| MONOLITHIC SYSTEM TECHNOLOGY INC Item 1A Risk Factors If any of the following risks actually occur, our business, results of operations and financial condition could suffer significantly |
| Our success depends upon the semiconductor market’s acceptance of our 1T-SRAM technologies |
| The future prospects of our business depend on the acceptance by our target markets of our 1T-SRAM technologies for embedded memory applications and any future technology we might develop |
| Our technology is intended to allow our licensees to develop embedded memory integrated circuits to replace other embedded memory technology with different cost and performance parameters |
| Our 1T-SRAM technologies utilize fundamentally different internal circuitry that is not widely known in the semiconductor industry |
| Therefore, one of our principal challenges, which we might fail to meet, is to convince a substantial percentage of SoC designers to adopt our technology instead of other memory solutions, which may have proven effective in their products |
| 16 ______________________________________________________________________ · An important part of our strategy to gain market acceptance is to penetrate new markets by targeting market leaders as licensees of our technology |
| This strategy is designed to encourage other participants in those markets to follow these leaders in adopting our technology |
| If a high-profile industry participant adopts our technology for one or more of its products but fails to achieve success with those products, or is unable to successfully implement our technology, other industry participants’ perception of our technology could be harmed |
| Any such event could reduce the number of future licenses of our technology |
| Likewise, if a market leader were to adopt and achieve success with a competing technology, our reputation and licensing program could be harmed |
| Our embedded memory technology might not integrate as well as anticipated with other semiconductor functions in all intended applications, which would slow or prevent adoption of our technology and reduce our revenue |
| Detailed aspects of our technology could cause unforeseen problems in the efficient integration of our technology with other functions of particular integrated circuits |
| Any significant compatibility problems with our technology could reduce the attractiveness of our solution, impede its acceptance in the industry and result in a decrease in demand for our technology |
| Our lengthy licensing cycle and our licensees’ lengthy product development cycles make the operating results of our licensing business difficult to predict |
| We anticipate difficulty in accurately predicting the timing and amounts of revenue generated from licensing our 1T-SRAM technologies |
| The establishment of a business relationship with a potential licensee is a lengthy process, generally taking from three to nine months, and sometimes longer during slower periods in our industry |
| Following the establishment of the relationship, the negotiation of licensing terms can be time-consuming, and a potential licensee may require an extended evaluation and testing period |
| Once a license agreement has been executed, the timing and amount of licensing and royalty revenue from our licensing business remain difficult to predict |
| The completion of the licensee’s development projects and the commencement of production are subject to the licensee’s efforts, development risks and other factors outside our control |
| Our royalty revenue will depend on such factors as success of the licensee’s project, the licensee’s production and shipment volumes, the timing of product shipments and when the licensee reports to us the manufacture or sale of products that include our 1T-SRAM technologies |
| All of these factors will prevent us from making predictions of revenue with any certainty and could cause us to experience substantial period-to-period fluctuations in operating results |
| None of our licensees are under any obligation to incorporate our technology in any present or future product or to pursue the manufacture or sale of any product incorporating our technology |
| A licensee’s decision to complete a project or manufacture a product is subject to changing economic, marketing or strategic factors |
| The long development cycle of a licensee’s products increases the risk that these factors will cause the licensee to change its plans |
| In the past, some of our licensees have discontinued development of products incorporating our technology |
| Although in most cases their decisions were based on factors unrelated to our technology, it is unlikely that we will receive royalties in connection with those products |
| We expect that occasionally our licensees will discontinue a product line or cancel a product introduction, which could adversely affect our future operating results and business |
| If the market for SoC integrated circuits does not expand, our business will suffer |
| Our ability to achieve sustained revenue growth and profitability in the future will depend on the continued development of the market for SoC integrated circuits, particularly those requiring embedded memory sizes of one megabit or more |
| In addition, our ability to achieve design wins with customers is dependent upon the growth of embedded memories required in SoCs |
| SoCs are characterized by rapid technological change and competition from an increasing number of alternate design strategies such as combining multiple integrated circuits to create a System-on-a-Package |
