Download Annual Report, 2.44 MB - Xyratex

• sets forth procedures for the provision of notice of the obsolescence of electronic cards orconstituent parts.Supply ArrangementsWe order parts from our suppliers through purchase orders, on an as needed basis. Each purchaseorder we issue specifies the component required and any related design specifications and the price forthe component based on frequently updated price lists. In addition, with certain suppliers, we have alsoimplemented trading agreements to clarify specific business practices and agreements between ourselvesand the supplier. These trading agreements do not contractually commit us to order goods or servicesfrom these suppliers, nor do they restrict us from obtaining equivalent goods or services from othersuppliers. The trading agreements can also:• provide that we retain all rights to intellectual property developed or created for us by oursuppliers;• grant the supplier the right to apply for patent protection on any invention developed by thesupplier in connection with its supply of components to us and grant us a nonexclusive,worldwide, license to use any patents granted;• contain assignment, termination and confidentiality provisions and quality warranties;• make provision for a royalty bearing manufacturing license upon either Xyratex ceasing to trade,or being acquired by a competitor of our major customers, or be in material breach of contract.This license would usually also grant rights of access to any technical information required tomake the license usable;• contain commitments to work with our customers on specific cost improvement programs; and• define any quality and shipping control requirements and define corrective processes, proceduresand penalties incurred in managing any exceptions.Sales and MarketingWe market and sell our products primarily to leading OEMs and disk drive manufacturers, and toa small number of other companies. Our sales and marketing activities are actively supported by oursenior business development managers and key individuals from our research and development team.Because these employees have an in-depth understanding of our products, we believe they are wellpositioned to provide support to sales and marketing activities and serve the needs of our customers.Our sales and marketing model also allows us to develop strategic relationships based on our technicalknow-how. Although we do not maintain a traditional sales and marketing group, we employ a numberof sales representatives who support our sales activities in key markets by identifying potential newcustomers and managing our ongoing customer relations. We undertake certain targeted advertising,attend industry trade shows and participate in industry associations as part of our sales and marketingactivities. As of November 30, 2005 we had 140 employees involved in direct sales and marketingactivities.Our sales and marketing efforts focus on acquiring new customers and deepening our relationshipswith our existing customers. Our relationships with new customers frequently begin with supplying keytechnology components and develop into arrangements for the provision of more comprehensivetechnology solutions. Our sales cycle is typically long and in some cases it can take up to 18 months forour new customers to evaluate our technology and business.Our customers are primarily U.S. companies with global operations. We ship to their operations inthe United States, Asia and Europe. The following table sets forth the percentage of our revenues36