1043639--2/24/2006--SIGMATEL

related topics

{customer, product, revenue}

{product, market, service}

{property, intellectual, protect}

{acquisition, growth, future}

{control, financial, internal}

{operation, international, foreign}

{system, service, information}

{stock, price, operating}

{regulation, change, law}

{competitive, industry, competition}

{product, liability, claim}

{operation, natural, condition}

{personnel, key, retain}

Our limited history of sales of our key products makes it difficult to evaluate our prospects. We do not expect to sustain our recent growth rate. We have incurred losses in prior periods and may incur losses in the future. We depend on a few key customers for a substantial majority of our sales and the loss of, or a significant reduction in orders from, any of them would likely significantly reduce our revenues. We rely on a small number of distributors to market and distribute our products, and if we fail to maintain or expand these sales channels, our revenues would likely decline. Our business is highly dependent on the consumer electronics market, which is characterized by short product life cycles, fluctuations in demand and seasonality, and subject to risks related to product transitions and supply of other components. China, Taiwan and Singapore, where we have significant sales, could experience a slowing in economic growth, which may reduce our expected revenues if the slowing continues. Because of the lengthy sales cycles for our products and the fixed nature of a significant portion of our expenses, we may incur substantial expenses before we earn associated revenues and may not ultimately achieve our forecasted sales for our products. We derive a substantial portion of our revenues from our portable multimedia SoCs, the selling prices of our products tend to decline over time, and if we are unable to develop successful new products in a timely manner, our operating results and competitive position could be harmed. We rely on third-party contractors to manufacture, assemble and test our products and our failure to successfully manage our relationships with these contractors could damage our relationships with our customers, decrease our sales, and limit our growth. Because future foundry capacity may be limited and because we do not have long-term agreements with our foundries, we may not be able to secure adequate manufacturing capacity to satisfy the demand for our products. If our foundries do not achieve satisfactory yields or quality, our sales could decrease, and our relationships with our customers and our reputation may be harmed. We often build our products based on forecasts provided by customers before receiving purchase orders for the products and may therefore incur product shortages or excess product inventory. Our third-party foundries, other subcontractors and many of our customers and end customers are located in the Pacific Rim, an area subject to significant earthquake risk and adverse consequences related to the outbreak of bird flu, SARS, other public health concerns and other factors that could negatively impact our third-party foundries or customers. Our recent expansion, including recent acquisitions, has placed a significant strain on our management, personnel, systems and resources, and the continued success of our business depends on our ability to successfully manage any future expansion. We may experience significant period-to-period quarterly and annual fluctuations in our revenues and operating results, which may result in volatility in our stock price. The average selling prices of our products could continue to decrease rapidly which may negatively impact our revenues and gross profits. We are subject to the highly cyclical nature of the semiconductor industry. Because the markets in which we compete are highly competitive and many of our competitors have greater resources than us, we cannot be certain that our products will compete favorably in the marketplace. We depend on our key personnel to manage our business effectively, and if we are unable to retain our current personnel and hire additional personnel, our ability to develop and successfully market our products could be harmed. Our products are complex and may require modifications to resolve undetected errors or failures in our hardware and software, which could lead to an increase in our costs, a loss of customers or a delay in market acceptance of our products. We may experience difficulties in transitioning to smaller geometry process technologies or in achieving higher levels of design integration, which may result in reduced manufacturing yields, delays in product deliveries and increased expenses. We have substantial international activities, which expose us to additional business risks including increased logistical complexity and political instability. We may be unable to effectively protect our intellectual property, which would negatively affect our ability to compete. Significant litigation over intellectual property in our industry may cause us to become involved in costly and lengthy litigation, which could subject us to liability, require us to stop selling our products or force us to redesign our products. Our intellectual property indemnification practices may adversely impact our business. Acquisitions we have made or may make in the future could disrupt our ongoing business and may harm our financial condition or present risks not contemplated at the time of the transaction. The industry standards supported by our products are continually evolving, and our success depends on our ability to adapt our products to meet these changing industry standards. The emergence of alternative models for downloading digital music content may impact our business in ways we cannot anticipate. If securities or industry analysts do not continue to publish research or reports about our business, our stock price and trading volume could decline. Our products may be found to be defective, product liability claims may be asserted against us and we may not have sufficient liability insurance. Changes to financial accounting standards may affect our results of operations and cause us to change our business practices. Being a public company increases our administrative costs. If our internal controls over financial reporting do not comply with the requirements of the Sarbanes-Oxley Act, our business and stock price could be adversely affected.

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1043639--2/24/2006--SIGMATEL_INC