| INTERSIL CORP/DE Item 1A RISK FACTORS You should carefully consider and evaluate all of the information in this Form 10-K, including the risk factors listed below |
| The risks described below are not the only ones facing us |
| Additional risks not now known to us or that we currently deem immaterial may also impair our business operations |
| If any of these risks occur, our business could be materially harmed |
| If our business is harmed, the trading price of our Class A common stock could decline |
| As discussed in “Forward Looking Statements” in Item 1 contained in this report, this Form 10-K contains forward-looking statements that involve risks and uncertainties |
| Our actual results could differ materially from those anticipated in the forward looking statements, including as a result of the risks described in the cautionary statements in this “Risk Factors” section and elsewhere in this Form 10-K, in our other filings with the SEC, and in material incorporated by reference |
| We undertake no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise |
| RISK FACTORS RELATING TO GENERAL BUSINESS CONDITIONS Our quarterly revenues and operating results are unpredictable and are likely to fluctuate |
| Our revenues and operating results may fluctuate significantly from quarter to quarter due to a number of factors, not all of which are in our control |
| We manage our expense levels based in part on our expectations of future revenues |
| If revenue levels in a particular quarter do not meet our expectations, our operating results may be adversely affected |
| Because our operating expenses are based in part on anticipated future revenues, and a certain amount of those expenses are relatively fixed, a change in the timing of recognition of revenue and/or the level of gross profit can unfavorably affect operating results in a particular quarter |
| Factors that may cause our financial results to fluctuate unpredictably include, but are not limited to: • industry and global economic and market conditions, including the cyclical nature of the semiconductor industry and the markets addressed by our and our customers’ products; • demand for, and market acceptance of, new and existing products; • successful development of new products; • timing of new product introductions; new product performance and quality; • successful integration of acquisitions; • manufacturing difficulties, including without limitation the availability and extent of utilization of manufacturing capacity and raw materials; procurement shortages; • failure of our suppliers or outsource providers to perform their obligations in a manner consistent with our expectations; • need for additional capital; pricing pressures and other competitive factors, including without limitation competitor’s new products; • competitors with significantly greater financial, technical, manufacturing and marketing resources; • changes in product mix; fluctuations in manufacturing yields; • product obsolescence; • the ability to develop and implement new technologies and to obtain protection of the related intellectual property; • legal challenges to our products and technology, including by intellectual property infringement and misappropriation claims; • customer service; 9 ______________________________________________________________________ [33]Table of Contents • the extent that customers use our products and services in their business, including without limitation the timing of the subsequent entry of our customer’s products containing our components into production, the size and timing of orders from customers, the size and timing of orders from customers, and customer cancellations or shipment delays; • changes in import export regulations; • legislative, tax, accounting, or regulatory changes or changes in their interpretation; • transportation, communication, demand, information technology or supply disruptions based on factors outside our control such as natural disasters, wars, and terrorist activities; • exchange rate fluctuations • the extent that customers use our products and services in their business; Downturns in the business cycle could reduce our revenues and profitability |
| The semiconductor industry is highly cyclical, and this cyclicality could create significant variation in our operating results |
| Our markets may experience downturns in the future |
| We may also experience significant changes in our operating income margins as a result of variations in sales, changes in product mix, price competition for orders and costs associated with the need for continual and rapid introduction of new products |
| The markets for our products depend on continued demand for consumer electronics products as well as products in communications, industrial and computing markets |
| Prolonged downturns in our end-user markets will likely lead to proportionately greater downturns in our net income or we may incur net losses |
| Business interruptions could harm our business |
| Our worldwide operations could be subject to natural disasters and other business disruptions, which could harm our future revenue and financial condition and increase our costs and expenses |
| For example, two of our wafer fabrication facilities are located on the east coast of Florida |
| Operations at these facilities have, at times, been interrupted by hurricanes and may be interrupted by hurricanes in the future |
| Further, our corporate headquarters are located near major earthquake fault lines in California and we have been unable to obtain earthquake insurance of reasonable costs and limits |
