<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13(d) OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO
__________.
COMMISSION FILE NUMBER: 0-23296
CIDCO INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3500734
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
220 COCHRANE CIRCLE
MORGAN HILL, CA 95037
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(408) 779-1162
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO ____
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK ON MAY 7, 1998
WAS 14,036,174.
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<PAGE> 2
CIDCO INCORPORATED
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
ITEM 1. Financial Statements:
Balance sheet at March 31, 1998
and December 31, 1997 .........................................3
Statement of operations for the three months
ended March 31, 1998 and 1997 .................................4
Statement of cash flows for the three months
ended March 31, 1998 and 1997 .................................5
Notes to financial statements ....................................6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ...............................................17
ITEM 2. Changes in Securities ...........................................17
ITEM 3. Defaults Upon Senior Securities .................................17
ITEM 4. Submission of Matters to a Vote of Security Holders .............17
ITEM 5. Other Information ...............................................17
ITEM 6. Exhibits and Reports on Form 8-K ................................17
SIGNATURES .....................................................................18
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIDCO INCORPORATED
BALANCE SHEET
(in thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................. $ 53,703 $ 48,253
Short-term investments ................................ 23,737 26,486
Accounts receivable, net of allowance
for doubtful accounts of $3,675 and $3,301 ......... 45,341 58,082
Inventories ........................................... 14,352 12,904
Deferred tax asset .................................... 11,808 11,808
Other current assets .................................. 4,222 1,306
--------- ---------
Total current assets ............................... 153,163 158,839
Property and equipment, net .............................. 16,846 12,591
Other assets ............................................. 1,712 1,998
--------- ---------
$ 171,721 $ 173,428
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................... $ 29,323 $ 29,868
Accrued liabilities ................................... 16,281 10,955
Accrued taxes payable ................................. -- 1,875
--------- ---------
Total current liabilities .......................... 45,604 42,698
--------- ---------
Stockholders' equity:
Common stock, $.01 par value; 35,000 shares authorized,
15,030 and 14,955 shares issued ..................... 150 149
Additional paid-in capital ............................ 90,373 89,608
Treasury stock, at cost (1,000 shares) ................ (12,942) (12,942)
Retained earnings ..................................... 48,536 53,915
--------- ---------
Total stockholders' equity ........................ 126,117 130,730
--------- ---------
$ 171,721 $ 173,428
========= =========
</TABLE>
3
The accompanying notes are an integral part of these financial statements
<PAGE> 4
CIDCO INCORPORATED
STATEMENT OF OPERATIONS
(in thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Sales .............................. $ 69,354 $ 77,030
Cost of sales ...................... 52,055 42,783
-------- --------
Gross margin ....................... 17,299 34,247
-------- --------
Operating expenses:
Research and development ....... 3,589 4,060
Selling and marketing .......... 17,649 20,428
General and administrative ..... 3,483 2,890
Restructuring .................. 2,672 --
-------- --------
27,393 27,378
-------- --------
Income (loss) from operations ...... (10,094) 6,869
Other income, net .................. 1,447 459
-------- --------
Income (loss) before income taxes .. (8,647) 7,328
Provision (benefit) for income taxes (3,286) 2,931
-------- --------
Net income (loss) .................. $ (5,361) $ 4,397
======== ========
Basic earnings (loss) per share .... $ (0.38) $ 0.31
======== ========
Diluted earnings (loss) per share .. $ (0.38) $ 0.30
======== ========
Common shares outstanding .......... 14,003 14,077
======== ========
Common shares assuming dilution .... 14,003 14,678
======== ========
</TABLE>
4
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
CIDCO INCORPORATED
STATEMENT OF CASH FLOWS
(in thousands; unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows provided by operating activities:
Net income (loss) ........................................... $ (5,361) $ 4,397
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................ 1,291 1,552
Equity in losses of affiliate ............................ 205 387
Changes in assets and liabilities:
Accounts receivable .................................... 12,741 (12,137)
Inventories ............................................ (1,448) 5,377
Other current assets ................................... (2,916) (1,133)
Other assets ........................................... 81 (166)
Accounts payable ....................................... (545) 3,548
Accrued liabilities .................................... 5,326 981
Accrued taxes payable .................................. (1,875) 1,797
-------- --------
Net cash provided by operating activities ......... 7,499 4,603
-------- --------
Cash flows provided by (used in) investing activities:
Acquisition of property and equipment ....................... (5,546) (759)
Sale of short-term investments, net ......................... 2,731 2,446
-------- --------
Net cash provided by (used in) investing activities (2,815) 1,687
-------- --------
Cash flows provided by (used in) financing activities:
Issuance of Common Stock .................................... 766 341
Purchase of treasury stock .................................. -- (8,723)
-------- --------
Net cash provided by (used in) financing activities 766 (8,382)
-------- --------
Net increase (decrease) in cash and cash equivalents ........... 5,450 (2,092)
Cash and cash equivalents at beginning of period ............... 48,253 26,509
-------- --------
Cash and cash equivalents at end of period ..................... $ 53,703 $ 24,417
======== ========
Supplemental disclosure of cash flow information:
Cash paid for income taxes ................................. $ 2,075 $ 1,134
======== ========
</TABLE>
5
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying financial information is unaudited, but, in the opinion of
management, reflects all adjustments (which include only normal recurring
adjustments) necessary to present fairly the Company's financial position,
operating results and cash flows for those periods presented. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. The financial information should be read in conjunction
with the audited financial statements and notes thereto for the year ended
December 31, 1997 included in the Company's most recent Annual Report on Form
10-K filed with the Securities and Exchange Commission. Results for the interim
period are not necessarily indicative of results for the entire year.
