926282--3/6/2006--ADTRAN

related topics

{customer, product, revenue}

{product, market, service}

{cost, regulation, environmental}

{personnel, key, retain}

{property, intellectual, protect}

{stock, price, operating}

{operation, international, foreign}

{gas, price, oil}

We must continue to update and improve our products and develop new products in order to compete and to keep pace with improvements in telecommunications technology. We do not engage in long-term research and development processes, and as a consequence may miss certain market opportunities enjoyed by larger companies with substantially greater research and development efforts. We depend heavily on sales to certain customers; the loss of any of these customers would significantly reduce our revenues and net income. Our dependence on subcontractors located in Asia may result in reduced control over product quality, delayed delivery of products, increased materials cost from excess/obsolete material and/or increased manufacturing costs, each of which could negatively affect customer relations and operating results. We compete in markets that have become increasingly competitive, which may result in reduced gross profit margins and market share. Our estimates regarding future warranty obligations may change due to product failure rates, shipment volumes, field service obligations and other rework costs incurred in correcting product failures. If our estimates change, the liability for warranty returns may be increased or decreased, impacting future cost of goods sold. The lengthy approval process required by ILECs and other service providers could result in fluctuations in our revenues. Our dependence on a limited number of suppliers may prevent us from delivering our products on a timely basis, which could have a material adverse effect on customer relations and operating results. Increased sales volume in international markets could result in increased costs or loss of revenue due to factors inherent in these markets. Our success depends on our ability to reduce the selling prices of succeeding generations of our products. Our failure to maintain rights to intellectual property used in our business could adversely affect the development, functionality, and commercial value of our products. Consolidation and deterioration in the competitive service provider market could result in a significant decrease in our revenue. Our success depends on attracting and retaining key personnel. The price of our common stock has been volatile and may continue to fluctuate significantly.

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926282--3/6/2006--ADTRAN_INC