| In the event of a major hurricane, earthquake, or other natural or manmade disaster, we could experience loss of life of our employees, destruction of facilities or other business interruptions, any of which could materially adversely affect us |
| In addition, the operations of our suppliers could be subject to natural disasters and other business disruptions, which could cause shortages and price increases in various essential materials |
| If the operations of our suppliers are affected by natural disasters or business disruptions, we may have to reduce our manufacturing operations |
| Such disruptions could, in the future, have a material adverse effect on us |
| We are also heavily reliant on third party freight firms for nearly all of our shipments from vendors, from our foundries to assembly and test sites, primarily in Asia, and for shipments to customers of our final product |
| This includes ground, sea and air freight |
| Any significant disruption of such freight business globally or in certain parts of the world, particularly where our operations are concentrated, would materially affect our ability to generate revenues |
| Business interruption insurance may not provide protection due to the deductible periods or be enough to compensate us for losses that may occur |
| Accordingly, any of these disruptions could significantly harm our business |
| Our business has been and is expected to continue to be characterized by average selling prices (“ASP’s”) that decline over relatively short time periods, which can negatively affect our results of operations unless we are able to sell more units, reduce our costs, introduce new products with higher ASP’s or some combination thereof |
| ASP’s for our products historically have declined over relatively short time periods |
| For example, in fiscal 2005 our ASP’s decreased by approximately fifteen percent compared with fiscal 2004 |
| We are unable to predict 10 ______________________________________________________________________ [34]Table of Contents pricing conditions for any future periods |
| When our average selling prices decline, our net sales and net income decline unless we are able to compensate by selling more units, reduce our costs or introduce new, higher margin products that incorporate advanced features |
| RISK FACTORS RELATING TO PRODUCTION OPERATIONS Production time and the cost of our products could increase if we were to lose one of our limited number of suppliers or if one of those suppliers increased the prices of raw materials |
| Our operating results could be adversely affected if we were unable to obtain adequate supplies of raw materials in a timely manner or if the costs of raw materials increased significantly |
| Our manufacturing operations depend upon obtaining adequate supplies of raw materials on a timely basis |
| We purchase raw materials, such as silicon wafers, from a limited number of suppliers on a just-in-time basis |
| From time to time, suppliers may extend lead times, limit supplies or increase prices due to capacity constraints or other factors |
| Because we depend on third party foundries and other manufacturing subcontractors to manufacture, assemble and test some of our products, we may experience delays beyond our control in delivering those products to our customers |
| We use both internal wafer fabrication facilities and outside wafer fabrication foundries in manufacturing our products |
| We intend to continue to rely on third party foundries and other specialist suppliers for most of our manufacturing requirements and most of our assembly and testing requirements |
| However, certain of these third party foundries are not obligated to supply products to us for any specific period, in any specific quantity or at any specific price |
| As a result, we cannot directly control semiconductor delivery schedules, which could lead to product shortages, quality assurance problems and increases in the cost of our products |
| We may experience delays in the future and we cannot be sure that we will be able to obtain semiconductors within the time frames and in the volumes required by us at an affordable cost or at all |
| Any disruption in the availability of semiconductors or any problems associated with the delivery, quality or cost of the fabrication, assembly and testing of our products could significantly hinder our ability to deliver our products to our customers and may result in a decrease in sales of our products |
| If the third party foundries we currently use are unable to provide our products, we may be required to seek new foundries, and we cannot be certain that their services will be available at favorable terms or that sufficient capacity will be available in a reasonable time period |
| In addition, the manufacture of our products is a highly complex and precise process, requiring production in a highly controlled environment |
| Changes in manufacturing processes or the inadvertent use of defective or contaminated materials by a third party foundry could adversely affect the foundry’s ability to achieve acceptable manufacturing yields and product reliability |
| If the third party foundries we currently use do not achieve adequate yields or product reliability, our customer relationships could suffer |
| This could ultimately lead to a loss of sales of our products and have a negative effect on our business, financial condition or results of operations |
| Delays in production at new facilities, in implementing new production techniques or in curing problems associated with technical equipment malfunctions may lower yields and reduce our revenues |
