Download Annual Report, 2.44 MB - Xyratex

Research and DevelopmentWe have over 20 years of research and development experience in disk drive development, storagesystems and high-speed communication protocols. We believe we have been first-to-market with severalof our data storage subsystem and test and process equipment products that complement ourcustomers’ core competencies and objectives.Our research and development program is focused on the development of new and enhancedproducts that can support emerging communication protocols while continuing to accommodate legacytechnologies. We believe that this focus positions us to capitalize on emerging technologies andstandards, such as iSCSI, SAS, and AS, while continuing to support existing technologies, such as FibreChannel, SCSI, SATA, ATA and both Gigabit Ethernet and 10 Gigabit Ethernet. We have also investedsignificantly in software and the design of programmable logic devices, such as Field ProgrammableGate Arrays, or FPGA, and in the integration of switching technology into our range of storagesubsystems.We typically undertake between eight to ten significant research and development efforts eachyear, in addition to a number of smaller research and development projects. As of November 30, 2005,we were engaged in 17 research and development projects related to our Storage and Network Systemsbusiness and 20 projects related to our Storage Infrastructure business. Approximately ten of theseprojects are focused on developing new technologies or applications and the remainder are focused onimproving existing technologies or applications. We review the status of all of our active research anddevelopment projects semi-annually and make adjustments to the investment levels of these projects asneeded.Over the past three fiscal years, we have increased our research and development expenditureseach year and have spent an aggregate of $141.9 million (including $26.4 million of equitycompensation and a benefit of $6.0 million in connection with a development arrangement with asupplier) during this period. We have consistently maintained approximately 30 percent of ouremployees in research and development during this period. These employees have an average of overten years of experience in research and development.We believe that our future success will depend in part on our ability to continue to deliveradvanced products and technologies to all of the markets we serve. We maintain close long-termrelationships with industry-leading companies, including both customers and suppliers, in order todevelop tailored products to meet specific customer requirements. We enter into joint developmentprojects with our customers. Our close relationships with both customers and suppliers give us aninsight into industry trends and the future needs of the industry which enables us to focus andprioritize our investment in future research and development.We carry out our research and development activities in Havant, United Kingdom; Chicago, Ithaca,Lake Mary, San Jose and Scotts Valley, United States; and Seremban, Malaysia.Intellectual PropertyOur success is dependent upon our ability to develop and maintain the proprietary aspects of ourtechnology and to operate without infringing the proprietary rights of others. We rely on a combinationof patent, copyright, trademark and trade secret laws, and generally have intellectual propertyagreements governing our relationships with our customers, suppliers, employees and consultants. As ofNovember 30, 2005, we had 28 U.S. patents granted, 45 U.S. patents pending, 37 non-U.S. patentsgranted and 84 non-U.S. patents pending.We have documented internal processes for the management and protection of our intellectualproperty. These include standard forms for patent filing, design and trademark registration, employeeand contractor supplier agreements, and non-disclosure agreements. We file patent applications when34