| 17 ______________________________________________________________________ We cannot be certain that the market for SoCs will continue to develop or grow at a rate sufficient to support our business |
| SoC providers depend on the demand for products requiring SoCs, such as cellular phones, game consoles, PDAs, digital cameras, DVD players and digital media players to name a few |
| The demand for such products is uncertain and difficult to predict and depends on factors beyond our control |
| The semiconductor industry is cyclical in nature and subject to periodic downturns, which can negatively affect our revenue |
| The semiconductor industry is cyclical and has experienced pronounced downturns for sustained periods of up to several years |
| To respond to any downturn, many semiconductor manufacturers and their customers will slow their research and development activities, cancel or delay new product developments, reduce their workforces and inventories and take a cautious approach to acquiring new equipment and technologies |
| As a result, our business has been in the past and could be adversely affected in the future by an industry downturn, which could negatively impact our future revenue and profitability |
| Also, the cyclical nature of the semiconductor industry may cause our operating results to fluctuate significantly from year-to-year, which may tend to increase the volatility of the price of our common stock |
| We might be unable to deliver our customized memory technology within an agreed technical specification in the time frame demanded by our licensees, which could damage our reputation, harm our ability to attract future licensees and adversely impact operating results |
| Many of our licenses require us to deliver a customized 1T-SRAM memory block or several blocks, within an agreed technical specification by a certain delivery timetable |
| This requires us to furnish a unique design for each customer, which can make the development schedule difficult to predict and involves extensive interaction with our customers’ engineers |
| From time to time, we experience delays in delivering our customized memory technology that meets the agreed technical specifications, which can result from slower engineering progress than we originally anticipated or there might be factors outside of our control, such as the customer’s delay in completing verification of the customer’s chip |
| Such delays may affect the timing of recognition of revenues from a particular project and can adversely affect our operating results |
| In addition, any failure to meet our customers’ timetables, as well as the agreed upon technical specifications of our customized memory technology could lead to the failure to collect, or a delay in collecting royalties and licensing fee payments from our licensees, damage our reputation in the industry, harm our ability to attract new licensees and negatively impact our operating results |
| Furthermore, a customer may assert that we are responsible for delays and cost overruns and demand reimbursement for some of its costs, which we may elect to reimburse in whole or in part in order to address the customer’s concerns |
| For example, in 2004, we reduced revenue by dlra450cmam000 for a reimbursement given to a customer for excess verification costs incurred by the customer |
| In 2005, we also settled with one of our licensees for the amount of dlra375cmam000 related to a claim made for excess verification costs incurred by the licensee |
| Our business model relies on royalties as a key component in the licensing of our technologies, and if we fail to realize expected royalties our operating results will suffer |
| We believe that our long-term success is substantially dependent on the receipt of future royalties |
| Royalty payments owed to us are calculated based on factors such as our licensees’ selling prices, wafer production, and other variables as provided in each license agreement |
| The amount of royalties we will receive depends on the licensees’ business success, production volumes and other factors beyond our control |
| This exposes our business model to risks that we cannot minimize directly and may result in significant fluctuations in our royalty revenue and operating results from quarter-to-quarter |
| As a result, our recognition of royalty revenue typically lags behind the quarter in which the related integrated circuit is 18 ______________________________________________________________________ manufactured or sold by our licensee by at least one quarter |
| We cannot be certain that our business strategy will be successful in expanding the number of licensees, nor can we be certain that we will receive significant royalty revenue in the future |
| We expect our revenue to be highly concentrated among a small number of licensees and customers, and our results of operations could be harmed if we lose and fail to replace this revenue |
| Our overall revenue has been highly concentrated, with a few customers accounting for a significant percentage of our total revenue |
| For the year ended December 31, 2005, our two largest customers, NEC and Fujitsu represented 35prca and 17prca of total revenue, respectively |
| For the year ended December 31, 2004, our three largest customers NEC, Fujitsu and Marvell represented 19prca, 17prca and 11prca of total revenue, respectively |
| For the year ended December 31, 2003, our three largest customers, Sony, NEC and UMC represented 17prca, 14prca and 11prca of total revenue, respectively |
| We expect that a relatively small number of licensees will continue to account for a substantial portion of our revenue for the foreseeable future |
| Furthermore, our royalty revenue has been highly concentrated among a few licensees, and we expect this trend to continue for the foreseeable future |