| Our manufacturing processes are highly complex, require advanced and costly equipment and are continuously being modified in an effort to improve yields and product performance |
| Impurities or other difficulties in the manufacturing process can lower yields |
| Our manufacturing efficiency is an important factor in our future profitability, and we cannot assure you that we will be able to maintain our manufacturing efficiency or increase manufacturing efficiency to the same extent as our competitors |
| In addition, as is common in the semiconductor industry, we have from time to time experienced difficulty in beginning production at new facilities or in effecting transitions to new manufacturing processes |
| Resultant delays have ranged in length from one month to six months |
| During the past five years Intersil has experienced one material delay (six months) of starting production at a new facility and no material delays in producing 11 ______________________________________________________________________ [35]Table of Contents product using new manufacturing processes |
| As a consequence, we suffered delays in product deliveries and reduced yields |
| We may experience manufacturing problems in achieving acceptable yields or experience product delivery delays in the future as a result of, among other things, capacity constraints, construction delays, upgrading or expanding existing facilities or changing our process technologies, any of which could result in a loss of future revenues |
| Increases in fixed costs and operating expenses related to increases in production capacity may adversely affect our operating results if revenues do not increase proportionately |
| We rely on a limited number of packaging subcontractors that may not have adequate capacity to meet our product delivery requirements |
| We rely on a limited number of packaging subcontractors with whom we do not have long-term contracts |
| The wafers of integrated circuits we fabricate or purchase from our outside foundries are sent to our packaging subcontractors for packaging and assembly |
| Our reliance on these subcontractors involves significant risks to us, including the possibility that the subcontractors will lack adequate capacity to deliver our products at the times and in the quantities that we request, the subcontractors will eliminate process technologies necessary for our products and the quality of our products will suffer from our lack of control over packaging and delivery |
| These independent subcontractors may discontinue doing business with us for a variety of reasons |
| If our products contain defects or fail to achieve industry reliability standards, our reputation may be harmed, and we may incur significant unexpected expenses and lose sales opportunities |
| Our products have in the past contained, and may in the future contain, undetected errors or defects |
| Any similar problem in the future may: • cause delays in product introductions and shipments; • result in increased costs and diversion of development resources; • cause us to incur increased charges due to obsolete or unusable inventory; • require design modifications; or • decrease market acceptance or customer satisfaction with these products, which could result in product returns |
| In addition, we may not find defects or failures in our products until after commencement of commercial shipments, which may result in loss or delay in market acceptance and could significantly harm our operating results |
| Our current or potential customers also might seek to recover from us any losses resulting from defects or failures in our products |
| Liability claims could require us to spend significant time and money in litigation or to pay significant damages |
| RISK FACTORS RELATING TO R&D, ENGINEERING, INTELLECTUAL PROPERTY AND NEW TECHNOLOGIES We may be unsuccessful in developing and selling new products required to maintain or expand our business |
| We operate in a dynamic environment characterized by price erosion, rapid technological change and design and other technological obsolescence |
| Our competitiveness and future success depend on our ability to achieve design wins for our products with current and future customers and introduce new or improved products that meet customer needs while achieving favorable margins |
| A failure to achieve design wins, to introduce these new products in a timely manner or to achieve market acceptance for these products, could harm our business |
| 12 ______________________________________________________________________ [36]Table of Contents The introduction of new products presents significant business challenges because product development commitments and expenditures must be made well in advance of product sales |
| The success of a new product depends on accurate forecasts of long-term market demand and future technological developments, as well as on a variety of specific implementation factors, including: • timely and efficient completion of process design and development; • timely and efficient implementation of manufacturing and assembly processes; • product performance; • the quality and reliability of the product; and • effective marketing, sales and service |
| The failure of our products to achieve market acceptance due to these or other factors could harm our business |
| We use a significant amount of intellectual property in our business |
| If we are unable to protect this intellectual property, we could lose our right to prevent others from using our key technologies, resulting in decreased revenues |
