection. These laws, rules,
and regulations govern the use, storage, discharge, and disposal of hazardous
chemicals during manufacturing, research and development and sales
demonstrations. If we fail to comply with present or future regulations, we
could be subject to substantial liability for clean up efforts, personal injury,
and fines or suspension or cessation of our operations. We may be subject to
liability if our acquired companies have past violations. Restrictions on our
ability to expand or continue to operate our present locations could be imposed
upon us or we could be required to acquire costly remediation equipment or incur
other significant expenses.
We Incurred Net Operating Losses for the Fiscal Years 1998, 1999, 2001, 2002 and
2003. We May Not Achieve or Maintain Profitability on an Annual Basis, and If We
Do Not, We May Not Utilize Deferred Tax Assets.
We incurred net losses of approximately $22.4 million for the year
ended December 31, 1998, $0.8 million for the year ended December 31, 1999,
$336.7 million for the year ended December 31, 2001, $94.3 million for the year
ended December 31, 2002 and $28.4 million for the year ended December 31, 2003.
We expect to continue to incur significant research and development and selling,
general and administrative expenses and may not return to profitability in 2003.
We will need to generate significant increases in net sales to achieve and
maintain profitability on an annual basis, and we may not be able to do so. In
addition, our ability to realize our deferred tax assets in future periods will
depend on our ability to achieve and maintain profitability on an annual basis.
Our Quarterly Operating Results Fluctuate Significantly and Are Difficult to
Predict, and May Fall Short of Anticipated Levels, Which Could Cause Our Stock
Price to Decline.
Our quarterly revenue and operating results have varied significantly
in the past and are likely to vary significantly in the future, which makes it
difficult for us to predict our future operating results. This fluctuation is
due to a number of factors, including:
o cyclicality of the semiconductor industry;
o delays, cancellations and push-outs of orders by our customers;
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o delayed product acceptance or payments of invoices by our customers;
o size and timing of sales, shipments and acceptance of our products;
o entry of new competitors into our market, or the announcement of new
products or product enhancements by competitors;
o sudden changes in component prices or availability;
o variability in the mix of products sold;
o manufacturing inefficiencies caused by uneven or unpredictable order
patterns, reducing our gross margins;
o higher fixed costs due to increased levels of research and development
costs; and
o successful expansion of our worldwide sales and marketing
organization.
A substantial percentage of our operating expenses are fixed in the
short term and we may be unable to adjust spending to compensate for an
unexpected shortfall in revenues. As a result, any delay in generating or
recognizing revenues could cause our operating results to be below the
expectations of market analysts or investors, which could cause the price of our
common stock to decline.
The Price of Our Common Stock Has Fluctuated in the Past and May Continue to
Fluctuate Significantly in the Future, Which May Lead to Losses By Investors or
to Securities Litigation.
The market price of our common stock has been highly volatile in the
past, and our stock price may decline in the future. We believe that a number of
factors could cause the price of our common stock to fluctuate, perhaps
substantially, including:
o general conditions in the semiconductor industry or in the worldwide
economy;
o announcements of developments related to our business;
o fluctuations in our operating results and order levels;
o announcements of technological innovations by us or by our
competitors;
o new products or product enhancements by us or by our competitors;
o developments in patent litigation or other intellectual property
rights; or
o developments in our relationships with our customers, distributors,
and suppliers.
In addition, in recent years the stock market in general, and the
market for shares of high technology stocks in particular, have experienced
extreme price fluctuations. These fluctuations have frequently been unrelated to
the operating performance of the affected companies. Such fluctuations could
adversely affect the market price of our common stock. In the past, securities
class action litigation has often been instituted against a company following
periods of volatility in its stock price. This type of litigation, if filed
against us, could result in substantial costs and divert our management's
attention and resources.
Future Sales of Shares by STEAG Could Adversely Affect the Market Price of Our
Common Stock.
There are approximately 49.8 million shares of our common stock
outstanding as of March 2004, of which approximately 8.9 million (or 17.8%) are
held beneficially by STEAG Electronic Systems AG. STEAG may sell these shares in
the public markets from time to time, subject to certain limitations on the
timing, amount and method of such sales imposed by SEC regulations. STEAG has
reduced its ownership in our common stock on February 17, 2004 by selling
approximately 4.1 million shares. We have currently registered approximately 2.9
million additional shares of our common stock for resale by STEAG. STEAG has the
contractual right to require us to register for resale all of the shares they
hold. If STEAG were to sell additional large number of shares, the market price
of our common stock could decline. Moreover, the perception in the public
markets that such sales by STEAG might occur could also adversely affect the
market price of our common stock.