| In particular, a substantial portion of our licensing and royalty revenue in 2005 and 2004 has come from the licenses for integrated circuits used by Nintendo in its GAMECUBE® |
| Royalties earned from the production of Gamecube chips incorporating our 1T-SRAM technology represented 14prca, 15prca, and 11prca of total revenue in the 2005, 2004 and 2003, respectively |
| Nintendo faces intense competitive pressure in the video game market, which is characterized by extreme volatility, costly new product introductions and rapidly shifting consumer preferences, and we cannot assure you that Nintendo’s sales of products incorporating our technology will increase beyond prior or current levels |
| As a result of this revenue concentration, our results of operations could be impaired by the decision of a single key licensee or customer to cease using our technology or products or by a decline in the number of products that incorporate our technology that are sold by a single licensee or customer or by a small group of licensees or customers |
| Our revenue concentration may also pose credit risks, which could negatively affect our cash flow and financial condition |
| We might also face credit risks associated with the concentration of our revenue among a small number of licensees and customers |
| As of December 31, 2005, three customers represented 82prca of total trade receivables |
| Our failure to collect receivables from any customer that represents a large percentage of receivables on a timely basis, or at all, could adversely affect our cash flow or results of operations and might cause our stock price to fall |
| Anything that negatively affects the businesses of our licensees could negatively impact our revenue |
| The timing and level of our licensing and royalty revenues are dependent on our licensees and the business environment in which they operate |
| Licensing and royalty revenue are the largest source of our revenues; anything that negatively affects a significant licensee or group of licensees could negatively affect our results of operations and financial condition |
| Many issues beyond our control influence the success of our licensees, including, for example, the highly competitive environment in which they operate, the strength of the markets for their products, their engineering capabilities and their financial and other resources |
| Likewise, we have no control over the product development, pricing and marketing strategies of our licensees, which directly affect the licensing of our technology and corresponding future royalties payable to us from our licensees |
| Our royalty revenues are subject to our licensees’ ability to market, produce and 19 ______________________________________________________________________ ship products incorporating our technology |
| A decline in sales of our licensees’ royalty-generating products for any reason would reduce our royalty revenue |
| In addition, seasonal and other fluctuations in demand for our licensees’ products could cause our operating results to fluctuate, which could cause our stock price to fall |
| We rely on semiconductor foundries to assist us in attracting potential licensees, and a loss or failure of these relationships could inhibit our growth and reduce our revenue |
| Part of our marketing strategy relies upon our relationships and agreements with semiconductor foundries, such as TSMC, UMC, Chartered, and SMIC among others |
| These foundries have existing relationships, and continually seek new relationships, with companies in the markets we target, and have agreed to utilize these relationships to introduce our technology to potential licensees |
| If we fail to maintain and expand our current relationships with these foundries, we might fail to achieve anticipated growth |
| Our relationship with these foundries is not exclusive, and they are free to promote or develop other embedded memory technologies, including their own |
| The foundries’ promotions of alternative technologies reduce the size of our potential market and may adversely affect our revenues and operating results |
| Additionally, we rely on third-party foundries to manufacture our silicon test chips, to provide references to their customers and to assist us in the focus of our research and development activities |
| If we are unable to maintain our existing relationships with these foundries or enter into new relationships with other foundries, we will be unable to verify our technologies for their manufacturing processes and our ability to develop new technologies will be hampered |
| We would then be unable to license our intellectual property to fabless semiconductor companies that use these foundries to manufacture their silicon chips, which is a significant source of our revenues |
| Our embedded memory technology is unique and the occurrence of manufacturing difficulties or low production yields, if not corrected, could hinder market acceptance of our technology and reduce future revenue |
| Complex technologies like ours could be adversely affected by difficulties in adapting our 1T-SRAM technologies to our licensees’ product designs or to the manufacturing process technology of a particular foundry or semiconductor manufacturer |
| Some of our customers have experienced lower than expected yields when initially integrating our design into their SoC We work closely with our customers to resolve any design or process issues in order to achieve the optimum production yield |
| Any decrease in manufacturing yields of integrated circuits utilizing our technology could impede the acceptance of our technology in the industry |
