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Viewsonic Corp – ‘S-1’ on 7/2/07

On:  Monday, 7/2/07, at 12:15pm ET   ·   Accession #:  1047469-7-5380   ·   File #:  333-144262

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 7/02/07  Viewsonic Corp                    S-1                    6:1.9M                                   Merrill Corp/New/FA

Document/Exhibit                   Description                      Pages   Size 

 1: S-1         Registration Statement (General Form)               HTML   1.36M 
 2: EX-3.2      Articles of Incorporation/Organization or By-Laws   HTML     25K 
 3: EX-3.4      Articles of Incorporation/Organization or By-Laws   HTML    127K 
 4: EX-10.13    Material Contract                                   HTML     20K 
 5: EX-10.14    Material Contract                                   HTML     29K 
 6: EX-23.1     Consent of Experts or Counsel                       HTML      6K 

As filed with the Securities and Exchange Commission on July 2, 2007

Registration No. 333-                           

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933

VIEWSONIC CORPORATION
(Exact name of registrant as specified in its charter)

381 Brea Canyon Road
Walnut, California 91789
(909) 444-8888
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

James Chu
Chairman and Chief Executive Officer
381 Brea Canyon Road
Walnut, California 91789
(909) 444-8888
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.    o

CALCULATION OF REGISTRATION FEE

(1)

Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. Includes shares which may be purchased by the underwriters to cover over-allotments, if any.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

Subject to completion, dated July 2, 2007

Prospectus

                    shares

Common stock

This is an initial public offering of common stock by ViewSonic Corporation. ViewSonic is selling                    shares of common stock. The selling stockholders included in this prospectus are selling an additional             shares of common stock. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders. The estimated initial public offering price is between $         and $         per share.

We have applied to list our common stock on The NASDAQ Global Market under the symbol "VIEW."

We and the selling stockholders have granted the underwriters an option for a period of 30 days to purchase up to             additional shares of common stock.

Investing in our common stock involves a high degree of risk. See "Risk factors" beginning on page 7.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

                        , 2007

Table of contents

You should rely only on the information contained in this prospectus and any free writing prospectus that we authorize to be distributed to you. We have not, and the underwriters have not, authorized anyone to provide you with information different from or in addition to that contained in this prospectus or any related free writing prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We are offering to sell, and are seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus or any free writing prospectus is accurate only as of the date of such prospectus, regardless of the time of delivery of such prospectus or of any sale of the common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

This prospectus contains market data and industry forecasts that were obtained from industry publications. We have not independently verified any of this information.

Industry publications and reports cited in this prospectus generally indicate that the information contained therein was obtained from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. Although we believe that the publications and reports are reliable, we have not independently verified the data.

Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

i

Prospectus summary

This summary highlights selected information appearing elsewhere in this prospectus and does not contain all the information you should consider before investing in our common stock. You should carefully read this prospectus in its entirety before investing in our common stock, including the section entitled "Risk factors," and our financial statements and related notes included elsewhere in this prospectus.

Overview

ViewSonic Corporation is a leading global provider of visual display products. We develop, market and support a broad range of innovative products including liquid crystal display, or LCD, monitors, LCD TVs, projectors, digital signage displays and other display products. We were founded in 1987 and have a 20 year history of providing innovative products with market leading technologies. We sell our products to businesses and consumers through a variety of channels, including distributors and resellers such as solution providers, value added resellers, traditional retailers and Internet retailers. We are a Fortune 1000 company, and our products are sold in over 100 countries.

Our strategy is to effectively leverage our scale, strong global brand, close supplier and channel relationships and market knowledge to introduce industry leading products and penetrate new markets. We collaborate with a network of world class component suppliers and contract manufacturers to deliver a wide array of display products for use in a variety of consumer and commercial applications. We believe our operating model allows us to quickly develop, introduce and ramp production of new products while maintaining an efficient cost structure.

We estimate our addressable display product market was $98.6 billion in 2006 and we forecast that it will grow to $135.5 billion in 2009, representing a compound annual growth rate of 11.2%. In 2006, we generated $1.6 billion in revenue, an increase of 32.4% from 2005, and shipped six million LCD monitors, an increase of 81.1% from 2005. According to DisplaySearch, we were ranked sixth worldwide in 2006 in total LCD monitor shipments, and our shipments grew faster than those of competitors ranked above us. According to a March 2007 IDC report, U.S. consumers considered us the top brand in terms of future purchases of LCD monitors and we are leveraging this brand recognition into LCD TVs and other display products.

Industry background

Several dynamics are leading to the overall increase in demand for high quality visual displays:

•

Digitization of media content including television, music, movies, games and photographs;

•

Need for form factor that optimizes space and power and maximizes productivity and efficiency; and

•

Proliferation of multimedia enterprise applications, many of which are best viewed in a widescreen format.

The demand for better desktop monitors continues to be driven by a replacement cycle during which older cathode ray tube, or CRT, and LCD monitors are displaced by newer high performance LCD monitors. The affordability of high quality LCD monitors has reached a level

1

where mass market deployment is taking place. The majority of end user customers view their PC system decisions as unbundled component purchases, driving the opportunity for stand alone monitor companies.

The demand for high quality TV displays is primarily driven by increasing content in HD video and media formats as well as upcoming government mandated deadlines for the conversion of analog to digital transmission. These factors, coupled with attractive prices, higher picture quality and useful life, and form factors small enough for use throughout the home, drive demand for LCD TVs as the technology of choice.

We believe the following factors have enabled us to successfully address the opportunities presented by the LCD display market:

•

The broad availability of emerging technologies and significant investments in infrastructure continuing to reduce the price of LCD units;

•

Outsourcing of manufacturing and assembly allowing for increased focus on product development; and

•

More efficient and diversified channels broadening access to end user customers.

These changing market dynamics are creating a strong demand among consumers and commercial end users for high quality desktop monitors, TVs and other display products.

Our solutions

Our solutions consist of high quality, innovative and visually appealing display products. We believe that our business model places us closer to the supply chain and global distribution channels giving us visibility to recognize trends in the market, quickly address the ever changing needs of our end user customers and bring products to market faster than our competition. We sell our display products within the following broad categories:

LCD monitors:    We offer a comprehensive assortment of high performance and quality LCD monitors with various product lines targeted at consumer and commercial end user customers.

LCD televisions:    We offer a full portfolio of LCD TVs across all major size categories, providing consumers value priced products with leading technology and high performance.

Other display products:

•

Digital signage displays for interactive marketing and messaging solutions commonly utilized in airports, hotels and retail and other locations; and

•

LCD and digital light processing projectors.

Our strengths

We believe our key strengths include:

•

Strong global brand name. The ViewSonic logo indicates to end user customers that our products meet our strict standards of reliability and deliver a high quality visual display experience.

2

•

Superior product performance. Our display products are created to have a visually appealing design and to provide superior picture quality.

•

Long operating history and deep market knowledge. Our 20 years of operating history gives us the depth of experience to understand the global display market and its various product and supply cycles.

•

Significant scale and focus on efficiency. Our significant scale allows us to leverage our large purchasing power with suppliers and effectively weather product cycles.

•

Global company with strong and diverse sales channel relationships. We have extensive relationships across channel partners who sell to a variety of end user customers.