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130, which
the Company was required to adopt in the quarter ended March 31, 1998,
establishes standards for reporting comprehensive income and its components in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income as defined includes all changes in
equity (net assets) during a period from non-owner sources. Examples of items to
be included in comprehensive income, which are excluded from net income, include
foreign currency translation adjustments and unrealized gain/loss on
available-for-sale securities. No comprehensive income information has been
presented as the impact of the disclosure required by FAS 130 is immaterial to
the financial statements of the Company.
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("FAS 131"). This statement
establishes standards for the way companies report information about operating
segments in annual financial statements. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The disclosures prescribed by FAS 131 are effective for calendar
1998, but are not required for interim financial statements in 1998.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No.128,
"Earnings Per Share" ("SFAS 128") during the fourth quarter of 1997. SFAS 128
requires presentation of both basic and diluted earnings per share ("EPS") on
the face of the income statement, basic EPS, which replaces primary EPS, is
computed by dividing net income available to common stockholders (numerator) by
the weighted average number of common shares outstanding (denominator) during
the period. Unlike the computation of primary EPS, basic EPS excludes the
dilutive effect of stock options. Diluted EPS replaces fully diluted EPS and
gives effect to all dilutive potential common shares outstanding during a
period. In computing diluted EPS, the average stock price for the period is used
in determining the number of shares assumed to be purchased from exercise of
stock options rather than the higher of the average or ending stock price as
used in the computation of fully diluted EPS.
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<PAGE> 7
Following is a reconciliation of the numerators and denominators of the basic
and diluted EPS:
<TABLE>
<CAPTION>
Three months ended March 31,
1998 1997
--------- --------
<S> <C> <C>
Net income (loss) used to compute earnings (loss) per common share . $ (5,361) $ 4,397
========= ========
Denominator used to compute basic earnings (loss) per common share . 14,003 14,078
Shares issuable on exercise of options(*) .......................... -- 840
-------- --------
Denominator used to compute diluted earnings (loss) per common share 14,003 14,678
======== ========
Basic earnings (loss) per share .................................... $ (0.38) $ 0.31
======== ========
Diluted earnings (loss) per share .................................. $ (0.38) $ 0.30
======== ========
</TABLE>
(*) Potential common stock relating to stock options for the quarter ending
March 31, 1998 has been excluded since its inclusion would be anti-dilutive.
Options to purchase 314,143 shares of common stock at prices ranging from $1.00
to $16.75 per share were outstanding as of March 31, 1998.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the interim
financial statements and the notes thereto in Part I, Item 1 of this Quarterly
Report.
HISTORICAL BACKGROUND
CIDCO Incorporated (the "Company"), a Delaware corporation, was incorporated in
July 1988 to design, develop and market subscriber telephone equipment that
would support Caller ID, Caller ID on Call Waiting and other intelligent network
services (collectively "Services") then being introduced by Regional Bell
Operating Companies ("RBOCs") and independent telephone operating companies,
both domestic and international (collectively with RBOCs, "Telcos"). The Company
began operations in 1989, initially funding its business with a capital
investment made by its founders. Prior to its initial public offering, the
Company financed its growth principally through internally generated funds and
short-term borrowings. In March 1994, the Company completed its initial public
offering of Common Stock and had two subsequent public offerings in 1994
resulting in capital infusions to the Company totaling approximately $59.4
million.
Historically, the Company's primary sales and distribution channels have been
through direct marketing fulfillment relationships with certain Telcos ("Agency
Fulfillment"), standard fulfillment of Telco-generated orders ("Non-Agency
Fulfillment"), wholesale shipments directly to Telcos ("Direct to Telco"), and,
to a lesser extent, international accounts, retail stores ("Retail"), and
original equipment manufacturers. Agency Fulfillment programs are sales
campaigns run by the Company involving the use of consumer mailings and
telemarketing to sell Services for the Telcos which utilize the Company's
products. As part of these programs the Company, acting as the Telco's "agent,"
generates an order for Services, such as Caller ID, and then ships an adjunct
product (or, less frequently, a phone product) to each Service customer
"acquired" through the campaign. In 1997, the Company's own direct marketing of
its telephone products and Agency Fulfillment resulted in net sales of $127
million. Non-Agency Fulfillment sales occur when the Company receives an order
from a Telco and ships the requested product directly to the end-user customer.
In the case of Non-Agency Fulfillment sales, the Telco generates the order by
performing the marketing activities themselves rather than retaining the Company
to perform such services, as in Agency Fulfillment programs. Agency Fulfillment
sales totaled 49%, 25%, and 2% of sales in 1997, 1996 and 1995, respectively.
Non-Agency Fulfillment sales accounted for 35%, 43%, and 68% of sales in 1997,
1996 and 1995, respectively.
This Report contains forward-looking statements which reflect the Company's
current views with respect to future events which may impact the Company's
results of operations and financial condition. In this report, the words
"anticipates," "believes," "expects," "intends," "future," and similar
expressions identify forward-looking statements. These forward-looking
statements are subject to risks and uncertainties and other factors, including
those set forth below under the caption "Factors Which May Affect Future
Results," which could cause actual future results to differ materially from
historical results or those described in the forward-looking statements. The
forward-looking statements contained in this Report should be considered in
light of these factors. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof.