| Our future success and competitive position depend in part upon our ability to develop or obtain and subsequently maintain proprietary technology used in our principal products |
| We rely on intellectual property rights, including, but not limited to, rights existing under patent, trade secret, trademark, maskwork and copyright law, to protect this technology |
| Some of our technology is not covered by any patent or patent application, and there are risks that: • some of the more than 1cmam000 patents that we own may be invalidated, circumvented, challenged or licensed to others; • the patents that we own may not provide competitive advantages to us; or some of our pending or future patent applications may not be issued with the initially sought scope of the claims sought by it, if issued at all |
| Further, others may develop technologies that are similar or superior to our technology, duplicate our technology or design around our patents |
| In addition, effective patent, trademark, copyright, maskwork and trade secret protection may be unavailable, limited or not applied for in certain foreign countries |
| We also seek to protect our proprietary technology, including technology that may not be patented or patentable, in part by confidentiality agreements and, if applicable, inventors’ rights agreements with our collaborators, advisors, employees and consultants |
| We cannot assure you that these agreements will always be undertaken or will not be breached or that we will have adequate remedies for any breach |
| Some of our current licenses to use others’ technology and intellectual property are scheduled to expire periodically over the next several years, unless extended |
| We will need to negotiate renewals of these agreements or obtain the technology and intellectual property from alternative sources |
| We cannot assure you that we will be able to obtain alternative technology and intellectual property, or renewals on substantially similar terms as those that currently exist or at all |
| The failure to protect the our intellectual property, to extend its existing license agreements, or utilize alternative technology could adversely affect our revenues |
| 13 ______________________________________________________________________ [37]Table of Contents Products that we manufacture and sell, or products formerly produced and sold by us and now manufactured and sold by purchasers of business that we have divested, may infringe other parties’ intellectual property rights—we may have to pay others for infringement and misappropriation of their intellectual property rights, suspend the manufacture use or sale of some affected products, or incur the cost of defending in a litigation, resulting in significant expense to us |
| The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights |
| We have received and may receive in the future notices of claims of infringement and misappropriation of other parties’ proprietary rights |
| In the event of an adverse decision in a patent, trademark, copyright, maskwork or trade secret action, we could be required to withdraw the product or products found to be infringing from the market or redesign products offered for sale or under development |
| We have, at times, assumed indemnification obligations in favor of our customers that could be triggered upon an allegation or finding of our infringement of other parties’ proprietary rights |
| We have also, at times, assumed indemnification obligations in favor of the purchasers of businesses that we have divested that could be triggered upon an allegation or finding of infringement of other parties’ proprietary rights by those purchasers |
| These indemnification obligations would be triggered for reasons including the sale or supply of a product that was later discovered to infringe another party’s proprietary rights |
| Whether or not these infringement claims are successfully asserted, we would likely incur significant costs and diversion of our resources with respect to the defense of these claims |
| To address any potential claims or actions asserted against us or those we have indemnified, we may seek to obtain a license under a third party’s intellectual property rights |
| However, in such an instance, a license may not be available on commercially reasonable terms, if at all |
| Litigation could result in significant expense to us, adversely affecting sales of the challenged product or technology and diverting the efforts of our technical and management personnel, whether or not the litigation is determined in our favor |
| In the event of an adverse outcome in any litigation, we may be required to: • pay substantial damages, eg enhanced damages for willful infringement, and incur significant attorneys’ fees; • indemnify customers for damages they might suffer if the products they purchase from us infringe intellectual property rights of others; • indemnify purchasers of businesses that we have divested for damages they might suffer if certain of the products they sell infringe intellectual property rights of others; • stop our manufacture, use, sale or importation of infringing products; • expend significant resources to develop or acquire non-infringing technology; • discontinue the use of some processes; or • obtain licenses to intellectual property rights covering products and technology that we may, or have been found to, infringe or misappropriate such intellectual property rights |
| RISK FACTORS RELATING TO INTERNATIONAL OPERATIONS Our future success depends on international sales and the management of global operations |
| Non-US sales accounted for approximately 78prca of our revenue in fiscal 2005 |
