Finisar (FNSR)

Our market is subject to rapid technological change, and to compete effectively we must continually introduce new products that achieve market acceptance

        The markets for our products are characterized by rapid technological change, frequent new product introductions, changes in customer requirements and evolving industry standards with respect to the protocols used in data communications networks. We expect that new technologies will emerge as competition and the need for higher and more cost-effective bandwidth increases. Our future performance will depend on the successful development, introduction and market acceptance of new and enhanced products that address these changes as well as current and potential customer requirements. For example, we expect that our ability to achieve sustained revenue growth in the markets for LAN, MAN and telecom applications will depend to a large extent on our ability to successfully develop and introduce new 10 Gbps transceiver and transponder solutions. The introduction of new and enhanced products may cause our customers to defer or cancel orders for existing products. In addition, a slowdown in demand for existing products ahead of a new product introduction could result in a write-down in the value of inventory on hand related to existing products. We have in the past experienced a slowdown in demand for existing products and delays in new product development and such delays may occur in the future. To the extent customers defer or cancel orders for existing products due to a slowdown in demand or in the expectation of a new product release or if there is any delay in development or introduction of our new products or enhancements of our products, our operating results would suffer. We also may not be able to develop the underlying core technologies necessary to create new products and enhancements, or to license these technologies from third parties. Product development delays may result from numerous factors, including:

•

changing product specifications and customer requirements;



•

unanticipated engineering complexities;



•

expense reduction measures we have implemented, and others we may implement, to conserve our cash and attempt to achieve and sustain profitability;



•

difficulties in hiring and retaining necessary technical personnel;



•

difficulties in reallocating engineering resources and overcoming resource limitations; and



•

changing market or competitive product requirements.

        The development of new, technologically advanced products is a complex and uncertain process requiring high levels of innovation and highly skilled engineering and development personnel, as well as the accurate anticipation of technological and market trends. We cannot assure you that we will be able to identify, develop, manufacture, market or support new or enhanced products successfully, if at all, or on a timely basis. Further, we cannot assure you that our new products will gain market acceptance or that we will be able to respond effectively to product announcements by competitors, technological changes or emerging industry standards. Any failure to respond to technological change would significantly harm our business.

Continued competition in our markets may lead to a reduction in our prices, revenues and market share

        The end markets for optical products have experienced significant industry consolidation during the past few years while the industry that supplies these customers has not. As a result, the markets for optical subsystems and components and network performance test systems for use in LANs, SANs and MANs are highly competitive. Our current competitors include a number of domestic and international companies, many of which have substantially greater financial, technical, marketing and distribution resources and brand name recognition than we have. We may not be able to compete successfully against either current or future competitors. Increased competition could result in significant price erosion, reduced revenue, lower margins or loss of market share, any of which would significantly harm

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our business. For optical subsystems, we compete primarily with Avago Technologies, JDS Uniphase, Intel, Opnext, Sumitomo, Optium, with whom we've entered into a merger agreement, and a number of smaller vendors. For network performance test systems, we compete primarily with Agilent Technologies and LeCroy. Our competitors continue to introduce improved products and we will have to do the same to remain competitive.

Our market is subject to rapid technological change, and to compete effectively we must continually introduce new products that achieve market acceptance

        The markets for our products are characterized by rapid technological change, frequent new product introductions, changes in customer requirements and evolving
industry standards with respect to the protocols used in data communications networks. We expect that new technologies will emerge as competition and the need for higher and more
cost-effective bandwidth increases. Our future performance will depend on the successful development, introduction and market acceptance of new and enhanced products that address these
changes as well as current and potential customer requirements. For example, we expect that our ability to achieve sustained revenue growth in the markets for LAN, MAN and telecom applications will
depend to a large extent on our ability to successfully develop and introduce new 10 Gbps transceiver and transponder solutions. The introduction of new and enhanced products may cause our customers
to defer or cancel orders for existing products. In addition, a slowdown in demand for existing products ahead of a new product introduction could result in a write-down in the value of
inventory on hand related to existing products. We have in the past experienced a slowdown in demand for existing products and delays in new product development and such delays may occur in the
future. To the extent customers defer or cancel orders for existing products due to a slowdown in demand or in the expectation of a new product release or if there is any delay in development or
introduction of our new products or enhancements of our products, our operating results would suffer. We also may not be able to develop the underlying core technologies necessary to create new
products and enhancements, or to license these technologies from third parties. Product development delays may result from numerous factors, including:

•

changing
product specifications and customer requirements;




•

unanticipated
engineering complexities;




•

expense
reduction measures we have implemented, and others we may implement, to conserve our cash and attempt to achieve and sustain profitability;




•

difficulties
in hiring and retaining necessary technical personnel;




•

difficulties
in reallocating engineering resources and overcoming resource limitations; and




•

changing
market or competitive product requirements.

        The
development of new, technologically advanced products is a complex and uncertain process requiring high levels of innovation and highly skilled engineering and development personnel,
as well as the accurate anticipation of technological and market trends. We cannot assure you that we will be able to identify, develop, manufacture, market or support new or enhanced products
successfully, if at all, or on a timely basis. Further, we cannot assure you that our new products will gain market acceptance or that we will be able to respond effectively to product announcements
by competitors, technological changes or emerging industry standards. Any failure to respond to technological change would significantly harm our business.

Continued competition in our markets may lead to a reduction in our prices, revenues and market share

        The end markets for optical products have experienced significant industry consolidation during the past few years while the industry that supplies these
customers has not. As a result, the markets for optical subsystems and components and network performance test systems for use in LANs, SANs and MANs are highly competitive. Our current competitors
include a number of domestic and international companies, many of which have substantially greater financial, technical, marketing and distribution resources and brand name recognition than we have.
We may not be able to compete successfully against either current or future competitors. Increased competition could result in significant price erosion, reduced revenue, lower margins or loss of
market share, any of which would significantly harm

24

our
business. For optical subsystems, we compete primarily with Avago Technologies, JDS Uniphase, Intel, Opnext, Sumitomo, Optium, with whom we've entered into a merger agreement, and a number of
smaller vendors. For network performance test systems, we compete primarily with Agilent Technologies and LeCroy. Our competitors continue to introduce improved products and we will have to do the
same to remain competitive.