| The discovery of defects or problems regarding the reliability, quality or compatibility of our technology could require significant expenditures and resources to fix, significantly delay or hinder market acceptance of our technology, reduce anticipated revenues and damage our reputation |
| Our failure to compete effectively in the market for embedded memory technology could reduce our revenue |
| There exists significant competition in the market for embedded memory technologies |
| Our licensees and prospective licensees can meet their need for embedded memory by using traditional memory solutions with different cost and performance parameters, which they may internally develop or acquire from third-party vendors |
| In the past two years, the demand for applications for which our 1T-SRAM technologies provide distinct advantages has not experienced significant growth |
| If alternative technologies are developed that provide comparable system performance at lower cost than our 1T-SRAM technologies for certain applications and/or do not require the payment of comparable royalties, or if the industry 20 ______________________________________________________________________ generally demonstrates a preference for applications for which our 1T-SRAM technologies do not offer significant advantages, our ability to realize revenue from our 1T-SRAM technologies could be impaired |
| We might be challenged by competitive developers of alternative technologies who are more established, benefit from greater market recognition and have substantially greater financial, development, manufacturing and marketing resources than we have |
| These advantages might permit these developers to respond more quickly to new or emerging technologies and changes in licensee requirements |
| We cannot assure you that future competition will not have a material adverse effect on the adoption of our technology and our market penetration |
| Our failure to continue to enhance our technology or develop new technology on a timely basis could diminish our ability to attract and retain licensees and product customers |
| The existing and potential markets for memory products and technology are characterized by ever increasing performance requirements, evolving industry standards, rapid technological change and product obsolescence |
| These characteristics lead to frequent new product and technology introductions and enhancements, shorter product life cycles and changes in consumer demands |
| In order to attain and maintain a significant position in the market, we will need to continue to enhance our technology in anticipation of these market trends |
| In addition, the semiconductor industry might adopt or develop a completely different approach to utilizing memory for many applications, which could render our existing technology unmarketable or obsolete |
| We might not be able to successfully develop new technology, or adapt our existing technology, to comply with these innovative standards |
| Our future performance depends on a number of factors, including our ability to— · identify target markets and relevant emerging technological trends, including new standards and protocols; · develop and maintain competitive technology by improving performance and adding innovative features that differentiate our technology from alternative technologies; · enable the incorporation of enhanced technology in our licensees’ and customers’ products on a timely basis and at competitive prices; · implement our technology at future manufacturing process generation; and · respond effectively to new technological developments or new product introductions by others |
| Since its introduction in 1998, we have introduced enhancements to our 1T-SRAM technology designed to meet market requirements |
| However, we cannot assure you that the design and introduction schedules of any additions and enhancements to our existing and future technology will be met, that this technology will achieve market acceptance or that we will be able to license this technology on terms that are favorable to us |
| Our failure to develop future technology that achieves market acceptance could harm our competitive position and impede our future growth |
| We may incur substantial litigation expense, which would adversely affect our profitability |
| On March 31, 2004, UniRAM Technology, Inc |
| filed a complaint against us in the United States District Court for the Northern District of California, alleging trade secret misappropriation and patent infringement |
| UniRAM’s complaint asserts that it provided trade secret information to Taiwan Semiconductor Manufacturing Corporation (TSMC) in 1996-97 and speculated that we improperly obtained unspecified trade secrets of UniRAM from TSMC in an unknown manner |
| Subsequent to March 31, 2004, UniRAM has amended its complaint twice to add TSMC as a defendant and additional 21 ______________________________________________________________________ allegations to the suit, and to drop all infringement claims of patent infringement with respect to one of the two patents originally identified in the initial complaint |
| UniRAM continues to assert its claims of patent infringement with respect to the other patent |
| We believe that UniRAM’s complaint lacks merit and intend to vigorously defend against it |
| We expect to incur substantial expenses litigating the matter in 2006, at least, and potentially thereafter |
| In addition, although we expect to prevail in the lawsuit, if we do not, we may be required to pay substantial damages and/or the attorneys’ fees and expenses of the other party, as well as our own and perhaps the court would enter an injunction |
