| CalAmp Corp |
| ITEM 1A RISK FACTORS The following list describes several risk factors which are unique to our Company: The Company is dependent on its significant customers, the loss of any of which could have a material adverse effect on the Companyapstas future sales and its ability to sustain its growth |
| The Companyapstas top two customers, Echostar and DirecTV, accounted for 55dtta5prca and 13dtta7prca, respectively, of the Companyapstas total net sales for fiscal 2006 |
| Echostar and DirecTV in the aggregate accounted for 60dtta5prca of CalAmpapstas total net sales for fiscal 2005 and 62dtta3prca of its total net sales for fiscal 2004 |
| The loss of either Echostar or DirecTV as a customer, a deterioration in the overall business of either of them, or a decrease in the volume of sales by either of them, could result in decreased sales and could have a material adverse impact on CalAmpapstas ability to sustain its growth |
| A substantial decrease or interruption in business from any of the Companyapstas significant customers could result in write-offs or in the loss of future business and could have a material adverse effect on the Companyapstas business, financial condition or results of operations |
| We do not currently have long-term contracts with customers and our customers may cease purchasing products at any time, which could significantly harm our revenues |
| We generally do not have long-term contracts with our customers |
| As a result, our agreements with our customers do not currently provide us with any assurance of future sales |
| These customers can cease purchasing products from us at any time without penalty, they are free to purchase products from our competitors, they may expose us to competitive price pressure on each order and they are not required to make minimum purchases |
| Because the markets in which we compete are highly competitive and many of our competitors have greater resources than us, we cannot be certain that our products will continue to be accepted in the marketplace or capture increased market share |
| The market for DBS products and other wireless products is intensely competitive and characterized by rapid technological change, evolving standards, short product life cycles, and price erosion |
| We expect competition to intensify as our competitors expand their product offerings and new competitors enter the market |
| Given the highly competitive environment in which we operate, we cannot be sure that any competitive advantages currently enjoyed by our products will be sufficient to establish and sustain our products in the market |
| Any increase in price or other competition could result in erosion of our market share, to the extent we have obtained market share, and would have a negative impact on our financial condition and results of operations |
| We cannot provide assurance that we will have the financial resources, technical expertise or marketing and support capabilities to compete successfully |
| Information about the Companyapstas competitors is included in Part I, Item 1 of this Annual Report on Form 10-K under the heading "e COMPETITION "e |
| Multiple factors beyond the Companyapstas control may cause fluctuations in our operating results and may cause our business to suffer |
| The revenues and results of our operations may fluctuate significantly, depending on a variety of factors, including the following: * our dependence on a few major customers in our satellite products business that currently account for a substantial majority of our overall sales; * the introduction of new products and services by competitors; and * seasonality in the equipment market for the US DBS subscription television industry |
| In addition, if our revenues in a particular period do not meet expectations, we may not be able to adjust our expenditures in that period, which could cause our business to suffer |
| Our quarterly and annual operating results have fluctuated in the past and may fluctuate significantly in the future due to a variety of factors, many of which are outside of our control |
| Some of the factors that could affect our quarterly or annual operating results include: * the timing and amount of, or cancellation or rescheduling of, orders for our products; * our ability to develop, introduce, ship and support new products and product enhancements and manage product transitions; * announcements, new product introductions and reductions in price of products offered by our competitors; * our ability to achieve cost reductions; * our ability to obtain sufficient supplies of sole or limited source components for our products; * our ability to achieve and maintain production volumes and quality levels for our products; * our ability to maintain the volume of products sold and the mix of distribution channels through which they are sold; * the loss of any one of our major customers or a significant reduction in orders from those customers; * increased competition, particularly from larger, better capitalized competitors; * fluctuations in demand for our products and services; and * telecommunications and wireless market conditions specifically and economic conditions generally |
| Due in part to factors such as the timing of product release dates, purchase orders and product availability, significant volume shipments of products could occur at the end of a fiscal quarter |
| Failure to ship products by the end of a quarter may adversely affect operating results |
| Due to these and other factors, our quarterly revenue, expenses and results of operations could vary significantly in the future, and period-to-period comparisons should not be relied upon as indications of future performance |
| Because some of our components, assemblies and electronics manufacturing services are purchased from sole source suppliers or require long lead times, our business is subject to unexpected interruptions, which could cause our operating results to suffer |
| Some of our key components are complex to manufacture and have long lead times |
| Also, our DBS dish antennas, LNB housings, subassemblies and some of our electronic components are purchased from sole source vendors for which alternative sources are not readily available |
| In the event of a reduction or interruption of supply, or a degradation in quality, as many as six months could be required before we would begin receiving adequate supplies from alternative suppliers, if any |
| As a result, product shipments could be delayed and revenues and results of operations could suffer |
| Furthermore, if we receive a smaller allocation of component parts than is necessary to manufacture products in quantities sufficient to meet customer demand, customers could choose to purchase competing products and we could lose market share |
| Our lack of product diversification means that any decline in price or demand for our companyapstas products would adversely affect our business |
