709804--6/14/2006--ADAPTEC

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The impact of ongoing contract negotiations with our large OEM customers, industry technology transitions and market acceptance of our new products could cause our quarterly revenues to continue to decline. We depend on contract manufacturers and subcontractors, and if they fail to meet our manufacturing needs, it could delay shipments of our products and result in the loss of customers. Actions that we have taken and the actions that we are considering could adversely affect our business and financial results in the short-term, and may not have the long-term beneficial results that we intend. If we are unable to successfully complete the divestiture of our systems business it could result in an adverse effect on our business and financial results. Our operating results have fluctuated in the past, and are likely to continue to fluctuate, and if our future results are below the expectations of investors or securities analysts, the market price of our common stock would likely decline significantly. Our operating results may be adversely affected by unfavorable economic and market conditions and the uncertain geopolitical environment. Because our sales are made by means of standard purchase orders rather than long-term contracts, if demand for our customers' products declines or if our customers do not control their inventories effectively, they may cancel or reschedule shipments previously ordered from us or reduce their levels of purchases from us. We depend on a few key customers and the loss of any of them could significantly reduce our revenues. If there is a shortage of components used in our customers' products, our sales may decline, which could adversely affect our results of operations and financial position. We may be subject to a higher effective tax rate that could negatively affect our results of operations and financial position. Our dependence on new products may cause our net revenues to fluctuate or decline. Our reliance on industry standards and technological changes in the marketplace may cause our net revenues to fluctuate or decline. If we lose the cooperation of other hardware and software producers whose products are integral to ours, our ability to sustain or grow our revenues could be adversely affected. We are subject to various environmental laws and regulations that could impose substantial costs upon us and may adversely affect our business. We entered into strategic alliances with Vitesse for the development of our Serial Attached SCSI ROC product and with ServerEngines to advance our development of iSCSI products, and if these companies fail to develop and bring new products to market in a timely manner, it could result in an adverse effect on our business and financial results. If we do not provide adequate support during our customers' design and development stage, or if we are unable to provide such support in a timely manner, we may lose revenues to our competitors. If we are unable to compete effectively, our net revenues could be adversely affected. As part of our overall strategy we may make acquisitions and enter into strategic alliances. Costs associated with these acquisitions or strategic alliances may adversely affect our results of operations, which could be exacerbated if we are unable to integrate the acquired companies, products or technologies. Product quality problems could lead to reduced revenues and gross margins. We currently purchase all of the finished production silicon wafers used in our products from wafer suppliers, and if they fail to meet our manufacturing needs, it would delay our production and our product shipments to customers and negatively affect our operations. We depend on the efforts of our distributors, which if reduced, could result in a loss of sales of our products in favor of competitive offerings. If we do not meet our restructuring objectives, we may have to implement additional plans in order to reduce our operating costs and may, as a result, incur additional material restructuring charges. Some of our products contain "open source" software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business. Our operations depend on key personnel, the loss of whom could affect the growth and success of our business. Our international operations involve risks, and may be subject to political or other non-economic barriers to our being able to sell our products in certain countries, local economic conditions that reduce demand for our products among our target markets and potential disruption in the supply of necessary components. We depend on third parties to transport our products. If the carrying value of our long-lived assets is not recoverable, an impairment loss must be recognized which would adversely affect our financial results. If actual results or events differ materially from those contemplated by us in making estimates and assumptions, our reported financial condition and results of operations for future periods could be materially affected. If we are unable to protect and enforce our intellectual property rights, we may be unable to compete effectively. Third parties may assert infringement claims against us, which may be expensive to defend and could divert our resources. We may be required to pay additional federal income taxes which could negatively affect our results of operations and financial position. We may be engaged in legal proceedings that could cause us to incur unforeseen expenses and could occupy a significant amount of our management's time and attention. We have in the past financed a portion of our capital expenditure needs from capital market financing, and if we need to seek additional financing, it may not be available on favorable terms. We are exposed to fluctuations in foreign currency exchange rates. We hold minority interests in privately held venture funds, and if these venture funds face financial difficulties in their operations, our investments could be impaired. Our spin-off of Roxio Inc., which is now known as Napster Inc., may have potential subsequent tax liabilities that could negatively affect our results of operations. Changes in securities laws and regulations have increased and may continue to increase our costs. Internal control deficiencies or weaknesses that are not yet identified could emerge. Internal control issues that appear minor now may later become material weaknesses. We may encounter natural disasters, which could cause disruption to our employees or interrupt the manufacturing process for our products. Manmade problems such as computer viruses or terrorism may disrupt our operations and harm our operating results. We may experience significant fluctuations in our stock price, which may, in turn, significantly affect the trading price of our convertible notes.

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709804--6/14/2006--ADAPTEC_INC