8
<PAGE> 9
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of sales
represented by certain line items in the Company's Statement of operations:
<TABLE>
<CAPTION>
As a Percentage of Sales
Three months ended
March 31,
------------------------
1998 1997
------ ------
<S> <C> <C>
Sales .............................. 100.0% 100.0%
Cost of sales ...................... 75.1 55.5
------ ------
Gross margin ....................... 24.9 44.5
------ ------
Operating expenses:
Research and development ........ 5.2 5.3
Selling and marketing ........... 25.4 26.5
General and administrative ...... 5.0 3.8
Restructuring ................... 3.9 --
------ ------
39.5 35.6
Income (loss) from operations ...... (14.5) 8.9
Other income, net .................. 2.1 0.6
------ ------
Income (loss) before income taxes .. (12.4) 9.5
Provision (benefit) for income taxes (4.7) 3.8
------ ------
Net income (loss) .................. (7.7)% 5.7%
====== ======
</TABLE>
Sales
Sales are recognized upon shipment of the product to the customer less reserves
for anticipated returns or, in the case of Agency Fulfillment, non-retention of
certain Services provided by the Telcos, and customer credit worthiness. Sales
decreased 10% to $69.4 million in the first quarter of 1998 from $77.0 million
in the first quarter of 1997, primarily due to decreased unit sales of the
Company's adjunct products through the Company's Agency Fulfillment programs for
Caller ID services on behalf of certain Telcos, and a significant decline in the
average selling price per unit of adjunct products due to competitive pricing
pressures from both Asian suppliers to the United States market and certain
North American suppliers. These decreases were partially offset by increases in
SmartPhones sold through the Company's Non-Agency Fulfillment and the Company's
own direct marketing of its SmartPhone products and increased sales of adjunct
products to international Telcos. Total Agency Fulfillment programs for Caller
ID services on behalf of Telcos decreased to 32% of sales from 50% in the first
quarter of 1997. Adjunct product sales decreased to 73% of dollar sales volume
in the first quarter of 1998 from 96% of dollar sales volume in the first
quarter of 1997. Unit sales of adjunct products remained flat in the first
quarter of 1998, as compared to the first quarter of 1997, however, the average
selling price of adjunct products dropped 36% from the first quarter of 1997 to
the first quarter of 1998.
Gross margin
Cost of sales includes the cost of finished goods purchased from the Company's
offshore contract manufacturers, costs associated with procuring and warehousing
the Company's inventory and royalties payable on licensed technology used in the
Company's products. Gross margin as a percentage of sales decreased to 24.9% in
the first quarter of 1998, from 44.5% in the first quarter of 1997. This
decrease was primarily due to a 36% decline in the average selling price of the
Company's adjunct products caused by competitive pricing pressure, an increased
proportion of sales of adjunct products Direct to Telcos, which have lower gross
margins, and decreased sales of the Company's products through the Company's
Agency Fulfillment programs for Caller ID Services on behalf of the Telcos,
which typically yield higher gross margins. The increase in cost of sales in the
first quarter of 1998 included a $4.0 million charge for the write-off of
inventory related to product performance issues on a key component used in
certain of the Company's adjunct products. The first quarter of 1997 included a
$4.3 million charge to write down to net realizable value certain of the
Company's inventory and a number of large fulfillment programs which provided
free freight to the customer. The Company expects gross margins to vary in the
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<PAGE> 10
future due to changes in sales mix by distribution channel and product mix. In
addition, the Company believes gross margins, excluding the impact of
non-recurring charges, will remain at approximately the level experienced in the
first quarter of 1998 for the remainder of 1998 as a result of competitive
pricing pressures and a shift in channel mix away from Agency Fulfillment
Programs.
Research and development expenses
Research and development expenses represent salaries for personnel, associated
benefits and tooling and supplies for research and development activities. The
Company's policy is to expense all research and development expenditures as
incurred except for certain investments for tooling. Research and development
expenses decreased to $3.6 million in the quarter ended March 31, 1998 from $4.1
million in the first quarter of 1997. This decrease primarily resulted from
decreased spending on adjunct related development projects. Development costs
for Internet products are expected to increase during the remainder of 1998, as
the Company invests in developing the next-generation of products within its
Internet Solutions Division. Research and development expenses as a percentage
of sales decreased slightly to 5.2% in the quarter ended March 31, 1998 from
5.3% in the same period of 1997. The Company expects that research and
development expenses will remain at approximately the level experienced in the
first quarter of 1998 during the remainder of 1998.
Selling and marketing expenses
Selling and marketing expenses represent personnel costs, telephone and
electronic data exchange expenses, promotional costs and travel expenses.
Selling and marketing expenses decreased to $17.6 million in the quarter ended
March 31, 1998, from $20.4 million in the comparable period of 1997. As a
percentage of sales, selling and marketing expenses decreased to 25.4% in the
quarter ended March 31, 1998, from 26.5% in the same period of 1997. This
decrease was due principally to decreased sales through the Company's Agency
Fulfillment programs for Services partially offset by the increased
telemarketing costs associated with the expansion of the Company's own direct
marketing of its telephone products. The Company expects that selling and
marketing expenses as a percentage of sales will be relatively constant due to
the anticipated continued focus on the Company's own direct marketing activities
during the remainder of 1998.
General and administrative expenses
General and administrative expenses represent primarily salaries, benefits and
other expenses associated with the finance and administrative functions of the
Company. General and administrative expenses increased to $3.5 million in the
quarter ended March 31, 1998 from $2.9 million in the comparable period of 1997.
As a percentage of sales, general and administrative expenses increased to 5.0%
in the quarter ended March 31, 1998 from 3.8% in the comparable period of 1997.
These increases reflect a one time charge of $1.2 million related to legal,
accounting, and consulting costs associated with negotiations for a potential
acquisition by the Company during the quarter, which the Company subsequently
terminated. The Company believes that general and administrative expenditures
will remain at first quarter spending levels, excluding one time charges, during
the remainder of 1998.
Restructuring
The Company incurred a pretax restructuring charge of $2.7 million in the first
quarter of 1998 as it announced and implemented several streamlining programs
including relocating its distribution center to Texas, combining certain
marketing and operations functions, restructuring research and development
activities and discontinuing certain products, resulting in asset writedowns and
the elimination of approximately 100 positions. Approximately $0.6 million of
the restructuring charge is cash in nature and is expected to be substantially
incurred over the next 12 months and funded through operating cashflow. The
remaining $2.1 million represents asset writedowns of inventory and leasehold
improvements related to discontinued products and relocation of the distribution
center from California to Texas.