Our strategy

Key elements of our strategy include the following:

•

Continue to expand globally and penetrate new markets and channels;

•

Leverage our success in the LCD monitor market into developing leading LCD TVs;

•

Deliver market leading and innovative products;

•

Continue to drive efficiency in our operating model; and

•

Enhance the global ViewSonic brand within the channel and with end user customers.

Corporate information

We were incorporated in the State of California as an S corporation in July 1987 and reincorporated in the State of Delaware as an S corporation in August 1998. In April 1999, we elected to convert from an S corporation to a C corporation. The address of our principal executive office is 381 Brea Canyon Road Walnut, CA 91789, and our telephone number is (909) 444-8888. Our website address is www.viewsonic.com. We do not incorporate the information on our website into this prospectus, and you should not consider it part of this prospectus. As used in this prospectus, references to "ViewSonic," "our," "us" and "we" refer to ViewSonic Corporation unless the context requires otherwise.

Our registered trademarks, among others, include ViewSonic®, ViewSonic's distinctive three bird logo, product names such as Optiquest® and corporate taglines such as See the Difference®. All other trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners.

3

The offering

The number of shares of common stock that will be outstanding immediately after this offering is based on 357,894,666 shares of common stock outstanding as of March 31, 2007 and excludes:

•

30,041,990 shares of common stock issuable upon the exercise of outstanding options with a weighted average exercise price of $0.42 per share; and

•

12,344,299 additional shares of common stock reserved for future issuance under our 2004 Equity Incentive Plan.

In April 2007, a former vendor returned 3,000,000 shares of our common stock to us pursuant to a settlement agreement.

Except as otherwise indicated, all information in this prospectus assumes:

•

a    -for-    reverse stock split of our common stock and preferred stock to be effected prior to the closing of this offering;

•

the conversion of all our outstanding shares of preferred stock into 3,300,000 shares of common stock prior to the closing of this offering;

•

the filing of our amended and restated certificate of incorporation, which will occur immediately prior to the closing of this offering; and

•

no exercise of the underwriters' over-allotment option.

4

Summary consolidated financial data

The following table summarizes our consolidated financial data. We have derived the following summary of our consolidated statements of operations data for the years ended December 31, 2004, 2005 and 2006 from our audited consolidated financial statements appearing elsewhere in this prospectus. The consolidated statement of operations data for the three months ended March 31, 2006 and 2007 and consolidated balance sheet data as of March 31, 2007 have been derived from our unaudited financial statements appearing elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future and the results for the three months ended March 31, 2007 are not necessarily indicative of results to be expected for the full year. The summary of our consolidated financial data set forth below should be read together with our financial statements and the related notes to those statements, as well as "Management's discussion and analysis of financial condition and results of operations," appearing elsewhere in this prospectus.

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(1)

The operations of two of our majority-owned subsidiaries were discontinued during 2004. See note 16 of the notes to our audited consolidated financial statements appearing elsewhere in this prospectus.

(2)

Please see note 15 to the notes to our audited consolidated financial statements appearing elsewhere in this prospectus for an explanation of the method used to calculate basic and diluted net loss per common share and pro forma basic and diluted net loss per common share.

(3)

The consolidated balance sheet data on a pro forma as adjusted basis gives effect to the automatic conversion of all outstanding shares of our convertible preferred stock into common stock upon the closing of this offering and reflects the sale of shares of our common stock by us in this offering at an assumed initial public offering price of $    per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders. Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) each of cash and cash equivalents, working capital, total assets and total stockholders' equity by approximately $     million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of one million shares in the number of shares offered by us would increase (decrease) each of cash and cash equivalents, working capital, total assets and total stockholders' equity by approximately $     million assuming that the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing.

6

Risk factors

An investment in our common stock involves a high degree of risk. You should carefully consider the following risks, as well as all of the other information contained in this prospectus, before investing in our common stock. If any of the following possible events actually occurs, our business, business prospects, cash flow, results of operations or financial condition could be harmed. In this case, the trading price of our common stock could decline, and you might lose all or part of your investment in our common stock. In assessing these risks, you should also refer to the other information contained in this prospectus, including our consolidated financial statements and related notes. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business.

Risks related to our business

Our revenue and profitability are likely to fluctuate from period to period and are often difficult to predict for particular periods due to factors beyond our control. If we are unable to sustain our growth rate or manage any future growth effectively our financial results could suffer and our stock price could decline.

We have experienced significant growth in a short period of time. Our revenues increased from $1.2 billion in 2005 to $1.6 billion in 2006 and we may not achieve similar or any growth in future periods. You should not rely on our operating results for any prior quarterly or annual periods as an indication of our future operating performance. If we are unable to achieve future levels of revenue or operating income as anticipated by investors or analysts, our stock price could decline.

Our results of operations for any quarter or year are not necessarily indicative of results to be expected in future periods. Our operating results have historically been, and are expected to continue to be, subject to quarterly and yearly fluctuations as a result of a number of factors, including:

•

The introduction and market acceptance of new technologies or products by us or our competitors;

•

Variations in product costs and the mix of regional contribution and products sold;

•

Adverse changes in the supply of components such as LCD panels, including oversupply and undersupply;

•

The size and timing of product orders, which, in turn, will often depend upon the success of our distributors and resellers, business or specific products;

•

Changes in our pricing policies or those of our competitors;

•

Adverse changes in the conditions in the markets for display products;

•

The size and timing of capital expenditures by commercial end user customers;

•

Our inventory practices and those of our distributors and resellers;

•

The level of returns or price protection we experience in a given period;

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•

Conditions in the broader markets for information technology;

•

Adverse changes in the credit quality of our customers and suppliers;

•

The impact of acquired businesses and technologies; and

•

Changes in the terms of our contracts with our customers or suppliers.

These factors could harm our business and operating results.

We derive a large percentage of our revenue from sales of LCD monitors and any decline in demand for these products could harm our ability to generate revenue.

We derive a large percentage of our revenue from sales of LCD monitors. As a result, we are particularly vulnerable to fluctuations in demand for these products, whether as a result of consumer preferences, market demand, competition, product obsolescence, technological change, budget constraints of consumers or other factors. If our revenue derived from sales of LCD monitors were to decline significantly, our business and operating results would be adversely affected. Replacement of older CRT monitors with LCD monitors has been one of the factors driving our sales of LCD monitors, and as such replacement becomes largely complete our sales could be harmed.

The market for LCD monitors has historically experienced significant shifts in production capacity and LCD panel pricing caused by suppliers entering or leaving the market or increasing capacity for certain panel sizes. Demand patterns also vary seasonally and geographically based on consumer demand, product pricing and other factors. We are also subject to competition from competing display technologies as well as emerging or future display technologies. The success of competing display technologies could substantially reduce the demand for our LCD monitors.

Our industry is highly competitive and price competition may significantly reduce our revenues and profits.

Competitive factors in the LCD display industry include product features, price, product quality, breadth and reliability, price and performance characteristics, end user support, marketing and channel capability as well as corporate reputation and brand strength. We have substantial experience competing in the LCD monitor market. However, we are a new entrant to the LCD TV market and, therefore, we are just beginning to establish our competitive position. We believe that competition will have the effect of continually reducing the average selling price, or ASP, of our products over time. The average selling price, or ASP, of our LCD monitors declined 20.9% in the first quarter of 2007 compared to the first quarter of 2006 and declined 21.7% in 2006 compared to 2005. We expect price competition to increase in future periods and such price competition may significantly reduce our revenues and gross margins in future periods.