| Our satellite and wireless access products will account for a substantial portion of our revenue and are expected to do so for the foreseeable future |
| Consequently, a decline in the price of, or demand for, our satellite or wireless access products, or their failure to achieve or maintain broad market acceptance, could adversely affect our business |
| If we do not meet product introduction deadlines, our business could be adversely affected |
| Our inability to develop new products or product features on a timely basis, or the failure of new products or product features to achieve market acceptance, could adversely affect our business |
| In the past, CalAmp has experienced design and manufacturing difficulties that have delayed the development, introduction or marketing of new products and enhancements and which caused them to incur unexpected expenses |
| In addition, some of our existing customers have conditioned their future purchases of our products on the addition of product features |
| Furthermore, in order to compete in some markets, we will have to develop different versions of existing products that operate at different frequencies and comply with diverse, new or varying governmental regulations in each market |
| If demand for our products fluctuates rapidly and unpredictably, it may be difficult to manage the business efficiently which may result in reduced gross margins and profitability |
| Our cost structure will be based in part on our expectations for future demand |
| Many costs, particularly those relating to capital equipment and manufacturing overhead, are relatively fixed |
| Rapid and unpredictable shifts in demand for our products may make it difficult to plan production capacity and business operations efficiently |
| If demand is significantly below expectations, we may be unable to rapidly reduce these fixed costs, which can diminish gross margins and cause losses |
| A sudden downturn may also leave us with excess inventory, which may be rendered obsolete as products evolve during the downturn and demand shifts to newer products |
| Our ability to reduce costs and expenses may be further constrained because we must continue to invest in research and development to maintain our competitive position and to maintain service and support for our existing global customer base |
| Conversely, in the event of a sudden upturn, we may incur significant costs to rapidly expedite delivery of components, procure scarce components and outsource additional manufacturing processes |
| These costs could reduce our gross margins and overall profitability |
| Any of these results could adversely affect our business |
| Because we intend to sell some of our products in countries other than the United States, subjecting us to different regulatory schemes, and we will have a significant foreign supply base, we may not be able to develop products that work with the different standards resulting in our inability to sell our products, and, further, we may be subject to political, economic, and other conditions affecting such countries that could result in reduced sales of our products and which could adversely affect our business |
| If our sales are to grow in the longer term, we believe we must grow our international business |
| Many countries require communications equipment used in their country to comply with unique regulations, including safety regulations, radio frequency allocation schemes and standards |
| If we cannot develop products that work with different standards, we will be unable to sell our products in those locations |
| If compliance proves to be more expensive or time consuming than we anticipate, our business would be adversely affected |
| Some countries have not completed their radio frequency allocation process and therefore we do not know the standards with which we would be forced to comply |
| Furthermore, standards and regulatory requirements are subject to change |
| If we fail to anticipate or comply with these new standards, our business and results of operations will be adversely affected |
| Sales to customers outside the US accounted for 5prca, 3prca and 4prca of CalAmpapstas total sales for the fiscal years ended February 28, 2006, 2005 and 2004, respectively |
| Assuming that we continue to sell our products to such customers, we will be subject to the political, economic and other conditions affecting countries or jurisdictions other than the US, including Africa, the Middle East, Europe and Asia |
| Any interruption or curtailment of trade between the countries in which we operate and our present trading partners, change in exchange rates, significant shift in US trade policy toward these countries, or significant downturn in the political, economic or financial condition of these countries, could cause demand for and sales of our products to decrease, or subject us to increased regulation including future import and export restrictions, any of which could adversely affect our business |
| Additionally, a substantial portion of our components and subassemblies are currently procured from foreign suppliers located primarily in Hong Kong, mainland China, Taiwan, and other Pacific Rim countries |
| Any significant shift in US trade policy toward these countries or a significant downturn in the political, economic or financial condition of these countries could cause disruption of our supply chain or otherwise disrupt operations, which could adversely affect our business |
| We may not be able to adequately protect our intellectual property, and our competitors may be able to offer similar products and services that would harm our competitive position |
| Other than in our DBS products business, which currently does not depend upon patented technology, our ability to succeed in the wireless access business may depend, in large part, upon our intellectual property for some of our wireless products as well as software applications marketed by our Solutions Division |
| We currently rely primarily on patents, trademark and trade secret laws, confidentiality procedures and contractual provisions to establish and protect our intellectual property |
| These mechanisms provide us with only limited protection |
| We currently hold 19 patents and have 8 patent applications pending |
| As part of our confidentiality procedures, we enter into non-disclosure agreements with all of our executive officers, managers and supervisory employees |
| Despite these precautions, third parties could copy or otherwise obtain and use our technology without authorization, or develop similar technology independently |
| Furthermore, effective protection of intellectual property rights is unavailable or limited in some foreign countries |
| The protection of our intellectual property rights may not provide us with any legal remedy should our competitors independently develop similar technology, duplicate our products and services, or design around any intellectual property rights we hold |
| We may be subject to infringement claims which may disrupt the conduct of our business and affect our profitability |
