1076930--3/14/2006--GSI_GROUP

related topics

{customer, product, revenue}

{condition, economic, financial}

{product, market, service}

{operation, international, foreign}

{acquisition, growth, future}

{personnel, key, retain}

{property, intellectual, protect}

{control, financial, internal}

{system, service, information}

{regulation, change, law}

{cost, regulation, environmental}

{cost, operation, labor}

{tax, income, asset}

{gas, price, oil}

A halt in economic growth or a slowdown will put pressure on our ability to meet anticipated revenue levels. We have a history of operating losses and may not be able to sustain or grow the current level of profitability. Our inability to remain profitable may result in the loss of significant deferred tax assets. Our business depends significantly upon capital expenditures, including those by manufacturers in the semiconductor, electronics, machine tool and automotive industries, each of which are subject to cyclical fluctuations. The cyclical variations in these industries have the most pronounced effect on our Laser Systems Group, due in large measure to that segment s historical focus on the semiconductor and electronics industries and our need to support and maintain a comparatively larger global infrastructure (and, therefore, lesser ability to reduce fixed costs) in that segment than in our other segments. The success of our business is dependent upon our ability to respond to fluctuations in demand for our products. During a period of increasing demand and rapid growth, we must be able to increase manufacturing capacity quickly to meet customer demand and hire and assimilate a sufficient number of qualified personnel. Fluctuations in our customers businesses, timing and recognition of revenues from customer orders and other factors beyond our control may cause our results of operations quarter over quarter to fluctuate, perhaps substantially. Our reliance upon third party distribution channels subjects us to credit, inventory, business concentration and business failure risks beyond our control. The steps we take to protect our intellectual property may not be adequate to prevent misappropriation or the development of competitive technologies or products by others that could harm our competitive position and materially adversely affect our results of operations. Our success depends upon our ability to protect our intellectual property and to successfully defend against claims of infringement by third parties. The industries in which we operate are highly competitive and competition in our markets could intensify, or our technological advantages may be reduced or lost, as a result of technological advances by our competitors. Our operations in foreign countries subject us to risks not faced by companies operating exclusively in the United States. We may not be able to find suitable targets or consummate acquisitions in the future, and there can be no assurance that the acquisitions we have made and do in the future make will provide expected benefits. Should we acquire another business, the process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties or additional expenses and may require the allocation of significant financial or other resources such as personnel and management that would otherwise be available for the ongoing development or expansion of our existing business. Our operations could be negatively affected if we lose key executives or employees or are unable to attract and retain skilled executives and employees as needed. Decreased effectiveness of equity compensation could adversely affect our ability to attract and retain employees. Changes in accounting for equity compensation could adversely affect earnings. Integrating acquisitions into our enterprise resource planning (ERP) system could have a material adverse effect on our business. Failure to achieve and maintain effective internal controls could have a material adverse effect on our business, operating results and stock price. We may not develop, introduce or manage the transition to new products as successfully as our competitors. Delays or deficiencies in research, development, manufacturing, delivery of or demand for new products or of higher cost targets could have a negative impact on our business, operating results or financial condition. Defects in our products or problems arising from the use of our products together with other vendors products may seriously harm our business and reputation. We depend on limited source suppliers that could cause substantial manufacturing delays and additional cost if a disruption in supply occurs. Each of our suppliers can be replaced, either by contracting with another supplier or through internal production of the part or parts previously purchased in the market, but no assurances can be given that we would be able to do so quickly enough to avoid an interruption or delay in delivery of our products to our customers and any associated harm to our reputation and customer relationships. Economic, political or trade problems with foreign countries could negatively impact our business. Production difficulties and product delivery delays could materially adversely affect our business, operating results or financial condition. If the political conditions globally do not improve or if the economic turnaround is not sustained, we may experience material adverse impacts on our business, operating results and financial condition. Increased governmental regulation of our business could materially adversely affect our business, operating results and financial condition. Changes in governmental regulations may reduce demand for our products or increase our expenses.

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1076930--3/14/2006--GSI_GROUP_INC