The display provider industry has low barriers to entry and we expect new competitors to emerge. In the LCD monitor market and other commercial product markets we compete with PC manufacturers and other branded display companies. In the LCD TV market we compete with traditional TV manufacturers and established consumer electronic companies, as well as more recent entrants to the branded LCD TV market. In contrast, in the manufacturing and development portion of the display provider industry, the need to make significant capital

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equipment and research and development expenditures has caused higher barriers to entry. A significant increase in the number of display providers coupled with a relatively fixed number of suppliers could result in increased supply costs or diminished capacity, both of which could harm our business.

Some of our competitors have substantially longer operating histories, greater assets and name recognition, as well as greater financial, marketing, technical and other resources, than we do. Due to vertical integration and other factors, some of our competitors may have lower operating costs than we do. These advantages may allow our competitors to, among other things: undertake more extensive marketing initiatives, implement and sustain more aggressive pricing, obtain more favorable pricing or allocations from suppliers or cross subsidize their display operations from their other operations. Consequently, our products may not remain competitive relative to those of our competitors. To the extent we are unable to effectively compete against our competitors for any of these reasons or otherwise, our business would be harmed.

The ASP of our products typically decreases over the life of the product, which can negatively affect our gross margin.

The markets in which we compete are subject to technological advances with frequent new product releases and price competition. As a result, the price at which we can sell our products typically declines over the life of the products. The ASPs of our LCD monitors decreased 21.7% in 2006 compared to 2005 and declined 20.9% in the first quarter of 2007 compared to the first quarter of 2006. These decreases were primarily due to increased production capacities of LCD panel manufacturers, aggressive price competition and product mix. In recent years, the decline in the ASP for LCD monitors has been faster than the decline in our product-sourcing costs and this has resulted in decreased margins. If ASPs continue to decline, our revenue and gross margins could decline.

In order to prevent excessive erosion of our gross margins, we need to continually manage our product costs and our inventory. To manage product costs, we must collaborate with our contract manufacturers to engineer the most cost-effective design for our products. In addition, we must carefully manage the price paid for components used in our products, as well as our freight and inventory holding costs. We also need to continually introduce new products with more attractive sales prices and gross margins in order to maintain our overall gross margins. We may not be able to reduce our product costs when there is a shortage of key components or when component prices otherwise rise. If we are unable to manage the cost of older products or successfully introduce new products with higher gross margins, our net sales will decrease and our gross margins will decline to an even greater degree than we have experienced in the past.

We seek to mitigate the risk of declining ASPs by obtaining promotional pricing incentives from our contract manufacturers. A supplier's willingness to give us a pricing incentive and the amount of the pricing incentive are typically based on the competitiveness of the market, the volatility of the price of our key product components and the quantity of historical purchases of these components from suppliers. Pricing incentives generally do not require us to commit to future component purchases from suppliers. We record the reimbursement from our vendors for these promotional pricing incentives when we are released by the supplier from legal liability for the payment of the product purchases. If we are unable to obtain promotional

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pricing incentives or if these incentives are discontinued, our gross margins may decline and our business could be harmed.

Our operating expenses are relatively fixed and we may have limited ability to reduce expenses quickly in response to any revenue shortfalls or declines in product demand.

Our operating costs are relatively fixed and we can adjust them downward only over a period of several quarters. As we typically recognize a substantial portion of our revenues in the last month of each quarter, we may not be able to adjust our variable operating expenses in a timely manner in response to any revenue shortfalls. Our inability to reduce operating expenses quickly in response to revenue shortfalls or declines in product demand would negatively impact our financial results.

The market for our products historically has experienced seasonal shifts in demand due to changes in buying patterns by our customers. Buying patterns vary geographically, and the impact on our operating results in a given period may vary depending on our actual or anticipated level of activity in the relevant region. We tend to experience higher net sales in the second half of the year due to a strong buying season by distributors and resellers attributable to the holiday season in the Americas. Our seasonality is moderated through slightly different seasonal variations in our three regions.

If we are unable to license third-party technology our ability to offer competitive products could be harmed and our cost of sales could increase.

We have no patented technology. We rely on third parties to obtain non-exclusive software license rights to technologies that are incorporated into and necessary for the operation and functionality of our products. We also license technology necessary to comply with various data compression, broadcast and wireless standards. Because the intellectual property we license is available from third parties, barriers to entry for our competitors are lower than if we owned exclusive rights to the technology we license and use or if we had separately developed patented technology. In some cases, the owners of the intellectual property that we license routinely license the same intellectual property to our competitors. If a competitor enters into an exclusive arrangement with any of our third-party technology providers, our ability to develop and sell products containing that technology could be severely limited. Our licenses often require royalty payments or other consideration to third parties. Our success will depend in part on our continued ability to have access to these technologies on commercially reasonable terms. If we are unable to license the necessary technology, we may be forced to acquire or develop alternative technologies of lower quality or performance standards. This could limit and delay our ability to offer competitive products and increase our costs of production. As a result, our gross margins, market share and operating results could be harmed.

Intellectual property litigation and infringement claims could cause us to incur significant expenses or prevent us from selling our products.

Many of our products are designed to include software or other intellectual property we non-exclusively license from third parties. Competitors' protected technologies may be unavailable to us or be made available to us only on unfavorable terms and conditions. It may be necessary in the future to seek or renew licenses relating to various aspects of our products. We may not be able to obtain or renew from third parties the licenses that we need on

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commercially reasonable terms, or at all. There are a large number of patents in our field and new patents issue frequently. We do not attempt to determine in advance whether a product or any of its components infringe the patent rights of others.

We frequently receive claims alleging infringement of patents or other intellectual property rights and expect to continue to receive such claims. We are currently involved in several such proceedings. Many cases involve multiple products and multiple providers as defendants. In other cases we may and have been the only defendant. Pursuant to our agreements with our suppliers and manufacturers, we generally seek indemnification in connection with such claims, but such indemnification is not available in all cases and we may only partially recover the costs we incur in defending such claims. In addition, we regularly enter into distribution agreements that include indemnification provisions under which we could be subject to costs and/or damages in the event of an infringement claim against us or an indemnified third party and which could harm our business. Any claim of infringement by a third party, even one without merit, could cause us to incur substantial costs defending against such claim and could distract our management from running our business. Furthermore, a party making such a claim, if successful, could secure a judgment that requires us to pay substantial damages. A judgment could also include a permanent injunction or other court order that would prevent us from offering one or more products. In addition, we might be required to seek a license for the use of such intellectual property, which may not be available on commercially reasonable terms, or at all. Alternatively, we may be required to develop or obtain access to non-infringing technology, which would require significant effort and expense and may ultimately be unsuccessful. Additionally, in recent years individuals and groups have begun purchasing intellectual property assets for the sole purpose of making claims of infringement and attempting to extract settlements from target companies. Any of these events could harm our business.

We order components and tooling in advance of anticipated customer demand. If we are unable to correctly predict fluctuations in component supply and demand, our business will be harmed.

