800460--6/12/2007--CALIFORNIA_MICRO_DEVICES

related topics

{customer, product, revenue}

{product, market, service}

{control, financial, internal}

{property, intellectual, protect}

{regulation, change, law}

{operation, natural, condition}

{operation, international, foreign}

{cost, operation, labor}

{stock, price, operating}

{acquisition, growth, future}

{product, liability, claim}

{cost, contract, operation}

{tax, income, asset}

{personnel, key, retain}

{provision, law, control}

{gas, price, oil}

{stock, price, share}

{cost, regulation, environmental}

{financial, litigation, operation}

{condition, economic, financial}

{product, candidate, development}

Our operating results may fluctuate significantly because of a number of factors, many of which are beyond our control and are difficult to predict. These fluctuations may cause our stock price to decline. We were almost breakeven in fiscal 2007, incurring quarterly losses in the first and fourth quarters and being profitable in the second and third quarters. We may not be able to attain or sustain profitability in the future. We currently rely heavily upon a few customers for a large percentage of our net sales. Our revenue would suffer materially were we to lose any one of these customers or lose market share. We currently rely heavily upon a few target markets for the bulk of our sales. If we are unable to further penetrate the mobile handset, digital consumer electronics and personal computer markets, our revenues could stop growing and might decline leading us to reduce our investment in research and development and marketing. We currently depend almost exclusively on our circuit protection devices for all of our revenue. Should the need for such devices decline, for example because of changes in input and output circuitry, our revenues could stop growing and might decline. The fastest growing market for our products has been the mobile handset market. A slowdown in the adoption of protection devices by mobile handset manufacturers would reduce our future growth in that market. The markets in which we participate are intensely competitive and our products are not sold pursuant to long term contracts, enabling our customers to replace us with our competitors if they choose. One of our competitive advantages for our mobile handset protection devices may be lessening as some of our customers choose to use package devices rather than CSP. This could lead to our customers purchasing products from our competitors rather than us or to our having to reduce prices, thereby decreasing our revenues. We determined that we had material weaknesses in our internal control over financial reporting as of March 31, 2005, one of which was still continuing as of December 31, 2005. As a result, we had to implement supplemental compensating procedures to determine that our financial statements are reliable. These material weaknesses, and any future adjustment to our financial statements which may result from them, could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price. Deficiencies in our internal controls could cause us to have material errors in our financial statements, which could require us to restate them. Such restatement could have adverse consequences on our stock price, potentially limiting our access to financial markets. Our competitors have in the past and may in the future reverse engineer our most successful products and become second sources for our customers, which could decrease our revenues and gross margins. In the future our revenues will become increasingly subject to macroeconomic cycles and more likely to decline if there is an economic downturn. Our reliance on foreign customers could cause fluctuations in our operating results. If our distributors experience financial difficulty and become unable to pay us or choose not to promote our products, our business could be harmed. Our dependence on a limited number of foundry partners and CSP ball drop contractors, and the limited capacity for plastic assembly and test subcontractors, exposes us to a risk of manufacturing disruption or uncontrolled price changes. We have outsourced our wafer fabrication, and assembly and test operations and may encounter difficulties in expanding our capacity. Our reliance upon foreign suppliers exposes us to risks associated with international operations. We have consigned substantial equipment at our foreign subcontractors in order to obtain price concessions. We are at risk for this equipment should the foreign subcontractor go out of business. Our markets are subject to rapid technological change. Therefore, our success depends on our ability to develop and introduce new products. It is possible that a significant portion our research and development expenditures will not yield products with meaningful future revenue. We may be unable to reduce the costs associated with our products quickly enough for us to meet our margin targets or to retain market share. Our future success depends in part on the continued service of our key engineering and management personnel and our ability to identify, hire and retain additional personnel. In the finance area, we have had significant recent turnover and lack of continuity which could be detrimental in the short-term to our business decision-making capability and to consistency in our financial reporting. We are dependent upon retaining key employees of recently acquired Arques Technology in order to realize many of the hoped-for benefits of the acquisition. We may not be successful in selling white LED driver products which were designed by Arques Technology or which we subsequently develop based on their technology. This would reduce incremental income we are planning to obtain. When we acquired Arques Technology, Inc. in April, 2006, we recorded approximately $5.3 million as goodwill on our balance sheet. We may incur an impairment charge to the extent we determine that we no longer have substantial goodwill as an enterprise. Due to the volatility of demand for our products, our inventory may from time to time be in excess of our needs, which could cause write downs of our inventory or of inventory held by our distributors. Our design wins may not result in customer products utilizing our devices and our backlog may not result in future shipments of our devices. During a typical quarter, a substantial portion of our shipments are not in our backlog at the start of the quarter, which limits our ability to forecast in the near term. The majority of our operating expenses cannot be reduced quickly in response to revenue shortfalls without impairing our ability to effectively conduct business. We may not be able to protect our intellectual property rights adequately. We could be harmed by litigation involving patents and other intellectual property rights. By supplying parts in the past which were used in medical devices that help sustain human life, we are vulnerable to product liability claims. Our failure to comply with environmental regulations could result in substantial liability to us. Earthquakes, other natural disasters and shortages may damage our business. Future terrorist activity, or threat of such activity, could adversely impact our business. Implementation of the new FASB rules for the accounting of employee equity and the issuance of new laws or other accounting regulations, or reinterpretation of existing laws or regulations, could materially impact our business or stated results. Our stock price may continue to be volatile, and our trading volume may continue to be relatively low and limit liquidity and market efficiency. Should significant shareholders desire to sell their shares within a short period of time, our stock price could decline. Our shareholder rights plan, together with the anti-takeover provisions of our certificate of incorporation, may delay, defer or prevent a change of control. We will incur increased costs as a result of recently enacted and proposed changes in laws and regulations relating to corporate governance matters and public disclosure. Our acquisition of Arques Technology and any future acquisitions and strategic alliances may harm our operating results or cause us to incur debt or assume contingent liabilities. A decline in our stock price could result in securities class action litigation against us which could divert management attention and harm our business.

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800460--6/12/2007--CALIFORNIA_MICRO_DEVICES_CORP