10
<PAGE> 11
The following table lists the components of the restructuring accrual for the
three months ended March 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Employee Asset
Costs Writedowns Leases Total
-------- ---------- ------ ------
<S> <C> <C> <C> <C>
Reserve provided $ 437 $ 2,080 $ 155 $ 2,672
Reserve utilized in first quarter -- (1,020) -- (1,020)
====== ====== ====== ======
Balance at March 31, 1998 $ 437 $ 1,060 $ 155 $ 1,652
====== ====== ====== ======
</TABLE>
Provision (benefit) for income taxes
The benefit for income taxes for the quarter ended March 31, 1998, and
provision for income taxes for the quarter ended March 31, 1997, reflect an
effective tax rate of 38% and 40%, respectively.
Liquidity and capital resources
The Company had working capital of $107.6 million as of March 31, 1998, as
compared to $116.1 million at December 31, 1997. The Company's current ratio
decreased to 3.4 to 1, as of March 31, 1998, from 3.7 to 1, as of December 31,
1997. The Company's cash, cash equivalents and short-term investments increased
$2.7 million during the quarter ended March 31, 1998. Cash generated by
operations of $7.5 million resulted primarily from decreased accounts receivable
balances of $12.7 million and increased accrued liabilities of $5.3 million,
partially offset by a net loss of $5.4 million, increased inventory of $1.4
million and an increase in other current assets of $2.9 million. The Company
purchased its headquarters building for $3.2 million by exercising an option in
its lease on March 19, 1998.
The Company has a bank line-of-credit agreement which provides for borrowings of
up to $25 million. The interest rate on borrowings under the line-of-credit is
prime less 0.25%. The line is secured by substantially all of the Company's
assets. The line is primarily used as security for letters of credit used to
purchase inventory from international suppliers. As of March 31, 1998, the
Company had not borrowed any funds under the line. Letters of credit secured by
this line totaled $6.6 million as of March 31, 1998.
The Company plans to continue to invest in its infrastructure, including
information systems, to gain efficiencies and meet the demands of its markets
and customers. The Company believes its 1998 capital expenditures will be
approximately $5.0 million during the remaining nine months of 1998. The 1998
capital expenditures are expected to be funded from available working capital.
The planned expenditure level is subject to adjustment as changing economic
conditions necessitate. The Company believes its current cash, cash equivalents,
short-term investments, and borrowing capacity will satisfy the Company's
working capital and capital expenditure requirements for the next twelve months.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Dependence on Caller ID and Maturation of Market. Approximately 84%, 68% and 70%
of the Company's revenues during 1997, 1996 and 1995, respectively, came from
the Company's Agency Fulfillment and Non-Agency Fulfillment programs for Caller
ID adjunct and, to a lesser extent, telephone products and customer acquisition
services through Telcos. The size of the overall market for Caller ID products
and services is a function of the total number of potential subscribers with
Caller ID-enabled telephone lines and the rate of adoption of Caller ID
services, or the "penetration rate," among those subscribers. Based upon the
Company's projections of penetration rates, the Company believes that the annual
market for new Caller ID subscribers in the United States may have peaked in
1997, with a resulting slowdown in Caller ID sales to new subscribers expected
in 1998 and beyond. Customer adoption of Caller ID services has been in the
past, and likely will be in the future, dependent on a variety of factors,
including the rate at which Telcos from time-to-time elect to promote Caller ID,
the perceived value of the services to end users, including the extent to which
other end users have also adopted and/or not blocked Caller ID services, and the
end user cost for the services. There can be no assurances that Telcos will
continue to promote Caller ID, that Caller ID services will gain market
acceptance or that, in areas where the services are accepted, those markets will
not become saturated. In addition, even if peak market penetration for caller ID
11
<PAGE> 12
service has not been achieved for the entire domestic United States market, one
or more regional markets may become saturated. Further, the market for Caller ID
adjunct products may be eroded as Caller ID functionality is designed into
competitively priced phone products as a standard feature. Declines in demand
for or revenues from Caller ID, whether due to reduced promotion of such
services by Telcos, competition, market saturation, price reduction,
technological change or otherwise, could have a material adverse affect on the
Company's business, operating results or financial condition. In addition, as
penetration rates for adoption of Caller ID services increase towards saturation
levels, the expenses, or "cost per order," the Company must incur in its Agency
Fulfillment arrangements to obtain incremental end user adoption of Caller ID
services increases, which may result in pressures on the Company's
profitability. Further, the Company is also experiencing pricing pressures as a
result of both increased domestic competition and the effects of Asian currency
devaluations which have resulted in the supply by Asian vendors of relatively
lower priced adjunct and phone products into the United States.
Dependence on Telcos; Concentrated Customer Base. A significant portion
of the Company's revenues are derived from a small number of Telcos. During
1997, 1996 and 1995 respectively, the percentage of revenue derived by the
Company from its significant (greater than 10% of total sales) customers was 77%
(four customers), 68% (three customers) and 64% (two customers). There can be no
assurance that the Company will retain its current Telco customers or that it
will be able to attract additional customers. The Company generally does not
enter into long term contracts with its Telco or other customers and no on-going
minimum purchases are required. Moreover, the arrangements are typically both
nonexclusive and terminable at will following a specified notice period,
generally 20 to 60 days. In addition, these Telco customers may have significant
leverage over the Company and may try to obtain terms relatively favorable to
the customer and/or subsequently change the terms, including pricing and/or
payment terms, on which the Company and such customers do business. If the
Company is forced to accept such terms and/or change the terms, including
pricing and/or payment terms, on which it does business, the Company's operating
margins and/or cash flows may decline and such declines may have a material
adverse affect on the Company's business, results of operations or financial
condition.
