1. SuMMer 2011
www.bdo.coM
The NeWSleTTeR Of The BDO TeChNOlOgy & lIfe SCIeNCeS pRACTICe
did you know...
According to The 2011 BDO 600
Survey of Board Compensation
Practices of 600 Mid-Market Public
Companies, board directors in the
tech sector are the most highly
compensated compared to other
industries.
Forty-two percent of organizations
said their IT department reports to
the CFO, according to a study by
Gartner.
According to Dealogic, dealmakers
deSpite record revenueS,
announced 851 transactions with U.S.
technology companies as the target,
together valued at $54.7B, during the
riSkS LooM in the first five months of 2011.
SeMiconductor induStry IDC reports that over 70% of tech
leaders expect at least 30% of all IT
departments will offer cloud services
By Slade Fester and Bryan Gendron to partners and customers by 2014.
S
Seventy-four percent of investment
ales are surging in the semiconductor u MergerS and bankers predict more tech IPOs during
sector. Worldwide sales for 2010
reached a record high of $298.3 billion,
acquiSitionS continue to the second half of 2011, according to
a 31.8 percent increase from the $226.3 doMinate the Sector the 2011 BDO IPO Halftime Report.
billion reported in 2009, according to the In today’s market, deals are getting larger
PC shipments are expected to grow
Semiconductor Industry Association. This and any company can be an acquisition
9.3% in 2011, reaching 385 million
marks a historic milestone for the industry, target. Rising pressure to sustain revenue
units, according to Gartner.
particularly in light of the severe global growth and diversify products has led to
macroeconomic downturn experienced in some of the biggest deals we’ve seen this
2008 and 2009. Opportunities are abundant year – Applied Materials purchased Varian
in this charged environment; however, today’s Semi Conductor for $4.9 billion and Texas
dynamic marketplace has made even the Instruments acquired National Semiconductor
most common and consistent risks more for $6.5 billion. As a result, the playing field
threatening than ever. In order to successfully is shrinking in the analog subsector and
navigate the terrain separating corporate other semiconductor businesses. With more
success and failure, companies need to complicated applications, and an increased
recognize, manage and react to risks in a focus on solutions as opposed to products
timely manner. or components, companies are finding niche
u Read more

2. 2 BDO TECH
u ontinued
c
riSkS LooM in the SeMiconductor induStry
areas to grow their businesses. This makes
semiconductor companies prime targets
for organizations looking for solid revenue
growth and synergistic opportunities. We
saw this trend in our 2011 RiskFactor Report
for Technology Businesses, which found that
M&A activity, as well as competition and
consolidation, are among the top 10 risks
cited by tech companies. Whether companies
are striving for increased market share in a
particular geography, compatible technology,
design center, manufacturing capacity
or otherwise, we expect the appetite for
deal-making in the semiconductor space to
continue.
semiconductor assemblies have substantially Concerns over data security breaches in
u SuppLy chain
increased in a short period of time, making the global market are also growing. for
ManageMent iS criticaL to this cost difficult to pass on to customers. The semiconductor companies, data theft can be
SurvivaL price of copper, in particular, has hit record far-reaching and can consist of something as
The production of raw materials and the highs in recent months and is almost double simple as the unwanted interception of a chip
ability to obtain them at favorable prices is the average price from only two years ago. design emailed to a contract manufacturer.
another key component to corporate success This trend is expected to continue through Additionally, if the chip were to be used for
in the hardware industry. This can present at least the end of the year due to shrinking a U.S. government project, the ramifications
challenges in a volatile market as wafer copper production and stockpiles, and if of a theft or data breach is that much more
production is controlled by a relatively small copper prices do stabilize, they are estimated significant. To mitigate these risks, companies
group of large contract manufacturers located to level off at these higher prices. Companies must focus on robust regulatory and legal
primarily in Asia. According to the RiskFactor that were able to negotiate long-term, compliance programs and tighten controls
Report, companies are feeling this pressure cost-effective contracts for precious metals, over distributor agreements.