| We may be subject to legal proceedings and claims from time to time relating to the intellectual property of others, even though we take steps to assure that neither our employees nor our contractors knowingly incorporate unlicensed copyrights or trade secrets into our products |
| It is possible that third parties may claim that our products and services may infringe upon their trademark, patent, copyright, or trade secret rights |
| Any such claims, regardless of their merit, could be time consuming, expensive, cause delays in introducing new or improved products or services, require us to enter into royalty or licensing agreements or require us to stop using the challenged intellectual property |
| Successful infringement claims against us may materially disrupt the conduct of our business and affect profitability |
| We may engage in future acquisitions that have adverse consequences for our business |
| In April 2002 we completed the acquisition of the assets and business of Kaul-Tronics, Inc, in April 2004 we completed the acquisition of Vytek, and in April 2005 we acquired the Skybility business |
| We may make additional acquisitions of businesses, products or technologies in the future in order to complement our existing product offerings, augment our market coverage or enhance our technological capabilities |
| However, we cannot be sure that we will be able to locate suitable acquisition opportunities |
| The acquisitions that we have completed and that we may complete in the future could result in the following, any of which could seriously harm our results of operations or the price of our stock: (1) issuances of our equity securities that would dilute the percentage ownership of our current stockholders; (2) large one- time write-offs; (3) the incurrence of debt and contingent liabilities; (4) difficulties in the assimilation and integration of the acquired companies; (5) diversion of managementapstas attention from other business concerns; (6) contractual disputes; (7) risks of entering geographic and business markets in which we have no or only limited prior experience; and (8) potential loss of key employees or customers of acquired organizations |
| Cost of licenses to use radio frequencies may restrict the growth of the wireless communications industry and demand for our products |
| Radio frequencies are required to provide wireless services |
| The allocation of frequencies is regulated in the United States and other countries throughout the world and limited spectrum space is allocated to wireless services |
| The growth of the wireless communications industry may be affected if adequate frequencies are not allocated or, alternatively, if new technologies are not developed to better utilize the frequencies currently allocated for such use |
| Typically, governments sell these licenses at auctions |
| Over the last several years, the costs of these licenses and the related frequency relocation costs have increased significantly |
| The significant cost for licenses and related frequency relocation costs have slowed and may continue to slow the growth of the industry |
| Growth is slowed because some operators have funding constraints limiting their ability to purchase new licenses, pay the relocation costs or technology to upgrade systems and the financial results for a number of businesses have been affected by the industryapstas rate of growth |
| Slowed growth among operators may restrict the demand for our products |
| A failure to rapidly transition or to transition at all to newer digital technologies could adversely affect our business |
| Our success, in part, will be affected by the ability of our wireless businesses to continue its transition to newer digital technologies, and successfully compete in that business and gain market share |
| We face intense competition in these markets from both established companies and new entrants |
| Product life cycles can be short and new products are expensive to develop and bring to market |
| We will depend upon wireless networks owned and controlled by others, unproven business models and emerging wireless carrier models to deliver existing services and to grow |
| If we do not have continued access to sufficient capacity on reliable networks, we may be unable to deliver services and our sales could decrease |
| Our ability to grow and achieve profitability partly depends on our ability to buy sufficient capacity on the networks of wireless carriers and on the reliability and security of their systems |
| We will depend on these companies to provide uninterrupted service free from errors or defects and would not be able to satisfy our customers &apos needs if they failed to provide the required capacity or needed level of service |
| In addition, our expenses would increase and profitability could be materially adversely affected if wireless carriers were to increase the prices of their services |
| Our existing agreements with the wireless carriers generally have one-year terms |
| Some of these wireless carriers are, or could become, our competitors, and if they compete with us, they may refuse to provide us with their services |
| Our software may contain defects or errors, and its sales could decrease if this injures our reputation or delays shipments of our software |
| Our current software products and platforms are complex and must meet the stringent technical requirements of customers |
| Therefore, we must develop services quickly to keep pace with the rapidly changing software and telecommunications markets |
| Software as complex as that which will be offered by us is likely to contain undetected errors or defects, especially when first introduced or when new versions are released |
| Some existing contracts related to software contain provisions that require us to repair or replace products that fail to work |
| To the extent that such products are repaired or replaced in the future, our expenses may increase, resulting in a decline in our gross margins |
| In addition, our software may not be free from errors or defects after delivery to customers has begun, which could result in the rejection of our software or services, damage to our reputation, lost revenue, diverted development resources and increased service and warranty costs |
| New laws and regulations that impact the industry could increase costs or reduce opportunities for us to earn revenue |
| We are not currently subject to direct regulation by the Federal Communications Commission or any other governmental agency, other than regulations applicable to Delaware corporations of similar size that are headquartered in California |
| However, in the future, we may become subject to regulation by the FCC or another regulatory agency |
| In addition, the wireless carriers that supply airtime and certain hardware suppliers are subject to regulation by the FCC and regulations that affect them could increase our costs or reduce our ability to continue selling and supporting our services |