Substantially all of our sales are made on the basis of purchase orders rather than long-term agreements. As a result, we generally commit to purchase products without having received advance purchase commitments from our distributors and resellers. Our inventory purchases are made based upon future demand forecasts. These forecasts are based upon assumptions about future product demand that may prove to be inaccurate. Because we typically need sufficient lead-time in purchasing our products, we may not be able to reduce our purchase commitments in a timely manner in response to any reductions in our forecasts or in the level of purchase orders from distributors or resellers. In addition, the LCD display industry is characterized by rapidly fluctuating supply levels and pricing due to changes in production capacity, seasonality, purchasing levels by large suppliers and other factors. If we are unable to accurately predict or adapt to changes in LCD pricing, supply or demand, we may purchase an excess of materials at a high price or fail to purchase sufficient materials at a low price. If there is a higher incidence of inventory obsolescence of LCD panels or other product components, rapidly changing technology and customer requirements or an increase of the supply of products in the marketplace, we could be subject to excess or obsolete inventories or under-utilized tooling. If any of these events occur, we could be required to take corresponding

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inventory write-downs or tooling write-offs, which would impair our financial results and our gross margins.

If we do not effectively manage and predict our sales channel inventory and product mix, we may incur inventory write downs or lose sales from having too few products or the wrong mix of products.

If we are unable to properly monitor, control and manage our sales channel inventory and maintain an appropriate level and mix of products with our distributors and resellers and within our sales channels, we may incur increased and unexpected costs associated with our inventory. We must manage inventory held by our distributors and resellers because inventory held by them could result in excessive returns and lower our future revenue and gross margin. Distributors and resellers may increase orders during periods of product shortages in order to ensure adequate allocation, cancel orders if their inventory is too high or delay orders in anticipation of new products. They may also adjust orders based on competitor product introductions and incentives and seasonal buying patterns. Further, our distributors and resellers sell our competitors' products as well as ours and may have an incentive to exercise greater efforts to sell our competitors' products. We generally allow distributors and resellers to return a limited amount of our products in exchange for other products. Under our price protection policy, subject to certain conditions, if we reduce the list price of a product, we issue a credit in an amount equal to the reduction for each of the products held in inventory by our distributors and resellers. If our distributors and resellers are unable to sell their inventory in a timely manner, we may lower the price of the products, or these parties may exchange the products for newer products. If demand for our products falls, we could have excess inventory and be unable to sell such excess inventory in a timely manner and may need to reduce the prices on our products or, alternatively, we could end up with too few products and be unable to satisfy demand. If these events occur, we could incur increased expenses associated with writing off excessive or obsolete inventory or lose sales.

If we are unable to effectively manage our component and material requirements among our third-party component suppliers and contract manufacturers, we may experience delays in the manufacturing of our products and the costs of our products may increase.

We provide our third-party component suppliers and contract manufacturers with a rolling forecast of demand, which they use to determine their material and component requirements. Lead times for ordering materials and components vary significantly and depend on various factors, such as the specific supplier, contract terms and demand and supply for a component at a given time. Although the cost of key components tends to vary inversely with the supply of these components, conditions of over-supply can still be associated with higher costs and conditions of shortage can still be associated with lower costs. Some of our components have long lead times. Regardless of the accuracy of our forecasts, our contract manufacturers may be unable to meet our product timing, volume and price requirements. Alternatively, our contract manufacturers may be unable to utilize the components they have purchased. The cost of the components used in our products tends to drop rapidly as volumes increase and the technologies mature. Therefore, if our contract manufacturers are unable to promptly use components purchased on our behalf, our cost of producing products may be higher than that of our competitors, due to an over-supply of higher-priced components. If they are unable to use certain components, we may need to reimburse them for any losses they incur.

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Our implementation of strategic initiatives may strain our operations and increase our operating expense.

We have implemented strategic initiatives designed to focus our resources on improving supply chain and logistics efficiency, simplifying our business processes to maximize operating efficiencies, growing sales in regional markets and expanding core product offerings. We will continue to explore additional opportunities to improve operating efficiencies. The undertaking of these initiatives may strain our existing management, information systems, employee workforce, operational capability and financial controls or may adversely affect our ability to effectively work with suppliers, contract manufacturers, distributors or resellers. If we fail to successfully implement these initiatives or encounter unexpected difficulties during their implementation, we may not be successful in reducing costs, or we may adversely impact our ability to increase product offerings and increase revenues, in either case harming our business.

We are subject to risks associated with our worldwide operations, which may harm our business.

We generated 62% of our total consolidated net sales from customers outside of the United States in the first quarter of 2007 and 64% in 2006. Sales to customers outside the United States subject us to a number of risks associated with conducting business internationally including the following:

•

International economic and political conditions;

•

Changes in, or impositions of, legislative or regulatory requirements;

•

Duties, tariffs or other barriers to trade;

•

Delays or additional costs resulting from the need for permits or export licenses for certain technology;

•

Exchange controls or changes in exchange rates which could make our products more expensive;

•

Tax laws, regulations and treaties, including U.S. taxes on foreign operations and repatriation of funds;

•

Longer payment cycles for sales in foreign countries and difficulties in collecting accounts receivable; and

•

Additional burdens in complying with a variety of foreign laws.

Any one of the foregoing factors could cause our business, operating results and financial condition to suffer.

We have recently implemented an international structure designed to reflect our global operations and address the various tax regimes in which we operate. Future changes in international and U.S. tax laws, regulations and treaties, or the failure of our international structure to operate or be treated as expected, could increase our effective tax rate and result in additional tax liabilities.

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Our operating results may be harmed by fluctuations in foreign currency exchange rates.

Historically, sales of our products have benefited from effects of the weakening U.S. dollar, which make our products more affordable in several markets. We buy a majority of our products from our suppliers in U.S. dollars and sell a significant amount of our products in other foreign currencies. However, in periods of a strengthening U.S. dollar, our revenues measured in U.S. dollars are negatively impacted, while our cost of sales remains fairly constant, resulting in lower gross profit. In addition, we must manage our account receivables and inventory balances in order to limit our foreign currency exposure to a strengthening U.S. dollar.

Hedging foreign currencies can be difficult, especially if the currency is not freely traded. We do not currently engage in any hedging transactions and we cannot predict the impact of future exchange rate fluctuations on our operating results.

If disruptions in our transportation network occur or our shipping costs substantially increase, our operating expense could increase and our financial results could be negatively impacted.

We are highly dependent upon the transportation systems we use to ship our products, including surface, ocean and airfreight and on the operations of the Port of Los Angeles. Our attempt to closely match our inventory levels to our product demand intensifies the need for our transportation systems to function effectively and without delay. The transportation network is subject to disruption from a variety of causes, including labor disputes or port strikes, acts of war or terrorism and natural disasters. If our delivery times increase unexpectedly due to these or any other reasons, our inability to deliver products on time could result in delayed or lost revenue. In addition, our transportation costs will likely continue to increase due to increased fuel prices. A prolonged transportation disruption or a significant increase in the cost of freight could severely disrupt our business and harm our operating results.

If we do not succeed in executing our growth strategies in our target international markets, our revenues may not increase.

