15. OUR LENGTHY AND VARIABLE SALES CYCLES MAKE IT DIFFICULT FOR US TO PREDICT WHEN AND IF A DESIGN WIN WILL RESULT IN VOLUME SHIPMENTS.

We depend upon companies designing our microprocessors into their products, which we refer to as design wins. Many of our targeted customers consider the choice of a microprocessor to be a strategic decision. Our targeted customers may take a long time to evaluate our products, and many individuals may be involved in the evaluation process. We anticipate that the length of time between our initial contact with a customer and the time when we recognize revenue from that customer will vary. We expect our sales cycles to range from six to twelve months from the time we achieve the design win to the time the customer begins volume production of products that incorporate our microprocessors. We do not have historical experience selling our products that is sufficient for us to determine how our sales cycles will affect our revenue. Variations in the length of our sales cycles could cause our revenue to fluctuate widely from period to period. While potential customers are evaluating our products and before they place an order with us, we may incur sales and marketing expenses and expend significant management and engineering resources without any assurance of success. The value of any design win depends upon the commercial success of our targeted customers' products. Therefore, we take risks related to project cancellations or changed product plans, which could result in the loss of anticipated sales. We can offer no assurance that we will achieve further design wins or that the products for which we achieve design wins will be commercially successful.

The semiconductor industry is characterized by rapid technological change, frequent new product introductions and enhancements and ongoing customer demands for greater performance. In addition, the average selling price of any particular microprocessor product has historically decreased over its life, and we expect that trend to continue. As a result, our products may not be competitive if we fail to introduce new products or product enhancements that meet evolving customer demands. The development of new products is complex, and we may not be able to complete development in a timely manner, or at all. To introduce products on a timely basis, we must: - accurately define and design new products to meet market needs; - design features that continue to differentiate our products from those of our competitors; - transition our products to new manufacturing process technologies; - identify emerging technological trends in our target markets; - anticipate changes in end-user preferences with respect to our customers' products; - bring products to market on a timely basis at competitive prices; and - respond effectively to technological changes or product announcements by others. We believe that we will need to continue to enhance our products and develop new products to keep pace with competitive and technological developments and to achieve market acceptance for our products.

17. OUR DEPENDENCE ON IBM TO FABRICATE WAFERS AND TO PROVIDE ASSEMBLY AND TEST SERVICES LIMITS OUR CONTROL OVER THE PRODUCTION, SUPPLY AND DELIVERY OF OUR PRODUCTS.

The cost, quality and availability of third-party manufacturing operations are essential to the successful production of our products. We currently rely exclusively on IBM to fabricate our wafers. Our contract with IBM does not obligate IBM to provide us with any specified number of wafers at any specified price until IBM has accepted a purchase order. The absence of dedicated capacity under our agreement means that, with little or no notice, IBM could refuse to continue to fabricate all or some of the wafers that we require or change the terms under which it fabricates wafers. If IBM were to stop manufacturing for us, we would likely be unable to replace the lost capacity on a timely basis, which would significantly harm our business. Transferring to another manufacturer would require a significant amount of time, and a smooth and timely transition would be unlikely. In addition, if IBM were to change the terms under which it manufactures for us, our manufacturing costs could increase. Our reliance on a third-party manufacturer exposes us to the following risks outside our control: - unpredictability of manufacturing yields and production costs; - interruptions in shipments; - potential lack of adequate capacity to fill all or part of the services we require; - inability to control quality of finished products; - inability to control product delivery schedules; and - potential lack of access to key fabrication process technologies. Because IBM provides substantially all of our required assembly and test services, we do not directly control our product delivery schedules. This lack of control could result in product shortages as IBM manufactures our current products in volume and, in the future, as we introduce new products. Product shortages could increase our fabrication, assembly or testing costs or delay delivery of our products. We do not have a long-term contract with IBM for test and assembly services, and we typically procure these services from IBM on a per order basis. Therefore, we may not be able to obtain assembly and testing services for our products on acceptable terms, or at all. If we are required to find and qualify alternative assembly or testing services, we could experience delays in product shipments or a decline in product quality.

18. WE MAY NOT ACHIEVE ACCEPTABLE MANUFACTURING YIELDS, WHICH COULD INCREASE THE COST AND REDUCE THE SUPPLY OF OUR PRODUCTS.

The fabrication of wafers for our microprocessors is a highly complex and precise process that requires production in a tightly controlled, clean room environment. Minute impurities, difficulties in the fabrication process, defects in the masks used to print circuits on a wafer or other factors can cause numerous die on each wafer to be nonfunctional. The proportion of functional die expressed as a percentage of total die on a wafer is referred to as product "yield." Even with functional die, normal variations in wafer fabrication can cause some die to run faster than others. Semiconductor companies frequently encounter difficulties in achieving expected product yields. If we do not achieve expected yields, our product costs would increase. Variations in speed yield could lead to excess inventory of slower products and insufficient inventory of faster products, depending upon customer demand. Further, as our products mature, we may experience yield problems as we migrate our manufacturing processes to smaller geometries. Yield problems may not be identified and resolved until a product has been manufactured and can be analyzed and tested, if ever. As a result, yield problems are often difficult, time consuming and expensive to correct. Yield problems could hamper our ability to deliver our products to our customers in a timely manner.