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Any Future Business Acquisitions May Disrupt Our Business, Dilute Stockholder
Value, or Distract Management Attention.
As part of our ongoing business strategy, we may consider additional
acquisitions of, or significant investments in, businesses that offer products,
services, and technologies complementary to our own. Such acquisitions could
materially adversely affect our operating results and/or the price of our common
stock. Acquisitions also entail numerous risks, including:
o difficulty of assimilating the operations, products, and personnel of
the acquired businesses;
o potential disruption of our ongoing business;
o unanticipated costs associated with the acquisition;
o inability of management to manage the financial and strategic position
of acquired or developed products, services, and technologies;
o inability to maintain uniform standards, controls, policies, and
procedures; and
o impairment of relationships with employees and customers that may
occur as a result of integration of the acquired business.
To the extent that shares of our stock or other rights to purchase
stock are issued in connection with any future acquisitions, dilution to our
existing stockholders will result and our earnings per share may suffer. Any
future acquisitions may not generate additional revenue or provide any benefit
to our business, and we may not achieve a satisfactory return on our investment
in any acquired businesses.
Legislative actions, higher insurance cost and potential new accounting
pronouncements are likely to cause our general and administrative expenses to
increase and impact our future financial position and results of operations.
In order to comply with the Sarbanes-Oxley Act of 2002, as well as
changes to listing standards recently adopted by Nasdaq, and proposed accounting
changes by the Securities and Exchange Commission, we will be required to
increase our internal controls, hire additional personnel and additional outside
legal, accounting and advisory services, all of which will cause our general and
administrative costs to increase. Insurers are also likely to increase premiums
as a result of the high claims rates incurred in recent periods, and so our
premiums for our various insurance policies, including our directors' and
officers' insurance policies, are likely to increase. Proposed changes in the
accounting rules, including legislative and other proposals to account for
employee stock options as a compensation expense among others, could materially
increase the expenses that we report under generally accepted accounting
principles and adversely affect our operating results.
We May Need Additional Capital, Which May Not Be Available and Which Could Be
Dilutive to Existing Stockholders.
Based on current projections, we believe that our current cash and
investments along with cash generated through operations will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures for
the next 12 months. Management's projections are based on our ability to manage
inventories and collect accounts receivable balances in this market downturn. If
we are unable to manage our inventories or accounts receivable balances, or if
we otherwise experience higher operating costs or lower revenue than we
anticipate, we may be required to seek alternative sources of financing. We may
need to raise additional funds in future periods through public or private
financing or other sources to fund our operations. We may not be able to obtain
adequate or favorable financing when needed. If we fail to raise capital when
needed, we would be unable to continue operating our business as we plan, or at
all. In addition, we may need to continue reducing costs, which could cause us
to curtail research and development activities, resulting in a delay in new
product introduction or enhancement. If we raise additional funds through the
issuance of equity securities, the percentage ownership of our stockholders
would be reduced. In addition, any future equity securities may have rights,
preferences or privileges senior to our common stock. Furthermore, debt
financing, if available, may involve restrictive covenants on our operations.
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The Effect of Terrorism, the War in Iraq, and Political Instability Could Harm
our Results of Operation.
The threat of terrorism targeted at the regions of the world in which
we do business, including the United States, increases the uncertainty in our
markets and may delay any recovery in the general economy. Any delay in the
recovery of the economy and the semiconductor industry could seriously impact
our business. Increased international political instability, as demonstrated by
the September 2001 terrorist attacks, disruption in air transportation and
further enhanced security measures as a result of the terrorist attacks, and the
effects of war in Iraq, may hinder our ability to do business and may increase
our costs of operations. Such continuing instability could cause us to incur
increased costs in transportation, make such transportation unreliable, increase
our insurance costs, and cause international currency markets to fluctuate. This
same instability could have the same effects on our suppliers and their ability
to timely deliver their products. If this international political instability
continues or increases, our business and results of operations could be harmed.
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