| We expect that international sales will continue to account for a significant majority of our total revenue in future years |
| We are subject to various challenges related to the management of global operations, and international sales are subject to risks including, but not limited to: • trade balance issues; • economic and political conditions; • changes in currency controls; • differences in our ability to acquire and enforcement of intellectual property and contract rights in varying jurisdictions; 14 ______________________________________________________________________ [38]Table of Contents • our ability to develop relationships with local suppliers; • compliance with US laws and regulations, including US export restrictions; • compliance with international laws and regulations, including the European Union’s Restriction of Hazardous Substances (“RoHS”), which bans lead and certain other substances from products put on the market; • fluctuations in interest and currency exchange rates; • the need for technical support resources in different locations; and • our ability to secure and retain qualified people for the operation of our business |
| Many of the challenges noted above are applicable in China, which is a large and fast growing market for semiconductors and therefore an area of additional and continued growth for our business |
| As the business volume between China and the rest of the world grows, there is inherent risk, based on the complex relationships between China, Taiwan, Japan, and the United States, that political and diplomatic influences might lead to trade disruptions which would adversely affect our business with China and/or Taiwan and perhaps the entire Asia region |
| A significant trade disruption in these areas could have a material, adverse impact on our future revenue and profits |
| Fluctuations in the exchange rate of the US dollar and foreign currencies could increase operating expenses and negatively affect our financial performance and results of operations |
| While we and our subsidiaries transact business primarily in US dollars, and most of our revenues are denominated in US dollars, a portion of the costs and revenues is denominated in other currencies, such as the Euro and the Japanese Yen |
| As a result, changes in the exchange rates of these currencies or any other applicable currencies to the US dollar will affect the costs of goods sold and operating margins and could result in exchange losses |
| The impact of future exchange rate fluctuations on results of operations cannot be accurately predicted |
| From time to time, we have engaged in, and may continue to engage in, exchange rate hedging activities in an effort to mitigate the impact of exchange rate fluctuations |
| However, any hedging technique that we may implement may not be effective or may result in foreign exchange hedging losses |
| The outbreak of severe acute respiratory syndrome (SARS), avian flu or other health related issues, could impact our customer or supply base, especially in Asia |
| A large percentage of our sales are to customers located in Asia, particularly in China |
| SARS, avian flu or other health related issues could have a negative impact on consumer demand, on travel needed to secure new business or manage our operations, on transportation of our products from our suppliers or to our customers, or on workers needed to perform assembly, test and packaging of our products |
| These and similar matters could adversely affect our results of operations |
| RISK FACTORS RELATING TO SALES, MARKETING AND COMPETITION Our business is very competitive, and increased competition could reduce gross margins and the value of an investment in our company |
| The semiconductor industry, and the semiconductor product markets specifically, are highly competitive |
| Competition is based on price, product performance, quality, reliability and customer service |
| The gross margins realizable in our markets can differ across regions, depending on the economic strength of end-product markets in those regions |
| Even in strong markets, price pressures may emerge as competitors attempt to gain more market share by lowering prices |
| Competition in the various markets in which we participate comes from companies of various sizes, many of which are larger and have greater financial and other resources than we have and thus can better withstand adverse economic or market conditions |
| Competitors include manufacturers and designers of 15 ______________________________________________________________________ [39]Table of Contents standard semiconductors, application-specific integrated circuits, and fully customized integrated circuits, as well as customers who develop their own integrated circuit products |
| In addition, companies not currently in direct competition with us may introduce competing products in the future |
| We depend upon the continued demand for our products in the high-end consumer, communications, industrial and computing markets for a significant portion of our net revenues |
| We realize a significant portion of our net revenues from products sold in the high-end consumer, communications, industrial, and computing markets |
| Therefore, our success depends in part on the continued acceptance of our products within these markets and our ability to continue to develop and introduce new products on a timely basis for these markets |
| These markets may experience changes in demand that will adversely affect our business and operating results |