| The payment of such damages and expenses could adversely affect our results of operations and cause net losses for the periods in which we record them |
| Royalty amounts owed to us might be difficult to verify, and we might find it difficult, expensive and time-consuming to enforce our license agreements |
| The standard terms of our license agreements require our licensees to document the manufacture and sale of products that incorporate our technology and report this data to us after the end of each quarter |
| Though our standard license terms give us the right to audit the books and records of any licensee to attempt to verify the information provided to us in these reports, an audit of a licensee’s records can be expensive and time consuming, and potentially detrimental to the business relationship |
| A failure to fully enforce the royalty provisions of our license agreements could cause our revenue to decrease and impede our ability to maintain profitability |
| We might not be able to protect and enforce our intellectual property rights, which could impair our ability to compete and reduce the value of our technology |
| Our technology is complex and is intended for use in complicated integrated circuits |
| A very large number of new and existing products utilize embedded memory, and a large number of companies manufacture and market these products |
| Because of these factors, policing the unauthorized use of our intellectual property is difficult and expensive |
| We cannot be certain that we will be able to detect unauthorized use of our technology or prevent other parties from designing and marketing unauthorized products based on our technology |
| In the event we identify any past or present infringement of our patents, copyrights or trademarks, or any violation of our trade secrets, confidentiality procedures or licensing agreements, we cannot assure you that the steps taken by us to protect our proprietary information will be adequate to prevent misappropriation of our technology |
| Our inability to protect adequately our intellectual property would reduce significantly the barriers of entry for directly competing technologies and could reduce the value of our technology |
| Furthermore, we might initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights |
| Litigation by us could result in significant expense and divert the efforts of our technical and management personnel, whether or not such litigation results in a determination favorable to us |
| Our existing patents might not provide us with sufficient protection of our intellectual property, and our patent applications might not result in the issuance of patents, either of which could reduce the value of our core technology and harm our business |
| We rely on a combination of patents, trademarks, copyrights, trade secret laws and confidentiality procedures to protect our intellectual property rights |
| As of December 31, 2005, we held 80 patents in the United States, which expire at various times from 2011 to 2023, and 40 corresponding foreign patents |
| In addition, as of December 31, 2005, we had nine patent applications pending in the United States and 19 pending foreign applications, and had received notice of allowance of one patent application pending in the United States |
| We cannot be sure that any patents will issue from any of our pending applications or that any claims allowed from pending applications will be of sufficient scope or strength, or issued in all countries where our products can be sold, to provide meaningful protection or any commercial advantage 22 ______________________________________________________________________ to us |
| Also, competitors might be able to design around our patents |
| Failure of our patents or patent applications to provide meaningful protection might allow others to utilize our technology without any compensation to us and impair our ability to increase our licensing revenue |
| Any claim that our products or technology infringe third-party intellectual property rights could increase our costs of operation and distract management and could result in expensive settlement costs or the discontinuance of our technology licensing or product offerings |
| The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, which has resulted in often protracted and expensive litigation |
| For example, on March 31, 2004, we were sued by UniRAM Technology, Inc |
| in United States District Court for the Northern District of California based on claims of patent infringement and misappropriation of trade secrets that were allegedly disclosed by UniRAM to TSMC, which allegedly improperly provided them to us |
| Additionally, our licensees or we might, from time to time, receive notice of claims that we have infringed patents or other intellectual property rights owned by others |
| Litigation against us, including the UniRAM suit, could result in significant expense and divert the efforts of our technical and management personnel, whether or not the litigation results in a determination adverse to us |
| Although we believe that UniRAM’s claims lack merit and we intend to rigorously defend against them, in the event of an adverse result in any such litigation, we could be required to pay damages in an amount we cannot presently predict, cease the licensing of certain technology and expend resources to develop non-infringing technology or obtain licenses for the infringing technology |
| We cannot assure you that we would be successful in such development or that such licenses would be available on reasonable terms, or at all |