more than ever. The availability and pricing of through hedging or other means, are far ahead
raw materials is a risk cited by 34 percent of of their competitors.
u what’S next?
companies surveyed, 79 percent more than
in 2010 (19%). global supply chain issues Recent analyst reports from gartner suggest
u the worLd iS getting that companies might be scaling back their
are also noted by a vast majority (86%) of
companies. The earthquake and tsunami in SMaLLer – iS your inventory in light of heightened uncertainty on
Japan in March 2011 further strained the technoLogy Secure? end-demand forecasts into the second half of
2011 and reports that supply chain managers
supply chain, with some companies impacted Risks associated with international operations
are adopting more cautious practices.
directly and others feeling the effects despite are on the rise as companies’ touch points
Additionally, some believe that the Japan
being several steps removed. become increasingly global. Inconsistent
earthquake and related anxiety over product
and often unenforced trade restrictions with
In order to mitigate supply chain risks, some allocation has caused an acceleration of orders
certain foreign countries have put products
semiconductor companies maintain their own into March and April leading to unsustainable
and intellectual property at risk. Companies
fabrication facilities, but these operations are booking levels. Still, gartner projects a 5.1
are also threatened by unfavorable foreign
often not large enough to supply 100 percent percent growth for the sector in 2011.
currency fluctuation, as well as environmental
of the company’s raw material needs. Still, and regulatory compliance risk. The use of
While we do not have a crystal ball to show us
too much capacity in a down market can be distributors to sell products internationally
what the future holds for the semiconductor
worse than not producing enough product to increases regulatory risks, as products may be
industry, one thing is clear: companies that
meet demand, particularly since the expenses sold in countries subject to trade restrictions,
recognize the potential risks to their business
associated with extra capacity can take a leaving the manufacturer, not the distributor,
and are prepared to react quickly are best
toll on the bottom line. In addition, wafer ultimately responsible for this regulatory [and
positioned for success.
fabrication operates in an oligopolistic market, potential Ip] infraction. At the same time,
making it difficult for companies to get quality, the global economy has demanded a larger
high-yield products at favorable pricing. for international presence earlier in a company’s
those who have their own fabrication facilities, life cycle, which intensifies the risk. Slade Fester is a partner and Bryan Gendron is a
senior manager in the Technology & Life Sciences
the availability and pricing of the conductive
practice.
materials used in the wafer fabrication and

3. BDO TECH 3
the tech induStry’S next big threat:
Foreign corrupt practiceS act
development especially in foreign locales.
Third, technology companies, particularly
those in new sectors, need to grow quickly
to be competitive. This growth creates
compliance challenges as companies hire new
employees and engage additional third-party
representatives.