The Company's sales and operating results are substantially dependent on
the extent of, and the timing of, this relatively small number of Telcos'
respective decisions to implement and from time-to-time promote Caller ID,
Caller ID on Call Waiting and other Services on a system-wide or regional basis.
The extent to which the Telcos determine to implement and/or from time-to-time
promote Services may be affected by a wide variety of factors, including
regulatory approvals, technical requirements, budgetary constraints at the
Telcos, consolidation among Telcos, market saturation for the Services, the
profitability of the Services to the Telcos, market acceptance for the Services
and other factors. The Company typically has little control over any of these
factors. There can be no assurances that the Telcos will continue to implement
and/or promote Caller ID or other Services, or that the Company's product and
program offerings will be selected by the Telcos. Moreover, the Company believes
that certain Telcos have begun to perform directly themselves the customer
acquisition services currently undertaken by the Company through its agency
programs, rather than through third parties such as the Company. The
continuation of this trend among the Telcos could have a material adverse affect
on the Company's business, results of operations and financial condition. The
Company operates with little or no backlog and its quarterly results are
substantially dependent on these Telcos' implementation and/or promotion of
Services on a system wide or regional basis during each quarter. The Company's
operating expenses are based on anticipated sales levels, and a high percentage
of such expenses are relatively fixed. As result, to the extent that the Telcos
delay the implementation and/or promotion of these Services which were
anticipated for a particular quarter, the Company's sales and operating results
in that quarter may be materially and adversely affected.
New Product Introduction; Technological Change. The telecommunications
industry is subject to rapid technological change, changing customer
requirements, frequent new product introductions and changing industry standards
which may render existing products and services obsolete. The Company's future
success will depend in large part on its ability to timely develop and introduce
new products and services which keep pace with, and correctly anticipate, these
changes and which meet new, evolving market standards and changing customer
requirements, as well as its ability to enhance and improve existing product and
services. Product introductions and short product life cycles necessitate high
levels of expenditure for research and development. There can be no assurance
that the Company's existing markets will not be eroded or that the Company will
be able to correctly anticipate and/or timely develop and introduce products and
services which meet the requirements of the changing marketplace or which
achieve market acceptance. If the Company is unable to develop and introduce
12
<PAGE> 13
products and services which timely meet the changing requirements of the
marketplace and achieve market acceptance, the Company's business, results of
operations or financial condition may be materially and adversely affected.
In particular, the Company is seeking to expand its product offerings
into a number of new business areas including the Internet and electronic
commerce, and expects to devote the substantial majority of its research and
development resources on developing telephone based "information appliances"
which allow access to the World Wide Web via telephone-based, or telephone-like,
devices. Certain of such devices would also be intended to enable electronic
commerce and services-based business models. These are significantly new areas
for the Company and its existing research and development, sales and marketing
personnel. There can be no assurances that the Company will be successful in
timely developing such products or that, if developed, there will be a market
for such products. Moreover, there can be no assurances that the Company's
existing personnel will have the skills necessary to timely develop, market and
sell products for this market or that, if it becomes necessary to do so, the
Company will be able to hire the necessary skilled personnel to develop, market
and/or sell products in these new areas.
Significant undetected errors or delays in new products or releases may
affect market acceptance of the Company's products and could have a material
adverse effect on the Company's business, results of operations or financial
condition. There can be no assurances that, despite testing by the Company or
its Telco customers, errors will not be found in new products or releases after
commencement of commercial shipments, resulting in loss of market share or
failure to achieve market acceptance. Any such occurrences could have a material
adverse effect on the Company's business, results of operations or financial
condition. Further, if the Company were to experience delays in the
commercialization and introduction of new or enhanced products, if customers
were to experience significant problems with products or if customers were
dissatisfied with product functionality or performance, this could have a
material adverse effect on the Company's business, results of operations or
financial condition.
Viability of Internet and Electronic Commerce as New Business Areas. The
Company has recently begun to promote the adoption and sale of telephone-based
devices which allow access to the World Wide Web and which also may be designed
to enable electronic commerce and services-based business models. The market for
such Internet phones is very new and currently unproven, with several competing
technological platform standards available. Both the extent and/or timing of
consumer acceptance for Internet phones, and the particular technology
platform(s) for such phones which may ultimately gain market acceptance, is
highly uncertain. A viable market for Internet phones and/or electronic commerce
may not develop for a number of reasons, including customer preference and usage
patterns, the cost of the device to end users, potentially inadequate
development of the necessary Internet infrastructure, delayed development of
Internet enabling technologies, inadequate Internet performance improvements,
changing Internet standards and protocols and increased government regulation.
Changes in, or insufficient availability of, telecommunications services to
support the Internet also could result in slower response times and adversely
affect usage of the Internet generally and Internet phones and electronic
commerce in particular. Moreover, adverse publicity and consumer concern about
the security of transactions conducted on the Internet and the privacy of users
may also inhibit the growth of the market for Internet telephones and electronic
commerce. If the use of the Internet does not continue to grow or grows more
slowly than expected, if the infrastructure for the Internet does not
effectively support growth that may occur, if end user costs for Internet phones
are not reduced whether through manufacturing cost reductions, subsidy-based
business models or otherwise, or if concerns about Internet security do not
abate, the Company's ability to profit from Internet phones and electronic
commerce would be materially adversely affected. Moreover, there can be no
assurances that this market will develop or that, if a market develops, the
Company will be able to timely develop and bring to market products which gain
market acceptance or which generate significant revenues or profits.