| Difficulties in estimating the amount and timing of sales to our customers could harm our operating results |
| It is difficult for us to forecast accurately the timing and amount of sales to our customers, which include distributors and original equipment manufacturers |
| Customers generally take a long time to evaluate products and technologies before committing to design our products into their systems |
| Moreover, our business is characterized by short-term orders and shipment schedules, and customer orders typically can be canceled or rescheduled on short notice to us and without significant penalty to our customers |
| We do not have substantial non-cancelable backlog and often we are forced to obtain inventory and materials from our manufacturing subcontractors in advance of anticipated customer demand |
| Because we incur expenses, many of which are fixed, based in part on our forecasts of future product sales, our operating results could be harmed if sales levels are below our expectations |
| We compete against larger, more established entities and our market share may be reduced if we are unable to respond to our competitors effectively |
| The semiconductor industry is intensely competitive and is characterized by price erosion, rapid technological change, and design and other technological obsolescence |
| We compete with domestic and international semiconductor companies, some of which have substantially greater financial and other resources with which to pursue engineering, manufacturing, marketing and distribution of their products |
| We expect continued competition from existing competitors as well as competition from new entrants in the semiconductor market, especially Asian-based producers |
| Our ability to compete successfully in the rapidly evolving area of integrated circuit technology depends on several factors, including: • success in designing and manufacturing new products that implement new technologies; • protection of our proprietary products, processes, trade secrets and know-how; • maintaining high product quality and reliability; • pricing policies of our competitors; • performance of competitors’ products; • ability to deliver in large volume on a timely basis; • marketing, manufacturing and distribution capability; and • financial strength |
| To the extent that our products achieve market success, competitors typically seek to offer competitive products or lower prices, which, if successful, could harm our business |
| 16 ______________________________________________________________________ [40]Table of Contents Most of our distributors and resellers, who represent over 40prca of net sales, can terminate their contract with us with little or no notice |
| The termination of a distributor could negatively impact our business, including net sales and accounts receivable |
| In fiscal 2005, our distributors and value-added resellers accounted for approximately 43prca of our net sales |
| We generally do not have non-cancelable, long-term contracts with these parties and most can terminate their agreement with us with little or no notice |
| For fiscal 2005, our largest distributor was based in Asia |
| The termination of a significant distributor or reseller could impact our net sales and limit our access to certain end-customers |
| It could also result in the return of excess inventory of our product they hold as the distributor |
| Since many distributors simply resell our products, they generally operate on low profit margins |
| If a distributor or reseller were to terminate their agreement with us or go out of business, our unsecured accounts receivable from them are subject to collection risk |
| RISK FACTORS RELATING TO ENVIRONMENTAL REGULATIONS, GOVERNMENTAL REGULATIONS, INCLUDING TAXES, AND FINANCIAL REPORTING RULES AND REGULATIONS Environmental liabilities and other governmental regulatory matters could force us to expend significant capital and incur substantial costs |
| We are subject to various environmental laws relating to the management, disposal and remediation of hazardous materials and the discharge of pollutants into the environment |
| We are also subject to laws relating to workplace safety and worker health which, among other things, regulate employee exposure to hazardous substances |
| Harris Corporation has agreed to indemnify us for substantially all environmental liabilities related to events or activities occurring before our acquisition of their semiconductor business |
| This indemnification does not expire, nor is it subject to a dollar limitation |
| The nature of our ongoing operations exposes us to the risk of liabilities with respect to environmental matters, including those relating to the on- and off-site disposal and release of hazardous materials, and there can be no assurance that material costs will not be incurred in connection with such liabilities |
| Based on our experience, we believe that the future cost of compliance with existing environmental and health and safety laws (and liability for known environmental conditions) even without the indemnity from Harris will not have a material adverse effect on our business, financial condition or results of operations |
| However, we cannot predict: • what environmental or health and safety legislation or regulations will be enacted in the future; • how existing or future laws or regulations will be enforced, administered or interpreted; • the amount of future expenditures which may be required to comply with these environmental or health and safety laws or to respond to future cleanup matters or other environmental claims; or • the extent of our obligations to the purchasers of our environmentally challenged sites |