Our strategies include further expansion of our business in international markets in which we currently operate, including Brazil, China, India, Russia and Eastern Europe. In many of these markets, we face barriers in the form of long-standing relationships between our potential customers and their local suppliers, as well as protective regulations. In addition, pursuing international growth opportunities may require us to make significant investments long before we realize returns on the investments, if any. Increased investments may result in expenses growing at a faster rate than revenues. Our overseas investments in current and targeted international markets could be adversely affected by:

•

Reversals or delays in the opening of foreign markets to new participants;

•

Economic instability, such as higher interest rates and inflation, which could reduce our customers' ability to obtain financing for consumer electronics or which could make our products more expensive in those countries;

•

Difficulties hiring and retaining employees;

•

Employment and severance issues, including possible employee turnover or labor unrest;

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•

Restrictions on foreign investment or the repatriation of profits or invested capital;

•

Nationalization of local industries;

•

Changes in export or import restrictions, duties and tariffs;

•

Transportation delays or interruptions and other effects of less developed infrastructures;

•

Potential loss of proprietary information as a result of piracy, misappropriation or laws that may be less protective of our intellectual property rights than those in the United States;

•

Difficulties in coordinating the activities of our geographically dispersed and culturally diverse operations;

•

Changes in the tax system or rate of taxation in the countries where we do business; and

•

Economic, social, political and perceived or actual health risks.

For example, in the fourth quarter of 2005, Russia, unexpectedly, temporarily prohibited and then delayed the importation of LCD and CRT monitors resulting in lost sales and inventory write-downs.

In addition, difficulties in international financial markets and economies, particularly in emerging markets, could adversely affect demand from customers in the affected countries. Because of these factors, we may not succeed in expanding our business in international markets. This could hurt our business growth prospects and results of operations.

If we fail to maintain and/or expand our sales channels, our revenue may decline.

To maintain and grow our market share, sales and brand, we must maintain and expand our sales channels. We currently sell our products through distributors and resellers. We have no minimum purchase commitments or long-term contracts with any of these third parties. Our agreements are generally non-exclusive and generally may be terminated by either party, at its discretion, with 30 days notice.

Retailers have limited shelf space and promotional budgets, and competition is intense for these resources. A competitor with more extensive product lines and stronger brand identity may have greater bargaining power with these retailers. The competition for retail shelf space is expected to increase, which will require us to increase our marketing expenditures to maintain current levels of retail shelf space. As we are a relatively new entrant to the LCD TV market, we must also convince retailers of the value of our offerings for the LCD TV market. If we fail to secure retail shelf space for our LCD TVs we will lose sales of such products to our competitors, as most LCD TVs are sold through this channel.

We must also continuously monitor and evaluate emerging sales channels. If we fail to establish a presence in an important developing sales channel, our business could be harmed. If we are unable to establish relationships in emerging sales channels, our sales could decline and we would lose market share.

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We rely on a limited number of distributors and resellers for most of our sales, and changes in price, purchasing or return patterns and failure to maintain or establish new distributor and reseller relationships in existing and new sales channels could lower our revenue or gross margins.

We sell our products through distributors such as Ingram Micro Inc., Tech Data Corporation and SYNNEX Corporation, and resellers, such as solution providers, value added resellers, traditional retailers and Internet retailers. We expect that a majority of our net sales will continue to come from sales to a relatively small number of customers for the foreseeable future. Ingram Micro Inc. represented 11% of total consolidated net sales in 2006 and Tech Data Corporation has represented more than 10% of total consolidated net sales in prior years. We have no minimum purchase commitments or long-term contracts with any of our distributors or resellers. Our distributors and resellers could decide at any time to discontinue, decrease or delay their purchases of our products.

In addition, the prices that distributors and resellers pay for our products are subject to negotiation and change frequently. If any of our major distributors or resellers change their purchasing patterns or refuse to pay the prices that we set for our products, our net sales and operating results could be negatively impacted. If our distributors and resellers increase the size of their product orders without sufficient lead time for us to process the order, our ability to fulfill product demand would be compromised. In addition, because our accounts receivable are concentrated within a small group of distributors and resellers, the failure of any of them to pay on a timely basis, or at all, would reduce our cash flow.

We generally recognize revenue to distributors and resellers when risk of loss is transferred to such third party. To the extent that return rates from our customers or price protection exceed historical averages, revenues from future periods will be reduced.

We depend on a limited number of third-party component suppliers and contract manufacturers for the manufacture of our products. If these third parties experience any delay, disruption or quality control problems in their operations, we could lose market share and revenues, and our reputation may be harmed.

All of our products are manufactured, assembled, tested and packaged by contract manufacturers, as we have no manufacturing or testing facilities. We rely on component suppliers and contract manufacturers to procure components and, in some cases, subcontract engineering work. There are a limited number of manufacturers of LCD panels, and we do not expect this number to increase significantly. Some of our products are manufactured by a single contract manufacturer. Our component suppliers and contract manufacturers are primarily located in mainland China, Taiwan and Thailand and may be subject to disruption by earthquakes, typhoons and other natural disasters, epidemics, pandemics, as well as political, social or economic instability. We do not have any long-term contracts with any of these third-party component suppliers and contract manufacturers. Product pricing is generally negotiated on an order-by-order basis. Our contracts with our component suppliers and contract manufacturers, including those contracts containing provisions that may be materially favorable to us, are generally terminable for any reason and by either party with 90 days notice. If our component suppliers and contract manufacturers encounter financial or other business difficulties, if their strategic objectives change, or if they perceive us to no longer be an attractive customer, they may no longer assist us in our product development efforts, and our business could be harmed.

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The loss of the services provided by any of our primary contract manufacturers or a change in material terms could cause a significant disruption in operations, delays in product shipments and an adverse impact on our cash flow. Qualifying a new contract manufacturer and commencing volume production is expensive and time consuming.

Our reliance on third-party component suppliers and contract manufacturers also exposes us to the following risks over which we have limited or no control:

•

Inability to procure key required components for our finished products to meet customer demand;

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Loss of access to capacity from one or more panel manufacturers or increased competition if such manufacturers elect to directly provide display devices to distributors, resellers or in other markets.

•

Unexpected increases in manufacturing and repair costs;

•

Unexpected reductions in payment terms;

•

Interruptions in shipments if one of our manufacturers is unable to complete production or experiences delays;

•

Inability to control the quality of finished products;

•

Inability to control delivery schedules;

•

Inability to obtain favorable pricing;

•

Unpredictability of manufacturing yields; and

•

Potential lack of adequate capacity to manufacture all or some of the products we require.

If our new products fail to achieve broad market acceptance on a timely basis we will not be able to compete effectively and we will be unable to increase or maintain net sales and gross margins.

We operate in a highly competitive, quickly changing environment. We are dependent upon sufficient demand and broad market acceptance for LCD display products. Our future success depends on our ability to develop and introduce new products and product enhancements that achieve broad market acceptance in the business and home markets. Our future success will depend in large part upon our ability to:

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Identify demand trends in the business and home display markets and quickly develop, manufacture and sell products that satisfy these demands;

•

Manage our cost structure to enable us to bring new products to market at competitive prices;

•

Respond effectively to new product announcements from our competitors by designing competitive products, either internally or through the use of third parties;

•

Provide compatibility and interoperability of our products with products offered by other vendors and new technologies as they emerge;

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•

Efficiently access the display technology needed for our products to have broad market acceptance and respond rapidly to shifts in the display technology towards new or different display technologies;

•

Manage our product offerings either as stand-alone products or in combination with other products or services, or in some other manner; and

•

Respond effectively to unexpected shifts in market demand towards display and PC products sold together under the same brand or away from stand-alone displays.

If a different or new display technology other than LCD achieves broad market acceptance and we are unable to shift to this new or different display technology, our business could be harmed.