Fluctuations in Quarterly Revenues and Operating Results. The Company
has experienced in the past, and may experience in the future, significant
fluctuations in sales and operating results from quarter to quarter as a result
of a variety of factors, including the timing of orders for the Company's
products from Telcos and other customers; the success of the Company's own
direct marketing programs, in particular, deriving adequate sales volumes while
controlling related costs; the addition or loss of distribution channels or
outlets; the impact on adoption rates of changes in monthly end-user charges for
Services; the timing and market acceptance of new product introductions by the
Company or its competitors; increases in the cost of acquiring end-user
customers for Services and the resulting effects on profitability; technical
13
<PAGE> 14
difficulties with Telco networks; changes in the Company's product mix or sales
mix by distribution channel that may affect sales prices, margins or both;
technological difficulties and resource constraints encountered in developing,
testing and introducing new products; uncertainties involved in the Company's
entry into markets for new Services; disruption in sources of supply,
manufacturing and product delivery; changes in material costs; regulatory
changes; general economic conditions, competitive pressures, including
reductions in average selling prices and resulting erosions of margins; and
other factors. Accordingly, the Company's quarterly results are difficult to
predict until the end of each particular quarter, and delays in product delivery
or closing of expected sales near the end of a quarter can cause quarterly
revenues and net income to fall significantly short of anticipated levels.
Because of these factors, the Company believes that period-to-period comparisons
of its results of operations are not necessarily meaningful and that such
comparisons should not be relied upon as indications of future performance. Due
to all of the foregoing factors, it is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially adversely affected.
Need to Develop Alternative Distribution Channels. Historically, the
Company's Telco customers have been the primary distribution channel for the
Company's products. However, the Company is seeking to diversify its
distribution channels toward direct-to-end-user, retail, targeted vertical
market segments and other alternate distribution channels, with the goals of
broadening the Company's market opportunities and adding predictability to the
Company's quarter-by-quarter revenues. Moving into these new channels may
involve a number of risks, including, among other things, the establishment of
new channel relationships and presence, the cost of creating brand awareness and
end-user demand in the new channels, the viability of the Company's product
offerings in the new channels and managing conflicts among different channels
offering the Company's products. There can be no assurance that the Company will
be successful in identifying and exploiting alternate distribution channels or
in addressing any one or more of these risks. If the Company is not successful,
it may lose significant sales opportunities and will continue to be
substantially dependent upon the Telco channel for sales of its products.
Risks Related to Contract Manufacturing; Limited Sources of Supply. The
Company's products are manufactured for the Company by third parties which are
primarily located in Malaysia, China and Thailand. The use of third parties to
manufacture products involves a number of risks, including limited control over
production facilities and schedules and the management of supply chains for the
manufactured products. Moreover, reliance on contract manufacturers in foreign
countries subjects the Company to risks of political instability, financial
instability, expropriation, currency controls and exchange fluctuations, and
changes in tax laws, tariffs and rules. See "Risks Relating to International
Sales." Many of the key components used in the Company's products are available
either only from single sources or, even if potentially available from multiple
sources, involve relatively long lead times to manufacture, such that the
Company cannot quickly obtain additional supply without incurring significant
incremental costs. In general, the Company does not have supply contracts with
its suppliers and orders parts on a purchase order basis. The Company's
inability to obtain sufficient quantities of components required, or to develop
alternative manufacturing capability if and as required in the future, could
result in delays or reductions in product shipments that could materially and
adversely affect the Company's business, results of operations and financial
condition.
Dependence on Key Personnel; Hiring and Retention of Employees. The
Company's continued growth and success depend to a significant extent on the
continued services of its senior management and other key employees and its
ability to attract and retain highly skilled technical, managerial, sales and
marketing personnel. Competition for such personnel is intense. There can be no
assurance that the Company will be successful in continuously recruiting new
personnel or in retaining existing personnel. None of the Company's employees is
subject to a long-term employment agreement. The loss of one or more key
employees or the Company's inability to attract additional qualified employees
or retain other employees could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, the
Company may experience increased compensation costs in order to attract and
retain skilled employees.
Risks Relating to International Sales. The Company has had relatively
limited international sales to date. However, the Company believes that
international sales, particularly in Asia, may represent an increasing
percentage of the Company's sales in the future. The Company's future success
will depend in part on its ability to compete in Japan and elsewhere in Asia
14
<PAGE> 15
and this will depend on the continuation of favorable trading relationships
between the region and the United States. The Company's entry into international
markets will likely require significant management attention and may require
significant engineering efforts to adapt the Company's products to such
countries' telephone systems. Moreover, the rate of customer acceptance of
Caller ID in areas outside of the United States is highly uncertain. There can
be no assurance that the Company's Caller ID or other products will gain
meaningful market penetration in any foreign jurisdictions, whether due to local
consumer preferences, local regulatory requirements, technological constraints
in the local networks, the extent to which the local Telcos determine to promote
Caller ID, or other factors. In particular, the Company believes that
technological constraints in the Japanese telephone networks could delay the
scope of the introduction of Caller ID in the Japanese market. Dependence on
revenues from international sales involves a number of inherent risks, including
new or different regulations, economic slowdown and/or downturn in the general
economy in one or more local markets, international currency fluctuations,
general strikes or other disruptions in working conditions, political
instability, trade restrictions, changes in tariffs, the difficulties associated
with staffing and managing international operations, generally longer
receivables collection periods, unexpected changes in or impositions of
legislative or regulatory requirements, reduced protection for intellectual
property rights in some countries, potentially adverse taxes, delays resulting
from difficulty in obtaining export licenses for certain technology and other
trade barriers. International sales will also be impacted by the specific
economic conditions in each country.
