1058289--3/16/2006--LEXAR_MEDIA

related topics

{product, market, service}

{customer, product, revenue}

{property, intellectual, protect}

{stock, price, operating}

{cost, operation, labor}

{control, financial, internal}

{operation, international, foreign}

{gas, price, oil}

{condition, economic, financial}

{financial, litigation, operation}

{system, service, information}

{regulation, change, law}

Failure to complete the merger with Micron could materially and adversely affect our results of operations and our stock price. Stockholder securities lawsuits have been filed against us and our directors challenging the merger, and an unfavorable judgment or ruling in these lawsuits could prevent or delay the consummation of the merger and result in substantial costs to us. We have a history of losses and may not be able to become profitable. Our products are characterized by average selling prices that have historically declined over relatively short time periods and we are currently in a period of very significant price declines. If we are unable to effectively manage our inventories and channel inventories, reduce our costs, introduce new products with higher average selling prices or increase our sales volumes, our revenues and gross margins will be negatively impacted. Because we protect many of our retail customers and distributors against the effects of price decreases on their inventories of our products, we have in the past and may in the future incur large price protection charges if we reduce our prices when there are large quantities of our products in our distribution channel. We have written down and may need to further write-down our inventory if our sales levels do not match our expectations or if selling prices decline more than we anticipate, which could adversely impact our revenues and gross margins. Our operating results and gross margins have fluctuated in the past, may fluctuate significantly in the future and are difficult to predict. If our future results are below the financial guidance provided by us or the expectations of investors or securities analysts, the market price of our common stock could decline significantly. An unfavorable outcome or delays with respect to our on-going litigation could lead to a decline in our stock price and have a negative impact on our ability to increase our licensing revenues. We have changed our pricing strategy to aggressively match our competitors' product price declines, which could result in reductions to our revenues, gross margins and market share. We expect that our controller and other component sales will decline in the first quarter of 2006 and beyond which will cause our revenues, gross margins and results of operations to be negatively impacted. If we are unable to continue to develop, competitively market and successfully sell our JumpDrive portable flash storage product line, our revenues, gross margins and results of operations will be negatively impacted. We depend on a few key customers and the loss of any of them could significantly reduce our revenues. A lack of effective internal control over financial reporting could result in an inability to accurately report our financial results that could lead to a loss of investor confidence in our financial reports and have an adverse effect on our stock price. Our strategic partnership with Kodak and our ongoing relationships with OEM customers pose significant challenges for us, and if we are unable to manage these relationships, our business and operating results will be adversely affected. We are substantially leveraged, which could adversely affect our ability to adjust our business, to develop or enhance our products, expand our operations, respond to competitive pressures or obtain additional financing. We primarily depend upon Samsung for our flash memory. If Samsung is unable to provide us with sufficient quantities of flash memory when we need it at prices and sales terms that allow us to be competitive in the marketplace, if Samsung is unable to remain technologically competitive, or if Samsung were to reduce or eliminate our credit terms, we would not be able to manufacture and deliver digital media to our customers in accordance with their volume, price and schedule requirements, which would have a serious negative impact on our revenues and margins. If we are unable to generate increased revenue from licensing our intellectual property, our gross margins and results of operations would be negatively impacted. We need to improve our operations infrastructure and our supply chain. The solid-state storage market is evolving and we may not have rights to manufacture and sell certain types of flash card formats or we may be forced to pay a royalty to sell digital media in these formats. Future digital media formats may not use our core technology. We market our digital media primarily on the basis of its superior technology. If we are unable to achieve or maintain technological leadership or gain commercial acceptance of the performance and technology advantages of our products, our revenues and gross margins would likely decline significantly. Increased competition in the digital media market may lead to a decrease in our revenues and market share. If we are unable to develop and introduce, on a timely basis, new products or services that are accepted by our customers and consumers, we will not be able to compete effectively in our market. If we are unable to develop or maintain the strategic relationships necessary to develop, sell and market products that are commercially viable and widely accepted, the growth and success of our business may be limited. We rely to a significant degree on retailers to sell our digital media products and our inability to control the activities of such retailers could cause our operating results and gross margins to fluctuate significantly. We depend primarily on United Microelectronics Corporation, or UMC and Silicon Motion, Inc., or SMI, to manufacture our controllers, and if we are unable to obtain from UMC or SMI sufficient quantities of controllers at acceptable quality, yields and prices, and in a timely manner, we may not be able to meet customer demand for our products, which could limit the growth and success of our business. We depend solely on third-party subcontractors for assembly and testing of our digital media products, which could result in product shortages or delays or increase our costs of manufacturing, assembling or testing our products. If our efforts to optimize our supply chain are unsuccessful and we are unable to meet our customers' requirements, our business could be negatively impacted. Our failure to successfully promote our brand and achieve strong brand recognition in target markets could limit or reduce the demand for our products and services. If we encounter difficulties in attracting and retaining qualified personnel, particularly in light of the potential merger with Micron and the resulting uncertainty, we may not be able to successfully execute our business strategy, we may need to grant large stock-based incentives that could be dilutive to our stockholders and we may be required to pay significant salaries which would increase our general and administrative costs. If our products contain defects, we may incur unexpected and significant operating expenses to correct the defects, we may be required to pay damages to third parties and our reputation may suffer serious harm. Our significant sales outside the United States subject us to increasing foreign political and economic risks, including foreign currency fluctuations, and it may be difficult for us to anticipate demand and pricing in those regions or effectively manage the distributor channels and relationships in those regions. If our suppliers or customers elect to compete with us in the digital media market, our revenues and gross margins would likely decline. Our financial results may be affected by mandated changes in accounting and financial reporting. Our stock price and those of other technology companies have experienced extreme price and volume fluctuations, and, accordingly, our stock price may continue to be volatile. Our business will not succeed unless the digital photography market and other markets that continues to grow or unless we diversify our product sales into adjacent markets. General economic conditions, political and military conditions associated with current worldwide conflicts and similar events may prevent consumers from purchasing our products, and reduced demand for digital media and related products may prevent us from achieving targeted revenues and profitability. If digital camera manufacturers do not develop and promote products that are able to take advantage of our fastest digital media products, the growth and success of our business may be limited. The manufacturing of our products is complex and subject to yield problems, which could decrease available supply and increase costs. If we are unable to adequately protect our intellectual property, our competitors may gain access to our technology, which could harm our ability to successfully compete in our market. We are involved in intellectual property litigation, and expect to become involved in additional litigation that could divert management's time and attention, be time-consuming and expensive to defend and limit our access to important technology. We purchase a number of components and products from third parties and if those products were alleged to violate the intellectual property rights of a third party, we could become involved in additional litigation that could be time-consuming and expensive to defend or we could be forced to pay damages or royalties.

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1058289--3/16/2006--LEXAR_MEDIA_INC