1219210--3/7/2007--IKANOS

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{customer, product, revenue}

{product, market, service}

{stock, price, operating}

{property, intellectual, protect}

{operation, international, foreign}

{control, financial, internal}

{system, service, information}

{stock, price, share}

{personnel, key, retain}

{cost, operation, labor}

{provision, law, control}

{financial, litigation, operation}

{condition, economic, financial}

{acquisition, growth, future}

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{cost, regulation, environmental}

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{tax, income, asset}

Risks Related to Our Business We have a limited operating history, and our quarterly operating results have fluctuated significantly and may do so again. As a result, we may fail to meet or exceed our forecasts or the expectations of securities analysts or investors, which could cause our stock price to decline. In recent quarters, we have experienced significant fluctuations in our revenue, and revenue and operating results are likely to continue to be volatile in future periods. We have a history of losses, and future losses may cause the market price of our common stock to decline. We may not be able to generate sufficient revenue in the future to achieve or sustain profitability. If demand for our semiconductors declines or does not grow, we will be unable to increase or sustain our revenue; and our operating results will be harmed. Changes in current or future laws or regulations or the imposition of new laws or regulations by federal or state agencies or foreign governments could impede the sale of our products or otherwise harm our business. The average selling prices of our products are subject to rapid declines, which may harm our revenue and profitability. Our product mix is subject to frequent and unexpected changes, which may impact our revenue and margin. (We define margin as revenue minus cost of revenue divided by revenue.) Because we depend on a few significant customers for a substantial portion of our revenue, the loss of any of our key customers, our inability to continue to sell existing and new products to our key customers in significant quantities or our failure to attract new significant customers could adversely impact our revenue and harm our business. We may be unable to attract a new CEO in a timely manner; and we may be unable to attract, retain and motivate key senior management and technical personnel, which could harm our development of technology and ability to be competitive. Because of the rapid technological development in our industry and the intense competition we face, our products tend to become outmoded or obsolete in a relatively short period of time, which requires us to provide frequent updates and/or replacements to existing products. If we do not successfully manage the transition process to next generation semiconductor products, our operating results may be harmed. Our products include a significant amount of firmware. If we are unable to deliver the firmware in a timely manner, we may have to delay revenue recognition at the end of a quarter, which could lead to significant unplanned fluctuations in our quarterly revenue. As a result, we may fail to meet or exceed our forecasts or the expectations of securities analysts or investors, which could cause our stock price to decline. We completed the NPA acquisition in February 2006, and if we are not successful in integrating the technology and retaining employees from the acquisition into our existing business, then our operating results may be adversely impacted. We may rely on one wafer foundry and one assembly and test subcontractor to manufacture, package and test many of our products, and our failure to secure and maintain sufficient capacity with these subcontractors could impair our relationships with customers and decrease sales, which would negatively impact our market share and operating results. In the event we seek to use new wafer foundries to manufacture a portion of our semiconductor products, we may not be able to bring the new foundries on-line rapidly enough and may not achieve the anticipated cost reductions. If our subcontractors manufacturing facilities do not achieve satisfactory quality or yields, our relationships with our customers and our reputation will be harmed, our revenue and operating results could decline, and our cost of revenue as a percentage of revenue could increase. We base orders for inventory on our forecasts of our OEM customers demand and if our forecasts are inaccurate, our financial condition and liquidity would suffer. To remain competitive, we need to continue to reduce the cost of our semiconductor chips, which includes migrating to smaller geometrical process, and our failure to do so may harm our business. We face intense competition in the semiconductor industry and the broadband communications markets, which could reduce our market share and negatively impact our revenue. Other data transmission technologies and network processing technologies may compete effectively with the carrier services addressed by our products, which could adversely affect our revenue and business. If we are unable to develop, introduce or to achieve market acceptance of our new semiconductor products, our operating results would be adversely affected. Our success is dependent upon achieving design wins into commercially successful OEM systems. Acquisitions, strategic partnerships, joint ventures or investments may impair our capital and equity resources, divert our management s attention or otherwise negatively impact our operating results. Recent reductions in force could interfere with our ability to achieve our business objectives. We rely on third-party sales representatives to assist in selling our products, and the failure of these representatives to perform as expected could reduce our future sales. Rapidly changing standards and regulations could make our products obsolete, which would cause our revenue and operating results to suffer. If we fail to secure or protect our intellectual property rights, competitors may be able to use our technologies, which could weaken our competitive position, reduce our revenue or increase our cost. Third-party claims of infringement or other claims against us could adversely affect our ability to market our products, require us to redesign our products or seek licenses from third parties, and harm our business. In addition, any litigation required to defend such claims could result in significant expenses and diversion of our resources. Any potential dispute involving our patents or other intellectual property could also include our manufacturing subcontractors and OEM customers and/or carriers using our products, which could trigger our indemnification obligations to them and result in substantial expense to us. Our products typically have lengthy sales cycles, which may cause our operating results to fluctuate and result in volatility in the price of our common stock. An OEM customer or a carrier may decide to cancel or change its product plans, which could cause us to lose anticipated sales. Significant fluctuations or a slowdown in deployment of fiber extension over copper and broadband over copper in Asia would adversely affect our operating results. We have historically derived a substantial amount of our revenue from Asia; and with the NPA acquisition, a majority of our network processing revenue comes from a single customer in Europe. If we fail to diversify the geographic sources and customer base of our revenue in the future, our operating results could be harmed. The complexity of our products could result in unforeseen delays or expenses and in undetected defects or bugs, which could damage our reputation with current or prospective customers and adversely affect the market acceptance of new products. Recent changes to environmental laws and regulations applicable to manufacturers of electrical and electronic equipment are causing us to redesign our products, and may result in increases to our costs and greater exposure to liability. When demand for manufacturing capacity is high, we may take various actions to try to secure sufficient capacity, which may be costly and negatively impact our operating results. We rely on third-party technologies for the development of our products; and our inability to use such technologies in the future would harm our ability to remain competitive. We have incurred, and expect to continue to incur, increased costs as a result of being a public company. Compliance with the requirements imposed by Section 404 of the Sarbanes-Oxley Act could harm our operating results, our ability to operate our business and our investors view of us. We need to attract and retain key employees in our finance and operation departments. If we fail to do so, our ability to meet reporting and compliance regulations could be affected. Due to the cyclical nature of the semiconductor and telecommunications industries, our operating results may fluctuate significantly, which could adversely affect the market price of our common stock. We are highly dependent on manufacturing, development and sales activities outside of the United States; and as our international manufacturing, development and sales operations expand, we will be increasingly exposed to various legal, business, political and economic risks associated with our international operations. Fluctuations in exchange rates between and among the Japanese yen, the Korean won, the Indian rupee, the U.S. dollar, the Canadian dollar and the Euro, as well as other currencies in which we do business, may adversely affect our operating results. Several of the facilities that manufacture our products, most of our OEM customers and the carriers they serve, and our California facility are located in regions that are subject to earthquakes and other natural disasters. Changes in our tax rates could affect our future results. Risks Related to Our Common Stock Our stock price has been and may continue to be volatile, and you may not be able to resell shares of our common stock at or above the price you paid, or at all. The pending class action litigation could cause us to incur substantial costs and divert our management s attention and resources. If securities or industry analysts do not continue to publish research or reports about our business, or if they issue an adverse opinion regarding our stock, our stock price and trading volume could decline. Substantial future sales of our common stock in the public market could cause our stock price to fall. Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.

Full 10-K form ▸

1219210--3/7/2007--IKANOS_COMMUNICATIONS