Management of Infrastructure. The Company's future success will
require, among other things, that the Company improve its operating and
information systems. In particular, the Company must constantly seek to improve
its order entry and tracking and product fulfillment service capabilities and
systems in order to retain and/or obtain Telco customers. The failure of the
Company to successfully implement and improve its operating and information
systems may adversely affect both the Company's ability to obtain and/or retain
its Telco customers and accordingly, could have a material adverse effect on the
Company's business, results of operations or financial condition.
Competition. The telecommunications industry is an intensely
competitive industry with several large vendors that develop and market Caller
ID adjunct display units and screen phone products. Certain of these vendors
have significantly more financial and technical resources than the Company. The
Company's competitors include in-house divisions of the Company's current and
potential customers, as well as small companies offering specific services and
large firms. In addition, competitors for the Company's phone products include
both large Asian, European and North American consumer electronics and
telecommunications products companies and smaller Asian, European and North
American manufacturers. If the Company's existing customers perform directly the
customer acquisition services currently undertaken by the Company through its
Agency Fulfillment programs, or if potential customers retain or increase
internal capabilities to provide such services, the Company's business, results
of operations and financial condition could be adversely affected. The
introduction of new competitive products into one or more of the Company's
various markets could have a material adverse effect on the Company's business,
results of operations or financial condition.
Limited Protection of Intellectual Property; Risk of Third-Party
Claims of Infringement. The Company has patent protection on certain aspects of
its existing technology and also relies on trade secrets, copyrights, trademarks
and contractual provisions to protect its proprietary rights. There can be no
assurance that the Company's protective measures will be adequate to protect the
Company's proprietary rights, that others have not or will not independently
develop or otherwise acquire equivalent or superior technology, or that the
Company will not be required to obtain royalty-bearing licenses to use other
intellectual property in order to utilize the inventions embodied in its
patents. There also can be no assurance that any patents will be issued pursuant
to the Company's current or future patent applications or that patents issued
pursuant to such applications or any patents the Company currently owns will not
be invalidated, circumvented or challenged. Moreover, there can be no assurance
that the rights granted under any such patents will provide competitive
advantages to the Company or be adequate to safeguard and maintain the Company's
proprietary rights. In addition, the laws of certain countries in which the
Company's products may from time-to-time be sold may not protect intellectual
property rights to the same extent as the laws of the United States.
The telecommunications industry, like many technology-based
industries, is characterized by frequent claims and litigation involving patent
and other intellectual property rights. The Company from time to time may be
notified by third parties that the Company may be infringing patents owned by or
proprietary rights of third parties. The Company has in the past and may in the
15
<PAGE> 16
future have to seek a license under such patent or proprietary rights, or
redesign or modify their products and processes in order to avoid infringement
of such patent or proprietary rights. There can be no assurance that such a
license would be available on acceptable terms, if at all, or that the Company
could so avoid infringement of such patent or proprietary rights, in which case
the Company's business, financial condition and results of operations could be
materially and adversely affected. Additionally, litigation may be necessary to
protect the Company's proprietary rights. Any claims or litigation involving the
Company's owned or licensed patents or other intellectual property rights may be
time consuming and costly, or cause product shipment delays, either of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Possible Volatility of Stock Price. The market price of the Company's
Common Stock has experienced significant fluctuations and may continue to
fluctuate significantly. The market price of the Common Stock may be
significantly affected by factors such as the announcement of new products or
product enhancements by the Company or its competitors, technological innovation
by the Company or its competitors, quarterly variations in the Company's or its
competitors' products and services, changes in revenue and revenue growth rates
for the Company as a whole or for specific geographic areas, business units,
products or product categories, changes in earnings estimates by market
analysts, speculation in the press or analyst community and general market
conditions or market conditions specific to the technology industry or the
telecommunications industry in particular. The stock prices for many companies
in the technology sector have experienced wide fluctuations which often have
been unrelated to their operating performance. Such fluctuations may adversely
affect the market price of the Company's Common Stock.
Year 2000 Compliance. Although the Company believes that its products
will record, store, process, calculate and present calendar dates falling on or
after (and if applicable, spans of time including) January 1, 2000, and will
calculate any information dependent on or relating to such dates in the same
manner, and with the same functionality, data integrity and performance, as such
products record, store, process, calculate and present calendar dates on or
before December 31, 1999, or calculate any information dependent on or relating
to such dates (collectively, "Year 2000 Compliant"), Year 2000 Compliant issues
may arise with respect to products furnished by third-party suppliers that may
result in unforeseen costs or delays to the Company and therefore may have a
material adverse effect on the Company.
The Company is reviewing its computer systems to identify the systems
that could be affected by Year 2000 Compliant issues and is developing an
implementation plan to attempt to address these issues. Any of the programs
and/or systems which the Company currently utilizes and that have time sensitive
software may not be Year 2000 Compliant. This could result in a major systems
failure or miscalculations. The Company presently believes that, with
modifications to existing software, Year 2000 Compliant issues should not pose
significant operational problems for the Company's computer systems as so
modified and converted. However, if such modification or conversions are not
completed, the Year 2000 Compliant problem could have a material adverse effect
on the operations of the Company.
Risks Relating to Acquisitions. As part of its overall business
plans, the Company may from time-to-time consider and ultimately consummate
acquisitions of other companies or businesses or invest in joint ventures or
independent companies. Acquisitions require significant financial and management
resources both at the time of the transaction and during the process of
integrating the newly-acquired business into the Company's operations. The
Company's operating results could be adversely affected if it is unable to
successfully integrate such new businesses into its operations. There can be no
assurance that any acquired products, technologies or businesses will contribute
at anticipated levels to the Company's sales or earnings, or that sales and
earnings from combined businesses will not be adversely affected by the
integration process. Certain acquisitions or strategic transactions may be
subject to approval by the other party's board of directors or stockholders,
domestic or foreign governmental agencies, or other third parties. In addition,
there is a risk that proposed acquisitions or transactions could either fail to
be concluded as planned or not be concluded at all, in which latter case the
Company's results of operations could nonetheless be adversely effected as a
result of expenses incurred in negotiating the proposed acquisitions or
transactions. Future acquisitions by the Company could also result in the
issuance of equity securities or the rights associated with the equity
securities, which could potentially dilute earnings per share. In addition,
future acquisitions could result in the incurrence of debt, taxes, contingent
liabilities, amortization expenses related to goodwill and other intangible
assets and expenses incurred to align the accounting policies and practices of
the acquired companies with those of the Company. These factors could adversely
affect the Company's future operating results, financial position and cash
flows.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
In the ordinary course of business, the Company may be involved in legal
proceedings. As of the date hereof, the Company is not a party to any pending
legal proceedings which it believes will materially affect its financial
condition or results of operations.
