1120914--3/16/2006--PDF_SOLUTIONS

related topics

{customer, product, revenue}

{acquisition, growth, future}

{control, financial, internal}

{product, market, service}

{system, service, information}

{property, intellectual, protect}

{personnel, key, retain}

{condition, economic, financial}

{operation, international, foreign}

{regulation, change, law}

{loss, insurance, financial}

We generate a large percentage of our total revenue from a limited number of customers, so the loss of any one of these customers could significantly reduce our revenue and results of operations below expectations. We must effectively manage and support our operations and recent and planned growth in order for our business strategy to succeed. If we fail to protect our intellectual property rights, customers or potential competitors may be able to use our technologies to develop their own solutions which could weaken our competitive position, reduce our revenue, or increase our costs. Competition in the market for solutions that address yield improvement and integration between IC design and manufacturing may intensify in the future, which could slow our ability to grow or execute our strategy. We face operational and financial risks associated with international operations. Our earnings per share and other key operating results may be unusually high in a given quarter, thereby raising investors expectations, and then unusually low in the next quarter, thereby disappointing investors, which could cause our stock price to drop. Our gain share revenue is dependent on factors outside of our control, including the volume of integrated circuits, or ICs, our customers are able to sell to their customers. Gain share measurement requires data collection and is subject to customer agreement, which can result in uncertainty and cause quarterly results to fluctuate. Changes in the structure of our customer contracts, including the mix between fixed and variable revenue and the mix of elements, can adversely affect the size and timing of our total revenue. It typically takes us a long time to sell our unique solutions to new customers, which can result in uncertainty and delays in generating additional revenue. We have a history of losses, we may incur losses in the future and we may be unable to maintain profitability. The semiconductor industry is cyclical in nature. We must continually attract and retain highly talented executives, engineers, and research and development personnel or we will be unable to expand our business as planned. If our products, technologies, services, and integrated solutions fail to keep pace with the rapid technological changes in the semiconductor industry, we could lose customers and revenue. We intend to pursue additional strategic relationships, which are necessary to maximize our growth, but could substantially divert management attention and resources. Our solution implementations may take longer than we anticipate, which could cause us to lose customers and may result in adjustments to our operating results. Key executives, including our chief executive officer and our chief strategy officer, are critical to our business and we cannot guarantee that they will remain with us indefinitely. Inadvertent disclosure of our customers confidential information could result in costly litigation and cause us to lose existing and potential customers. Our technologies could infringe the intellectual property rights of others causing costly litigation and the loss of significant rights. Defects in our proprietary technologies, hardware and software tools, and the cost of support to remedy any such defects could decrease our revenue and our competitive market share. We may have difficulty maintaining the effectiveness of our internal control over financial reporting. Change in stock option accounting rules may harm our reported operating results prepared in accordance with generally accepted accounting principles, our stock price, and our competitiveness in the employee marketplace. Worldwide events may reduce our revenues and harm our business. We may not be able to expand our proprietary technologies if we do not consummate potential acquisitions or investments or successfully integrate them with our business. We may not be able to raise necessary funds to support our growth or execute our strategy.

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1120914--3/16/2006--PDF_SOLUTIONS_INC