To avoid being swept up in this wave of
increased enforcement in the U.S., technology
companies must implement a robust anti-
corruption compliance program, which should
include, among other things:
• A corruption risk assessment
• A code of conduct
• A strong, explicit and visible commitment
By Glenn Pomerantz, CPA, CFE and Brian J. Mich, JD, CAMS, BDO Consulting to eradicating corruption from senior
i
management
n the last several years, both the U.S. designed to prevent instances of corruption. • Anti-corruption policies and procedures
Department of Justice (DOJ) and the An important aspect of the law, and one that tailored to the company’s specific corruption
Securities and exchange Commission is of particular concern for corporations and risks
(SeC) have focused their U.S. foreign Corrupt their management, is that a company does • Internal controls, including an automated
practices Act (fCpA) enforcement efforts not have to be directly involved in a bribe process of continuous controls monitoring,
on specific industries, such as oil and gas, payment to be liable under the statute; rather, reasonably designed to ensure the
pharmaceutical, defense products and it can be held liable if management knew or maintenance of fair and accurate books,
financial services. events during the first half had reason to know that a third-party acting records and accounts to ensure that they
of this year provide strong reason to believe on the company’s behalf was offering or cannot be used for the purpose of foreign
that technology companies are now the focus making improper payments. bribery or concealing such bribery
of these heightened enforcement efforts: In • Due diligence procedures focused on
April 2011, IBM, Maxwell Technologies and The DOJ and SeC, which, respectively, have corruption risks when hiring third-party
Comverse Technology, Inc. all entered into criminal and civil enforcement jurisdiction representatives or evaluating a merger or
agreements to resolve fCpA charges in which under the fCpA, have brought an increased acquisition
they agreed to multimillion dollar financial number of enforcement actions against • A mechanism for employees to
penalties. In addition, both hewlett-packard both corporations and individuals over the anonymously report violations of the
and Veraz Networks Inc. have disclosed in past ten years. These efforts have resulted company’s anti-corruption policies or
public filings that they are the subjects of in substantial jail sentences and fines applicable anti-corruption laws
fCpA investigations. imposed upon guilty individuals, as well as • Thorough investigation of allegations of
heavy monetary penalties, costly internal corruption and discipline of those found to
These increased enforcement efforts make investigations, and debarment for companies have violated company policy or applicable
compliance with the fCpA and other anti- in violation. anti-corruption laws
corruption laws around the globe one of • periodic testing and monitoring of the
the biggest challenges facing multinational The technology industry is especially compliance program’s effectiveness,
technology companies today. The fCpA susceptible to fCpA risks for several reasons. including substantive testing of transactions
contains two provisions: (1) an anti-bribery first, because technology companies are • A process of periodic assessment and
provision, which prohibits paying, offering subject to a great deal of regulation and revision, as needed, of the company’s anti-
or promising anything of value to a foreign often sell their products to governments or corruption policies and procedures.
official in order to obtain or retain business; state-owned entities, they commonly interact
and (2) a “books and records” provision which with foreign officials. Second, technology Glenn Pomerantz is a partner and Brian Mich is a
requires a company listed on a U.S. exchange companies often rely upon third-party managing director in the New York office of BDO
to maintain accurate books and records and representatives, such as agents, consultants, Consulting. They lead the firm’s Anti-Corruption
to implement a system of internal controls distributors and resellers for business Compliance & Investigations practice.

4. 4 BDO TECH
2011 caLendar contact:
The following is a list of upcoming conferences and seminars from the leading HAnk GAlliGAn
technology associations and business bureaus: Boston
617-422-7521 / hgalligan@bdo.com
auguSt SepteMber JAy HOwEll
San Francisco
Aug 15-19 Sept 7-9 415-490-3270 / jhowell@bdo.com
11th Annual International Conference on Biopharm America 2011
Nanotechnology Westin Boston Waterfront AFTAB JAMil
portland Marriott Downtown Waterfront Boston, MA Silicon Valley
portland, OR 408-352-1999 / ajamil@bdo.com
Sept 7-10
BOB PEARlMAn
Aug 23-25 CeDIA expo los Angeles
2011 NoSQl Now Conference Indiana Convention Center 310-557-8228 / bpearlman@bdo.com
San Jose Convention Center Indianapolis, IN
San Jose, CA DOuG SiROTTA
Sept 11-13 Silicon Valley
Aug 30-Sept 2 InformationWeek 500 Conference 408-278-0220 / dsirotta@bdo.com
Dreamforce Cloud Computing Conference St. Regis
RyAn STARkES
Moscone Center Monarch Beach, CA woodbridge
San francisco, CA 732-734-1011 / rstarkes@bdo.com
Sept 19-20
CSO’s The Security Standard Conference MikE wHiTACRE
Marriott Brooklyn Bridge South
New york, Ny 404-688-6841 / mwhitacre@bdo.com
DAViD yASukOCHi
Orange County
714-913-2597 / dyasukochi@bdo.com
bdo technoLogy & LiFe ScienceS practice
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