ITEM 2. Changes In Securities
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Index to Exhibits at page 19 below.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the three months ended
March 31, 1998.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CIDCO INCORPORATED
May 14, 1998 By:/s/Daniel L. Eilers
- ------------ -----------------------------------------
Date Daniel L. Eilers
President and Chief Executive Officer
May 14, 1998 /s/Richard D. Kent
- ------------ -----------------------------------------
Date Richard D. Kent
Vice President Finance
and Chief Financial Officer
18
<PAGE> 19
CIDCO INCORPORATED
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibits Page
- -------- ----
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation. (1) --
3.2 Amended and Restated By-Laws (8). --
3.3 Form of Certificate of Designation, Number, Powers, Preferences and Relative, Participating, Optional --
and Other Special Rights and Qualifications, Limitations, Restrictions and Other Distinguishing
Characteristics of the Registrant's Series A Junior Participating Preferred Stock. (6)
4.1 Second Amendment to Revolving Credit Loan Agreement dated October 13, 1995 between Registrant and
Comerica Bank. (4) --
4.2 Rights Agreement dated as of January 27, 1997, between the Registrant and United States Trust Company --
of New York, as Rights Agent. (7)
10.4 Patent License Agreement dated as of May 1, 1989 between the Registrant and American Telephone and --
Telegraph Company. (1)
10.5 Form of Indemnification Agreement. (1) --
10.6 Employment Agreement dated as of January 11, 1994 between the Registrant and Robert L. Diamond. (1) --
10.7 Employment Agreement dated as of January 11, 1994 between the Registrant and Paul G. Locklin. (1) --
10.13 Agreement effective as of December 21, 1992 between the Registrant and SBC Communications, Inc. (1), (2) --
10.14 Lease dated August 15, 1993 between Thoits Bros., Inc. and the Registrant for 220 Cochrane Circle. (1) --
10.16 Lease dated May 31, 1994, between Thoits Bros., Inc. and the Registrant for 225 Cochrane Circle, Units --
A, B, C, D, and E. (4)
10.17 Sublease dated November 18, 1994, between Thoits Bros. and the Registrant for 180 Cochrane Circle. (3)
--
10.18 Lease dated November 1, 1994, between Thoits Bros., Inc. and the Registrant for 105 Cochrane Circle,
Units A, B, C, D, and E. (3) --
10.19 Registrant's Amended and Restated 1993 Stock Option Plan. (1) --
10.20 Registrant's 1994 Directors' Stock Option Plan. (8) --
10.21 Registrant's 1994 employee stock purchase plan. (1) --
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C> <C>
10.22 Agreement dated January 1, 1995 between the Registrant and Ameritech Services Inc. (5) --
10.23 Standard Form of Office Lease between Registrant and 400 Columbus Avenue, LLC dated May 19, 1995. (5)
--
10.24 Employment Agreement dated June 28, 1996 between Registrant and Ian Laing. (7) --
10.25 Employment Agreement dated July 29, 1996 between Registrant and Marv Tseu. (7) --
10.26 Employment Agreement dated December 16, 1996 between Registrant and Richard D. Kent. (7) --
10.27 Employment Agreement dated March 17, 1997 between Registrant and Daniel L. Eilers. (7) --
10.28 Option Agreement dated March 12, 1997 between Registrant and Daniel L. Eilers. (7) --
10.29 1997 Annual Executive Incentive Plan (8) --
</TABLE>
- --------------
(1) Incorporated herein by reference to the Company's registration statement
on Form S-1, File No. 33-74114.
(2) Confidential treatment has been granted with respect to certain portions
of this document.
(3) Incorporated herein by reference to the Company's Form 10-K for the year
ended December 31, 1994.
(4) Incorporated herein by reference to the Company's Form 10-Q for the
quarter ended September 30, 1995.
(5) Incorporated herein by reference to the Company's Form 10-Q for the
quarter ended June 30, 1996.
(6) Incorporated herein by reference to the Company's Form 8-A filed on
February 4, 1992.
(7) Incorporated herein by reference to the Company's Form 10-Q for the
quarter ended March 31, 1997.
(8) Incorporated herein by reference to the Company's Form 10-Q for the
quarter ended June 30, 1997.
20
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 53,703
<SECURITIES> 23,737
<RECEIVABLES> 45,341
<ALLOWANCES> 3,675
<INVENTORY> 14,352
<CURRENT-ASSETS> 153,163
<PP&E> 16,846
<DEPRECIATION> 17,455
<TOTAL-ASSETS> 171,721
<CURRENT-LIABILITIES> 45,604
<BONDS> 0
0
0
<COMMON> 150
<OTHER-SE> 125,967
<TOTAL-LIABILITY-AND-EQUITY> 171,721
<SALES> 69,354
<TOTAL-REVENUES> 69,354
<CGS> 52,055
<TOTAL-COSTS> 27,393
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 374
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,647)
<INCOME-TAX> (3,286)
<INCOME-CONTINUING> (5,361)
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