Most of our revenue is currently derived from the sale of products utilizing LCD display technology. Different technologies are also currently available and these include plasma, Liquid Crystal on Silicon and Organic Light Emitting Diode. New display technologies are under development and may be commercialized in the future. Our success will depend in part on our continued ability to offer products utilizing a display technology that has broad market appeal on commercially reasonable terms. If we are unable to shift or obtain the necessary technology, we may be forced to acquire or develop alternative technology of lower quality or performance standards. This could limit and delay our ability to offer competitive products and increase our costs of production. If a different or new display technology proves to have broad market acceptance and we are unable to access or bring to market products using this new or different display technology, we could lose market share and our revenue, gross margins and operating results could be harmed.

Confidentiality agreements with employees and others may not adequately prevent disclosure of proprietary information.

We generally enter into confidentiality and invention assignment agreements with our employees and contractors, and nondisclosure agreements with our distributors, resellers, suppliers and contract manufacturers to limit access to, and disclosure of, our proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such party. Costly and time consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

Our products are complex and may require modifications to resolve undetected errors or unforeseen failures, which could lead to an increase in our warranty claims and costs, a loss of customers, or a decline in market acceptance of our products.

Our products are complex and may contain undetected errors or experience unforeseen failures when first introduced or as new versions are released. These errors could cause us to incur significant warranty and re-engineering costs, divert the attention of our engineering personnel from product development efforts, and cause significant customer relations and business reputation problems. We also have received, and expect to continue to receive, claims alleging the sale by us of defective products. If we deliver products with defects, our credibility

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and the market acceptance and sales of our future products could be harmed. Defects could also lead to liability for defective products as a result of lawsuits against us or against our distributors and resellers. We also agree to indemnify our distributors and resellers in some circumstances against liability from defects in our products. A successful product liability claim could require us to make significant damages payments.

Changes in the way we do business and volatility in our industry could require us to raise additional capital.

Although we believe that our existing cash balances, credit facilities, anticipated cash flows from operations and the net proceeds of this offering will be sufficient to meet our operating and capital requirements for at least the next 12 months, we may be required to raise additional capital through either equity or debt financing, which may not be available on favorable terms, or at all. Factors that could adversely affect our cash used or generated from operations and, as a result, our need to seek additional borrowings or capital include:

•

Differences between payment terms for the purchase of key components and the sale of finished products;

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Need to enter into early-pay or pre-pay arrangements to secure lower pricing and capacity for key components or finished products;

•

Significantly decreased demand for and market acceptance of our products;

•

Need to make significant investments in order to successfully develop our next-generation products;

•

Competitive pressures resulting in lower than expected average selling prices;

•

Adverse changes in component pricing or payment terms with our distributors and resellers or our contract manufacturers and suppliers; or

•

Acquisitions of businesses or complementary technologies.

We also may require additional capital for other purposes not presently contemplated. If we are unable to obtain sufficient capital, we could be required to curtail our sales and marketing expenditures, which could harm our business. If we should require capital in excess of our current availability and if we were unable to raise additional capital, our business could be harmed.

If we fail to comply with government regulations, including those promulgated by the Federal Communications Commission, the European Union's Restriction of Certain Hazardous Substances Directive, or RoHS, and Waste Electrical and Electronic Equipment Directive, or WEEE, our business may be harmed.

We are subject to local laws and regulations in various regions in which we operate. We could become subject to liabilities as a result of a failure to comply with applicable laws and incur substantial costs from complying with existing, new, modified or more stringent requirements. For instance, in the United States we are subject to rules enforced by the Federal Communications Commission, or FCC, regarding televisions containing high-definition tuners. The FCC has notified us that importation declarations indicate that we may have violated

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certain FCC rules with respect to the transition requirements for selling televisions containing high-definition tuners and may be subject to fines.

In the European Union, or EU, there are two particular directives, RoHS and WEEE, which we believe may have a material impact on our business. RoHS restricts the distribution of certain substances, including lead, within the EU and became effective on July 1, 2006. RoHS requires us to eliminate and/or reduce the level of specified hazardous materials from our products and requires us to maintain and publish a detailed list of all chemical substances in our products. WEEE requires us to take back and recycle all products we manufacture or import into the EU at our own expense and became effective in August 2005 for most EU countries and at varying dates thereafter for other EU countries whose implementation of the European WEEE Directive was subsequent to August 2005. The United Kingdom is the most recent country to implement the WEEE Directive and its regulations became effective in January 2007. If we fail to, or do not fully, comply with the EU directives our business may be harmed. For example,

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We may be unable to procure appropriate RoHS compliant material in sufficient quantity and quality and/or be unable to incorporate it into our product procurement processes without compromising product quality and/or harming our cost structure;

•

We may not be able to sell non-compliant products into the EU or to any customer whose end products will be sold into the EU, which may result in reduced sales; or

•

We may face excess and obsolete inventory risk related to non-compliant inventory that we may continue to hold for which there is reduced demand and we may need to write down such inventory.

We depend on our founder and other executive officers, and if we are not able to retain them, our business will suffer.

James Chu, our founder, Chairman of the Board, Chief Executive Officer and majority stockholder and other executive officers, possess specialized knowledge with respect to our business and our operations. Consequently, the loss of Mr. Chu, in particular, and our other executive officers could harm our business. We do not carry key man life insurance on any of our executive officers.

Any acquisition we make could disrupt our business and harm our financial condition and operations.

We have made strategic acquisitions of businesses, technologies and other assets in the past. While we have no current agreements or commitments with respect to any acquisition, we may in the future acquire businesses, product lines or technologies. In the event of any future acquisition, we may not ultimately strengthen our competitive position or achieve our goals, or they may be viewed negatively by customers, financial markets or investors and we could:

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Issue stock that would dilute our current stockholders' percentage ownership;

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Incur debt and assume other liabilities; and

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Incur amortization expenses related to goodwill and other intangible assets and/or incur large and immediate write-offs.

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Acquisitions also involve numerous risks, including:

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Problems integrating the acquired operations, technologies or products with our own;

•

Diversion of management's attention from our core business;

•

Assumption of unknown liabilities;

•

Adverse effects on existing business relationships with suppliers and customers;

•

Increased accounting and financial reporting compliance risk;

•

Risks associated with entering new markets; and

•

Potential loss of key employees.

We may not be able to successfully integrate any businesses, products, technologies or personnel that we might acquire in the future, which could harm our business.

Risks related to our common stock and this offering

The market price of our common stock may be highly volatile and investors may not be able to resell their shares at or above the initial public offering price.

Prior to this offering, there has not been a public market for our common stock. Although we have applied to have our common stock listed on The Nasdaq Global Market, an active trading market for our common stock may not develop or, if it develops, may not be maintained after this offering. The initial public offering price for the shares will be determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the open market. Investors may not be able to sell their shares quickly or at the market price.

The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including:

•

Actual or anticipated variations in our quarterly operating results;

•

New products introduced or announced by us or our competitors, and the timing of these introductions or announcements;

•

Actual or anticipated changes in earnings estimates or recommendations by securities analysts;

•

Announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

•

General economic and market conditions and other factors that may be unrelated to our operating performance or the operating performance of our competitors;

•

Changes in market valuations of similar companies;

•

Sales of common stock or other securities by us or our stockholders in the future;

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•

Additions or departures of management personnel; and

•

Trading volume of our common stock.