| The discovery of defects in our technology could expose us to liability for damages |
| The discovery of a defect in our 1T-SRAM technology could lead our licensees to seek damages from us |
| Our standard license terms include provisions waiving implied warranties regarding our technology and limiting our liability to our licensees |
| We also maintain insurance coverage that is intended to protect us against potential liability for defects in our technology |
| We cannot be certain, however, that the waivers or limitations of liability contained in our license contracts will be enforceable, that insurance coverage will continue to be available on reasonable terms or in amounts sufficient to cover one or more large claims or that our insurer will not disclaim coverage as to any future claim |
| The successful assertion of one or more large claims that exceed available insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could cause our expenses to rise significantly and consequently harm our profitability |
| Our failure to manage the growth of our business could reduce our potential revenue and threaten our future profitability |
| The size of our company has increased substantially as we grew from 43 employees in January 2001 to 76 employees in December 2005 |
| The efficient management of our planned expansion of the development, licensing and marketing of our technology, including through the acquisition of other companies will require us to continue to— · implement and manage new marketing channels to penetrate different and broader markets for our 1T-SRAM technologies; · manage an increasing number of complex relationships with licensees and co-marketers and their customers and other third parties; · expand our capabilities to deliver our technologies to our customers; · improve our operating systems, procedures and financial controls on a timely basis; 23 ______________________________________________________________________ · hire additional key management and technical personnel; and · expand, train and manage our workforce and, in particular, our development, sales, marketing and support organizations |
| We cannot assure you that we will adequately manage our growth or meet the foregoing objectives |
| A failure to do so could jeopardize our future revenues and cause our stock price to fall |
| If we fail to retain key personnel, our business and growth could be negatively affected |
| Our business has been dependent to a significant degree upon the services of a small number of executive officers and technical employees, including Dr |
| Wingyu Leung, our Executive Vice President and Chief Technical Officer |
| The loss of his services could negatively impact our technology development efforts and our ability to perform our existing agreements and obtain new customers |
| We generally have not entered into employment or non-competition agreements with any of our employees and do not maintain key-man life insurance on the lives of any of our key personnel |
| Our failure to successfully address the potential difficulties associated with our international operations could increase our costs of operation and negatively impact our revenue |
| We are subject to many difficulties posed by doing business internationally, including— · foreign currency exchange fluctuations; · unanticipated changes in local regulation; · potentially adverse tax consequences, such as withholding taxes; · difficulties regarding timing and availability of export and import licenses; · political and economic instability; and · reduced or limited protection of our intellectual property |
| Because we anticipate that licenses to companies that operate primarily outside the United States will account for a substantial portion of our licensing revenue in future periods, the occurrence of any of these circumstances could significantly increase our costs of operation, delay the timing of our revenue and harm our profitability |
| Provisions of our certificate of incorporation and bylaws or Delaware law might delay or prevent a change of control transaction and depress the market price of our stock |
| Various provisions of our certificate of incorporation and bylaws might have the effect of making it more difficult for a third party to acquire, or discouraging a third party from attempting to acquire, control of our company |
| These provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock |
| Certain of these provisions eliminate cumulative voting in the election of directors, limit the right of stockholders to call special meetings and establish specific procedures for director nominations by stockholders and the submission of other proposals for consideration at stockholder meetings |
| We are also subject to provisions of Delaware law which could delay or make more difficult a merger, tender offer or proxy contest involving our company |
| In particular, Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years unless specific conditions are met |
| Any of these provisions could have the effect of delaying, deferring or preventing a change in control, including without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block of our common stock |
| 24 ______________________________________________________________________ Our board of directors may issue up to 20cmam000cmam000 shares of preferred stock without stockholder approval on such terms as the board might determine |
| The rights of the holders of common stock will be subject to, and might be adversely affected by, the rights of the holders of any preferred stock that might be issued in the future |
| Our stockholder rights plan could prevent stockholders from receiving a premium over the market price for their shares from a potential acquirer |
