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The markets in which we operate are cyclical and a reduction in customer demand in any particularfinancial period could significantly harm our financial condition.Customer demand is cyclical in the technology industry in general, and the disk drive productionequipment market in particular. One reason for the particular variability in demand for these productsis that, for our customers, the decision to invest in new or upgraded production facilities is a strategicdecision that involves a significant commitment of their financial resources. A customer’s decision isdependent upon several factors, including its financial condition, the condition and obsolescence of itsexisting production facilities, the expected demand for its products and general confidence in itsbusiness. Our revenues are likely to continue to reflect the cyclical nature of the technology industry.Demand for our disk drive production equipment products is also linked to developments in thedisk drive market. The market for disk drives has historically experienced periods of productionover-capacity which have in turn led to the deterioration of market prices for data storage products.The confidence of our customers to invest in new disk drive production equipment does not usuallyrecover until supplies of disk drives are reduced or new technologies are introduced. Futureover-capacity in the disk drive market could result in a significant decrease in demand for our products,and this could significantly harm our financial condition.Because original equipment manufacturers comprise a substantial portion of our customer base, we havelimited control over the volume and pricing of our products, which could significantly harm our financialcondition.We sell our Storage and Network Systems products primarily to original equipment manufacturers,or OEMs, and our Storage Infrastructure products directly to disk drive manufacturers. As a result, thequantity of products that we sell is significantly affected by our OEM customers’ volume requirements,over which we have little control. We are subject to continued pricing pressures from our customers,particularly our OEM customers. If these volume requirements decrease or pricing pressures increase,our financial condition could be significantly harmed.Our operating results are subject to substantial quarterly and annual fluctuations, our period to periodcomparisons are not necessarily meaningful and we may not meet the expectations of public market analystsand investors.Our revenues in any quarter are substantially dependent upon customer orders in that quarter. Weattempt to project future orders based in part on estimates from our major customers. For thispurpose, arrangements with major customers will usually include the estimated future volumerequirements of that customer. Our customers’ estimated requirements are not always accurate and wetherefore cannot predict our quarterly revenues with any degree of certainty.Our typical pricing model is based on several variables (including overall volume of productsordered and the type and cost of components) which also makes it difficult for us to accurately predictfuture revenues. In addition, we regularly develop new products. Revenues from new products aredifficult for us to predict accurately. Any delay in the development of new products could furthercomplicate revenue predictions and result in a reduction in our expected revenues.8
Our quarterly operating results have fluctuated significantly in the past, as shown in the tablebelow.Net Income (Loss)from ContinuingQuarter Revenues Operations(unaudited)(U.S. dollars in thousands)First Quarter 2004 ......................................... $119,285 $ 17,871Second Quarter 2004 ....................................... 108,122 5,057Third Quarter 2004 ........................................ 114,906 (153,381)Fourth Quarter 2004 ........................................ 116,701 8,208First Quarter 2005 ......................................... 142,523 9,443Second Quarter 2005 ....................................... 169,604 11,050Third Quarter 2005 ........................................ 163,918 7,857Fourth Quarter 2005 ........................................ $203,564 $ 13,539In addition, we may derive a significant portion of our revenues in each quarter from a smallnumber of relatively large orders. If one or more of our major customers decides to defer a purchaseorder in any given quarter, this is likely to result in reduced total revenues for that quarter.Accordingly, comparisons of our quarterly results of operations or other period to period comparisonsare not necessarily meaningful and should not be relied on as an indication of our future performance.Our quarterly and annual revenues and results of operations may also fluctuate significantly if oneor more of the risk factors identified in this <strong>Annual</strong> <strong>Report</strong> occurs and, depending upon the timing ofthat event, may have a disproportionate effect in any given quarter or year. In addition, it is possiblethat some future results of operations may be below the expectations of public market analysts andinvestors.Our market is highly competitive and we may not be able to compete effectively.We operate in markets that are highly competitive and subject to rapid change and that aresignificantly affected by new product introductions and other market activities of industry participants.We expect competition to persist and intensify in the future. Our principal sources of competitioninclude:• companies providing storage subsystems and components to OEMs, including Dot Hill SystemsCorp. and LSI trading as Engenio Information Technologies Inc.;• in-house development efforts by existing and potential customers, particularly in the storageinfrastructure market; and• collaborations between in-house development teams and emerging technology companies.In addition, we face potential competition from new entrants including our current technologysuppliers.Some of our current and potential competitors may have longer operating histories, loweroperating costs, or greater financial, technical, marketing or other resources than we do and we cannotassure you that we will have the resources to compete successfully in the future. In addition, some ofour competitors have the resources to enable them to adopt aggressive pricing policies to gain marketshare or to shift production to lower cost regions. If we are unable to compete successfully against ourcurrent and future competitors, we could experience profit margin reductions or loss of market share,which could significantly harm our financial condition.Our competitors may consolidate or form alliances with each other in the future. The successfulconsolidation of two or more of our competitors could result in the combination of their resources and9
Page 3: XYRATEX LTDANNUAL REPORT FOR THE YE
Page 6 and 7: INTRODUCTIONWe are incorporated und
Page 8 and 9: Year Ended November 30,2005 2004 20
Page 10 and 11: The computations for the weighted a
Page 14 and 15: technological capabilities. This co
Page 16 and 17: may cease production of components,
Page 18 and 19: • potentially adverse tax consequ
Page 20 and 21: We could incur substantial costs, i
Page 22 and 23: influence by voting at a meeting of
Page 24 and 25: Xyratex Ltd to the former sharehold
Page 26 and 27: In addition to the rapid growth of
Page 28 and 29: RAID controller technology is proje
Page 30 and 31: Our Competitive StrengthsDisk drive
Page 32 and 33: the storage subsystem and disk driv
Page 34 and 35: Our storage subsystems are internal
Page 36 and 37: systems are capable of testing a fu
Page 38 and 39: Research and DevelopmentWe have ove
Page 40 and 41: • sets forth procedures for the p
Page 42 and 43: Item 4C: Organization StructureXyra
Page 44 and 45: ecame the parent company of our bus
Page 46 and 47: Foreign Exchange Rate FluctuationsT
Page 48 and 49: we recorded in the year ended Novem
Page 50 and 51: Fiscal Year Ended November 30, 2005
Page 52 and 53: Research and Development—otherThe
Page 54 and 55: Fiscal Year Ended November 30, 2004
Page 56 and 57: Selling, General and Administrative
Page 58 and 59: Quarterly Results of OperationsThe
Page 60 and 61: sales growth. The increase in defer
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choose to make or alliances we have
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compete. Identifiable intangible as
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ITEM 6: DIRECTORS, SENIOR MANAGEMEN
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Ernest Sampias has served as a dire
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Audit CommitteeOur Audit Committee
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Employee Benefit/Share Option Plans
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The maximum amount that any partici
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Restricted StockRestricted stock aw
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the options, warrants or rights, bu
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Quarterly high and low market price
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whose functional currency is not th
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on the Nasdaq National Market and,
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Interest RatesWe had cash and cash
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aggregate in any fiscal year and th
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XYRATEX LTDAUDITED CONSOLIDATED BAL
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F-4XYRATEX LTDAUDITED CONSOLIDATED
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XYRATEX LTDNOTES TO AUDITED CONSOLI
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