In addition, if the market for technology stocks or the stock market in general experiences loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or operating results. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. Each of these factors, among others, could harm the value of your investment in our common stock. Some companies that have had volatile market prices for their securities have had securities class action lawsuits filed against them. If a suit were filed against us, regardless of its merits or outcome, it could result in substantial costs and divert management's attention and resources from our business.

James Chu, our founder, Chairman of the Board and Chief Executive Officer, and his affiliates beneficially own a majority of our common stock and will be able to exercise significant influence over matters subject to stockholder approval.

As of March 31, 2007, James Chu, our founder, Chairman of the Board and Chief Executive Officer, together with his affiliates, beneficially owned 87.2% of our common stock and upon the closing of this offering, Mr. Chu and his affiliates will continue to beneficially own         % of our outstanding common stock. Accordingly, even after this offering, Mr. Chu and his affiliates will be able to exert a significant degree of influence over our management and affairs and control matters requiring stockholder approval, including the election of our board of directors and approval of significant corporate transactions. This concentration of ownership could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could depress the market value of our common stock.

We will continue to incur significant costs as a public company, and our management will be required to devote substantial time to new compliance initiatives.

We will continue to incur significant legal, accounting and other compliance expenses following this offering. In addition, the Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the Securities and Exchange Commission and The NASDAQ Global Market, impose various requirements on public companies, including requiring the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs and will continue to make some activities more time-consuming and costly. We expect director and officer liability insurance to be expensive, and we may be required to incur substantial costs to maintain the same or similar coverage in the future.

The Sarbanes-Oxley Act of 2002 requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, in 2007 we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002. If we or our independent registered public

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accounting firm determine that we have a material weakness in our internal control over financial reporting our stock price may decline. As a result of our compliance with Section 404, we will incur substantial accounting expense and expend significant management efforts.

Future sales of our common stock in the public market could cause our stock price to decline.

Sales of a substantial number of shares of our common stock in the public market after this offering, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. After this offering, we will have             shares of common stock outstanding, or             shares if the underwriters exercise their right to purchase additional shares to cover over-allotments in full.

Substantially all of our existing stockholders are subject to lock-up agreements with the underwriters of this offering that restrict the stockholders' ability to transfer shares of our common stock for at least 180 days from the date of this prospectus. The lock-up agreements, together with restrictions under the securities laws described in "Shares eligible for future sale," limit the number of shares of common stock that may be sold immediately following this offering.

All of the shares of common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares purchased by our affiliates as defined in Rule 144 under the Securities Act. The remaining 357,894,666 shares of common stock outstanding after this offering, of which 311,969,998 are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act, will be available for sale after the expiration of the contractual lock-up period. J.P. Morgan Securities Inc. and Banc of America Securities LLC could release all or some portion of the shares subject to lock-up agreements prior to expiration of the lock-up period. In addition, as of March 31, 2007, the 30,041,990 shares that are subject to outstanding options, and if issued, the 12,344,299 additional shares reserved for future issuance under our equity incentive plans, will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements and the lock-up agreements. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

If securities or industry analysts do not publish research or publish unfavorable or misleading research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage of us, the trading price for our stock would be negatively impacted. In the event that we obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades our stock or publishes unfavorable or misleading research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price or trading volume to decline.

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Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws, both to be effective upon the closing of this offering, may delay or prevent an acquisition of us or a change in our management. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. These provisions include:

•

A prohibition on actions by our stockholders by written consent;

•

Limitations on the ability of stockholders to remove our directors; and

•

Advance notice requirements for election to our board of directors and for proposing matters that can be acted upon at stockholder meetings.

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. These provisions would apply even if the proposed merger or acquisition could be considered beneficial by our stockholders.

Purchasers of shares of common stock sold in this offering will experience immediate dilution. Investors will experience further dilution if we issue shares in future financing transactions and upon the exercise of stock options.

Purchasers of shares of common stock in this offering will experience immediate dilution of $             per share because the price that investors pay will be substantially greater than the net tangible book value per share of the shares purchased. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares. If we issue additional common stock or issue securities convertible into or exchangeable or exercisable for common stock, our stockholders will experience additional dilution. In addition, if we raise additional funds through the sale of equity securities, new investors could have rights superior to our existing stockholders.

Because our management will have broad discretion over the use of the net proceeds from this offering, you may not agree with how we use them and the proceeds may not be invested successfully.

We intend to use the net proceeds from this offering for sales and marketing activities and for general corporate purposes, and therefore, our management will have broad discretion as to the use of the offering proceeds. Accordingly, investors will be relying on the judgment of our management with regard to the use of these net proceeds, and investors will not have the opportunity, as part of their investment decision, to assess whether the proceeds are being

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used appropriately. It is possible that the proceeds will be invested in a way that does not yield a favorable, or any, return to us.

We have no intention to declare dividends in the foreseeable future.

The decision to pay cash dividends on our common stock rests with our Board of Directors and will depend on our earnings, unencumbered cash, capital requirements and financial condition and any restrictions contained in our credit facilities. We do not anticipate declaring any dividends in the foreseeable future, as we intend to use any excess cash to fund our operations. Investors in our common stock should not expect to receive dividend income on their investment, and investors will be dependent on the appreciation of our common stock to earn a return on their investment.

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Forward-looking statements

This prospectus, particularly the sections entitled "Prospectus summary," "Risk factors," "Management's discussion and analysis of financial condition and results of operations" and "Business," contains forward-looking statements. All statements other than historical facts contained in this prospectus, including statements regarding our future results of operations and financial conditions, business strategy, plans and our objectives for future operations, are forward-looking statements. When used in this prospectus the words "anticipate," "believe," "can," "could," "estimate," "expect," "intend," "is designed to," "may," "might," "objective," "plan," "potential," "predict," "should" or the negative of these words and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

•

Our expectations regarding our sales, expenses and operations;

•

Our anticipated trends and challenges in the markets in which we operate, including ASP reductions and transitions to new technologies;

•

Our distributors and resellers;

•

Our ability to anticipate the future needs of commercial and consumer end users;

•

Our plans for future products and enhancements of existing products;

•

Our growth strategies;

•

Our intellectual property, third-party intellectual property and claims related to infringement thereof;

•

Our anticipated cash needs, our estimates regarding our capital requirements and our need for additional financing; and

•

Our use of the proceeds from this offering.

These statements reflect our current views with respect to future events and are based on assumptions and subject to risk and uncertainties. We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. While we believe our plans, intentions and expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these plans, intentions or expectations will be achieved. Our actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained in this prospectus, including those under the heading "Risk factors."

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth in this prospectus. Other than as required by applicable securities laws, we are under no obligation to update any forward-looking statement, whether as result of new information, future events or otherwise.

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You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement on Form S-1, of which this prospectus is a part, that we have filed with the Securities and Exchange Commission, completely and with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

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Use of proceeds

We estimate that the net proceeds from the sale of the shares of our common stock in this offering will be approximately $    million, or approximately $     million if the underwriters exercise their option to purchase additional shares of common stock to cover any over-allotments in full, based upon an assumed initial public offering price of $    per share, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) net proceeds by approximately $     million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of one million shares in the number of shares offered by us would increase (decrease) each of cash and cash equivalents, working capital, total assets and total stockholders' equity by approximately $     million assuming that the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We do not expect that a change in the initial offering price or the number of shares by these amounts would have a material effect on our uses of the net proceeds from this offering. We will not receive any proceeds from the sale of shares by the selling stockholders.