| We have adopted a stockholder rights plan, which entitles our stockholders to rights to acquire additional shares of our common stock generally when a third party acquires 15prca of our common stock or commences or announces its intent to commence a tender offer for at least 15prca of our common stock |
| In 2004, we amended our stockholder rights plan twice; once, in connection with the proposed acquisition of corporation by Synopsys, Inc, and a second time to permit the acquisition of shares representing more than 15prca of our common stock by a brokerage firm that manages independent customer accounts and generally does not have any discretionary voting power with respect to such shares |
| Notwithstanding amendments of this nature, our intention is to maintain and enforce the terms of this plan, which could delay, deter or prevent an investor from acquiring us in a transaction that could otherwise result in stockholders receiving a premium over the market price for their shares of common stock |
| A limited number of stockholders have the ability to influence the outcome of director elections and other matters requiring stockholder approval |
| Our executive officers, directors and their affiliates or non-affiliate related entities, in the aggregate, beneficially own approximately 11prca of our common stock |
| These stockholders acting together have the ability to exert substantial influence over all matters requiring the approval of our stockholders, including the election and removal of directors and any proposed acquisition, consolidation or sale of all or substantially all of our assets |
| In addition, they could dictate the management of our business and affairs |
| This concentration of ownership could have the effect of delaying, deferring or preventing a change in control, or impeding an acquisition, consolidation, takeover or other business combination, which might otherwise result in stockholders receiving a premium over the market price for their shares of common stock |
| Potential volatility of the price of our common stock could negatively affect your investment |
| We cannot assure you that there will continue to be an active trading market for our common stock |
| Recently, the stock market, as well as our common stock, has experienced significant price and volume fluctuations |
| Market prices of securities of technology companies have been highly volatile and frequently reach levels that bear no relationship to the operating performance of such companies |
| These market prices generally are not sustainable and are subject to wide variations |
| If our common stock trades to unsustainably high levels, it is likely that the market price of our common stock will thereafter experience a material decline |
| In April 2004, we announced that our board of directors had authorized the repurchase of up to dlra25 million of our common stock from time to time over the succeeding 12 months, and as result, we repurchased approximately dlra4dtta7 million or 1dtta2 million shares of our common stock |
| On April 29, 2005, we announced a repurchase program for up to dlra20 million of outstanding common stock over the next 12 months |
| Any such repurchases could impact the price of our common stock and increase volatility |
| In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities |
| We could be the target of similar litigation in the future |
| Securities litigation could cause us to incur substantial costs, divert management’s attention and resources, harm our reputation in the industry and the securities markets and reduce our profitability |
| 25 ______________________________________________________________________ The price of our stock could decrease as a result of shares being sold in the market by directors, officers and other significant stockholders |
| Sales of a substantial number of shares of common stock in the public market could adversely affect the market price of the common stock prevailing from time to time |
| The number of shares of our common stock available for sale in the public market is limited by restrictions under the Securities Act of 1933, as amended, or the Securities Act, but taking into account sales of stock made in accordance with the provisions of Rules 144(k), 144 and 701, substantially all the shares of common stock currently outstanding are eligible for sale in the public market |
| Our Executive Vice President, Chief Technical Officer, and Director, Wingyu Leung has entered into a new plan under Rule 10b5-1 of the Securities Exchange Act of 1934 |
| It provides for aggregate sales of 500cmam000 shares in blocks of 25cmam000 shares each on the 3rd day and the 18th day of each month |
| Sales are executed using a market not held order entered prior to market open on the 3rd day and the 18th day of each month |
| Trading shall commence on March 3, 2006 |
| The duration of this plan is from February 20, 2006 to December 29, 2006 |
| Sales of the shares are further subject to the volume restrictions set forth in SEC Rule 144(e) |
| The plan provides for termination upon the completion of the specified trading program, the instruction of the stockholder, or the occurrence of other specified events, whichever is earliest |
| All of the shares are sold through broker-dealers in ordinary market transactions |
| Pre-designated trading under this plan may cause unexpected declines in the market price of our common stock |
| In addition, subject to compliance with applicable securities laws and our insider trading policies, each of our directors and executive officers may sell shares of common stock from time to time |