| Our financial results may be adversely impacted by higher than expected tax rates or exposure to additional income tax liabilities |
| As a global company, our effective tax rate is highly dependent upon the geographic composition of worldwide earnings and tax regulations governing each region |
| We are subject to income taxes in both the United States and various foreign jurisdictions, and significant judgment is required to determine worldwide tax liabilities |
| Our effective tax rate could be adversely affected by changes in the split of earnings between countries with differing statutory tax rates, in the valuation of deferred tax assets, in tax laws or by material audit assessments, which could affect our profitability |
| In particular, the carrying value of deferred tax assets, which are predominantly in the United States, is dependent on our ability to generate future taxable income in the 17 ______________________________________________________________________ [41]Table of Contents United States |
| In addition, the amount of income taxes we pay is subject to ongoing audits in various jurisdictions, and a material assessment by a governing tax authority could affect our profitability |
| Accounting pronouncements are moving toward “fair value” methodology accounting, leading to more volatility in reported earnings which might cause a decline in our stock price |
| In recent years, new accounting pronouncements and guidance have been promulgated by the Financial Accounting Standards Board that require companies to regularly attempt to determine or estimate the fair value of both certain assets and certain liabilities and adjust those amounts to reflect the revised estimates |
| With regard particularly to indefinite life intangible assets (“goodwill”), certain other “long-lived assets” such as property, plant and equipment, and stock-based compensation, these standards increase the likelihood that we will encounter a situation requiring a significant adverse adjustment to our statement of operations and earnings per share measures |
| Such an adverse and significant adjustment to our operating results might cause our investors and the analysts who follow our industry to change their opinion of our prospects and might cause a decline in our stock price |
| Changes in accounting standards for stock-based compensation may adversely affect our operating results, our stock price, and our competitiveness in the employee marketplace |
| The adoption of SFAS Nodtta 123(R) requires us to expense all stock-based compensation provided to employees beginning with our quarter ending March 31, 2006 |
| The environment for skilled employees that are knowledgeable about our required skill sets is a competitive one, and we believe that stock-based compensation is an important part of the overall compensation that we offer to attract and retain such employees |
| SFAS Nodtta 123(R) will decrease our earnings as reported on a generally accepted accounting principles basis by the amount of stock-based compensation |
| There is some risk that the design of our compensation plans is ineffective at balancing our profitability and employee retention objectives |
| Further, as this decrease in earnings becomes evident, our stock price may decline or may not rise to the same extent it otherwise might have due to the reduced apparent profitability |
| We are subject to the internal control evaluation and attestation requirements of Section 404 of the Sarbanes-Oxley act of 2002 |
| Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in our annual report our assessment of the effectiveness of our internal control over financial reporting and our audited financial statements as of the end of each fiscal year |
| Furthermore, our independent registered public accounting firm (Firm) is required to attest to whether our assessment of the effectiveness of our internal control over financial reporting is fairly stated in all material respects and separately report on whether it believes we maintained, in all material respects, effective internal control over financial reporting as of the end of each fiscal year |
| We have successfully completed our assessment and obtained our Firm’s attestation as to the effectiveness of our internal control over financial reporting as of December 30, 2005 |
| In future years, if we fail to timely complete this assessment, or if our Firm cannot timely attest to our assessment, we could be subject to regulatory sanctions and a loss of investor confidence in our internal control |
| In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation or the operation of existing controls, could cause us to fail to timely meet our regulatory reporting obligations and cause our stock price to be adversely affected due to the loss of investor confidence in us |
| Our independent registered public accounting firm must confirm its independence in order for us to meet our regulatory reporting obligations on a timely basis |
| Our independent registered public accounting firm communicates with us at least annually regarding any relationships between the Firm and Intersil that, in the Firm’s professional judgment, might have a bearing on the Firm’s independence with respect to us |
| If, for whatever reason, our independent registered public accounting 18 ______________________________________________________________________ [42]Table of Contents firm finds that it cannot confirm that it is independent of us based on existing securities laws and registered public accounting firm independence standards, we could experience delays or other failures to meet our regulatory reporting obligations |
