880446--12/14/2009--VITESSE_SEMICONDUCTOR

related topics

{customer, product, revenue}

{product, market, service}

{stock, price, share}

{control, financial, internal}

{property, intellectual, protect}

{personnel, key, retain}

{condition, economic, financial}

{system, service, information}

{cost, regulation, environmental}

{operation, international, foreign}

{financial, litigation, operation}

{capital, credit, financial}

Risks Relating to Our Liquidity and Financing Arrangements We could incur significant interest penalties and cash demands associated with our 8.0% Convertible Second Lien Debentures Due 2014 which could cause us to file for bankruptcy if our shareholders do not approve an increase in our authorized shares. Our shareholders holding shares purchased prior to October 30, 2009 will experience significant dilution in connection with the conversion of our Series B Preferred Stock and our 8.0% Convertible Second Lien Debentures Due 2014. Risks Relating to Our Business We have experienced losses from operations and we anticipate future losses from operations. If we are unable to accurately predict our future sales and to appropriately budget for our expenses, our operating results could suffer. Our operating results may be adversely impacted by worldwide political and economic uncertainties and specific conditions in the markets we address, including the cyclical nature of and volatility in the semiconductor industry. As a result, the market price of our common stock may decline. The short life cycles of some of our products may leave us with obsolete or excess inventories, which could have an adverse impact on our operating profit and net income. We have limited control over the indirect channels of distribution we utilize, which makes it difficult to accurately forecast orders and could result in the loss of certain sales opportunities. Order or shipment cancellations or deferrals could cause our revenue to decline or fluctuate. Our international sales and operations subject us to risks that could adversely affect our revenue and operating results. If we are unable to develop and introduce new products successfully or to achieve market acceptance of our new products, our revenues, and operating income will be adversely affected. Demand for our products may be negatively affected if our expectations regarding market demand for particular products are not accurate. We are dependent on a small number of customers in a few industries for a significant amount of net revenues. A decrease in sales to or the loss of, one or more significant customers could adversely impact our revenues and results of operations. Defects, errors, or failures in our products could result in higher costs than we expect and could harm our reputation and adversely affect our revenues and level of customer satisfaction. We depend on third-party wafer foundries and other suppliers and subcontract manufacturers to manufacture substantially all of our current products and any delays in materials, packaging, or manufacturing capacity or failure to meet quality control requirements could have material adverse effects on our customer relationships, revenues, and cash flows. If we do not achieve satisfactory manufacturing yields or quality, our business will be harmed because of increases in our business expenses. We must attract and retain key employees in a highly competitive environment. We face significant emerging and existing competition and, therefore, may not be able to maintain our market share or may be negatively impacted by competitive pricing practices. We must keep pace with rapid technological change and evolving industry standards in order to grow our revenues and our business. Our business is subject to environmental regulations that could increase our operating expenses. If we are not successful in protecting our intellectual property rights, it may harm our ability to compete or maintain market share. We may be subject to claims of infringement of third-party intellectual property rights or demands that we license third-party technology, which could result in significant expense and loss of our proprietary rights. Risks Relating to our Current and Prior Financial Statements and Related Matters Since 2006, we have had material weaknesses in our internal control over financial reporting and cannot provide assurance that additional material weaknesses will not be identified in the future. If our internal control over financial reporting or disclosure control and procedures are not effective, there may be errors in our financial statements that could require a restatement or our filings may not be timely and investors may lose confidence in our reported financial information, which could lead to a decline in our stock price. The market price for our common stock has been volatile due, in part, to our delisting from the NASDAQ National Market in June 2006 and future volatility could cause the value of investments in our Company to fluctuate.

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880446--12/14/2009--VITESSE_SEMICONDUCTOR_CORP