| RISK FACTORS RELATING TO OUR BUSINESS STRATEGIES, PERSONNEL AND OTHER OPERATIONS If we fail to attract and retain qualified personnel, our business may be harmed |
| Our future success depends largely upon the continued service of our key management and technical personnel, and on our continued ability to hire, integrate and retain qualified management and technical personnel, particularly engineers |
| Competition for these employees in the analog semiconductor industry is intense, and we may not be successful in attracting or retaining these personnel |
| In addition, it is difficult to obtain work visas for foreign professionals trained in the United States |
| The loss of any key employee, the failure of any key employee to perform in his or her current position or our inability to attract and retain skilled employees as needed could impair our ability to meet customer and technological demands |
| The loss of the services of any executive officer or other key technical or management personnel could harm our business |
| To help retain the continued services of some of our key executives, we have entered into employment agreements with some of them |
| We do not have key person life insurance on any of our key personnel |
| If we choose to acquire or dispose of product lines and technologies, we may encounter unforeseen costs and difficulties that could impair our financial performance |
| An important element of our management strategy is to review acquisition prospects that would complement our existing products, augment our market coverage and distribution ability, or enhance our technological capabilities |
| As a result, we may make acquisitions of companies, products or technologies, or we may reduce or dispose of certain product lines or technologies, which no longer fit our long-term strategies |
| Managing an acquired business or disposing of product technologies entails numerous operational and financial risks, including difficulties in assimilating new personnel, coordinating new product and process development, conforming the acquired company’s standards, processes, procedures and controls with our operations, separating or reorganizing existing business or product groups, in addition to diversion of management’s attention away from other business concerns, amortization of acquired definite-lived intangible assets, immediate expensing of certain acquired R&D project values, goodwill impairment charges and potential loss of key employees or customers of acquired or disposed operations, among others |
| Further, acquisitions may require the potentially dilutive issuances of equity securities, the incurrence of debt and the assumption of contingent liabilities |
| There can be no assurance that we will be able to achieve and manage successfully any such integration of potential acquisitions, disposition of product lines or technologies, or reduction in personnel or that our management, personnel, or systems will be adequate to support continued operations |
| Any such inabilities, inadequacies, debt incurrence, common stock issuance or assumption of liabilities could have a material adverse effect on our business, operating results, financial condition, cash flows and the price of our Class A common stock |
| We rely upon certain critical information systems for the operation of our business |
| We maintain and rely upon certain critical information systems for the effective operation of our business |
| These information systems include telecommunications, the Internet, our corporate intranet, various computer hardware and software applications, network communications, and e-mail |
| These information systems may be owned by us or by our outsource providers or even third parties such as vendors and contractors and may be maintained by us or by such providers or third parties |
| These information systems are subject to attacks, failures, and access denials from a number of potential sources including viruses, destructive or inadequate code, power failures, and physical damage to computers, hard drives, communication lines, and networking equipment |
| To the extent that these information systems are under our control, we have implemented security procedures, such as virus protection software and emergency recovery processes, to address the outlined risks; however, security procedures for information systems cannot be guaranteed to be failsafe and our inability to use or access these information systems at critical points in time could unfavorably impact the timely and efficient operation of our business |
| 19 ______________________________________________________________________ [43]Table of Contents The potential anti-takeover effects of our certificate of incorporation may inhibit a change of control desired by some of our stockholders |
| In August 2003, the Company’s Board of Directors adopted a Shareholder Rights Plan (“Rights Plan”) |
| Under the Rights Plan, rights were distributed as a dividend at the rate of one right for each share of common stock of the Company |
| Each right will separate and entitle the shareholders to buy stock upon an occurrence of certain takeover or stock accumulation events |
| The existence of these rights, also known as a “poison pill” takeover defense, could have the effect of delaying or preventing a change in control of Intersil |
| Such factors might deter certain acquirers from making takeover proposals or tender offers, even if such takeover proposals or control changes could improve our short-term stock price |