We currently expect to use our net proceeds from this offering as follows:

•

approximately $     million for sales and marketing activities; and

•

the remainder to fund working capital and other general corporate purposes.

As of March 31, 2007, we had outstanding subordinated notes payable to James Chu, our founder, Chairman of the Board and Chief Executive Officer, and Keypoint Investments, L.P., a California limited partnership, of which Mr. Chu and his wife, Lily Chu, are the general partners, in the aggregate principal amount of $43.0 million. The subordinated notes are due on April 12, 2008 and a portion of the net proceeds may be used to repay these notes, although we have not yet made a determination as to whether we will do so. The interest rate on the subordinated notes is 3.97% per annum.

We may also use a portion of the net proceeds for the potential acquisition of, or investment in, other products that we may develop, intellectual property rights or companies that complement our business, although we have no current understandings, commitments or agreements to do so.

The expected use of the net proceeds of this offering represents our current intentions based upon our present plans and business conditions. The amounts we actually expend in these areas may vary significantly from our current intentions and will depend upon a number of factors, including future sales growth, cash generated from future operations and actual expenses to operate our business. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to be received upon the closing of this offering. Accordingly, our management will have broad discretion in the application of the net proceeds, and investors will be relying on the judgment of our management regarding the application of the net proceeds of this offering.

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The amount and timing of our expenditures will depend on several factors, including the amount of cash used by our operations. Pending their uses, we plan to invest the net proceeds of this offering in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

Dividend policy

Since April 2000, we have not declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our Board of Directors. Our credit facility prevents us from declaring or paying dividends except in certain circumstances.

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Capitalization

The following table sets forth our capitalization as of March 31, 2007:

•

on an actual basis;

•

on a pro forma as adjusted basis to reflect: (i) the conversion of all of our outstanding shares of preferred stock into 3,300,000 shares of common stock immediately prior to the closing of this offering and (ii) the sale of             shares of common stock in this offering at an assumed initial public offering price of $             per share after deducting underwriting discounts and commissions and estimated offering expenses payable by us; and

•

the filing of our amended and restated certificate of incorporation, which will occur immediately prior to the closing of this offering.

You should read the information in this table together with our financial statements and accompanying notes and "Management's discussion and analysis of financial condition and results of operations" appearing elsewhere in this prospectus.

The outstanding share information in the table above excludes as of March 31, 2007:

•

30,041,990 shares of common stock issuable upon the exercise of outstanding options with a weighted average exercise price of $0.42 per share; and

•

12,344,299 additional shares of common stock reserved for future issuance under our 2004 Equity Incentive Plan.

In April 2007, a former vendor returned 3,000,000 shares of our common stock to us with a value of $1.7 million pursuant to a settlement agreement.

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Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) each of total stockholders' equity and total capitalization by approximately $              million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of one million shares in the number of shares offered by us would increase (decrease) each of total stockholders' equity and total capitalization by approximately $              million assuming that the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing.

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Dilution

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share of our common stock after this offering. Net tangible book value per share is determined by dividing the number of outstanding shares of our common stock into our total tangible assets (total assets less intangible assets) less total liabilities and convertible preferred stock. As of March 31, 2007, we had a historical net tangible book value of our common stock of $66.4 million, or approximately $0.19 per share, not taking into account the conversion of our outstanding convertible preferred stock. The pro forma net tangible book value of our common stock as of March 31, 2007 was approximately $     million, or approximately $    per share, based on the number of shares outstanding as of March 31, 2007, after giving effect to the conversion of all outstanding convertible preferred stock into shares of common stock upon the closing of this offering.

Investors participating in this offering will incur immediate, substantial dilution. After giving effect to the sale of common stock offered in this offering at an assumed initial public offering price of $    per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2007 would have been approximately $     million, or approximately $    per share of common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $    per share to existing stockholders, and an immediate dilution of $    per share to investors participating in this offering. The following table illustrates this per share dilution:

Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) our pro forma as adjusted net tangible book value by $     million, or $             per share, and the pro forma dilution per share to investors in this offering by $           per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase of one million shares in the number of shares offered by us would increase our pro forma as adjusted net tangible book value by approximately $     million, or $    per share, and the pro forma dilution per share to investors in this offering would be $    per share, assuming that the assumed initial public offering price remains the

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same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, a decrease of one million shares in the number of shares offered by us would decrease our pro forma as adjusted net tangible book value by approximately $     million, or $    per share, and the pro forma dilution per share to investors in this offering would be $    per share, assuming that the assumed initial public offering price remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing.

If the underwriters exercise their option in full to purchase    additional shares of common stock in this offering, the pro forma as adjusted net tangible book value per share after the offering would be $    per share, the increase in the pro forma net tangible book value per share to existing stockholders would be $    per share and the pro forma dilution to new investors purchasing common stock in this offering would be $    per share.

The following table summarizes, on a pro forma basis as of March 31, 2007, the differences between the number of shares of common stock purchased from us, the total consideration and the weighted average price per share paid by existing stockholders and by investors participating in this offering at an assumed initial public offering price of $    per share, before deducting underwriting discounts and commissions and estimated offering expenses payable by us:

The above discussion and tables also assume no exercise of any outstanding stock options except as set forth above. As of March 31, 2007, there were:

•

30,041,990 shares of common stock issuable upon the exercise of outstanding options with a weighted average exercise price of $0.42 per share; and

•

12,344,299 additional shares of common stock reserved for future issuance under our 2004 Equity Incentive Plan.

In April 2007, a former vendor returned 3,000,000 shares of common stock to us pursuant to a settlement agreement.

If all outstanding stock options were exercised, then our existing stockholders, including the holders of these options, would own    % and our new investors would own    % of the total number of shares of our common stock outstanding upon the closing of this offering. The total consideration paid by our existing stockholders would be $     million, or     %, and the total consideration paid by our new investors would be $     million, or    %. The average price per share paid by our existing stockholders would be $    and the average price per share paid by our new investors would be $    .

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Selected consolidated financial data

The following selected consolidated financial data should be read together with our consolidated financial statements and accompanying notes and "Management's discussion and analysis of financial condition and results of operations" appearing elsewhere in this prospectus. Our historical results are not necessarily indicative of our future results.

Our historical results are not necessarily indicative of results to be expected for future periods and the results for the three months ended March 31, 2007 are not necessarily indicative of results to be expected for the full year. We derived the statements of operations data for the years ended December 31, 2004, 2005 and 2006 and the balance sheet data as of December 31, 2005 and 2006 from our audited consolidated financial statements appearing elsewhere in this prospectus. The consolidated statement of operations data for the years ended December 31, 2002 and 2003 and the consolidated balance sheet data as of December 31, 2002, 2003 and 2004 are derived from our audited consolidated financial statements, which are not included in this prospectus. The consolidated statement of operations data for the three months ended March 31, 2006 and 2007 and consolidated balance sheet data as of March 31, 2007 are derived from our unaudited consolidated financial statements appearing elsewhere in this prospectus and include all necessary adjustments, consisting only of normal recurring adjustments, that we consider necessary for the fair presentation of this data.

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(1)

The operations of two of our majority-owned subsidiaries were discontinued during 2004. See note 16 of the notes to our audited consolidated financial statements appearing elsewhere in this prospectus.

(2)

Please see note 15 to the notes to our audited consolidated financial statements for an explanation of the method used to calculate basic and diluted net loss per share attributable to common stockholders, the pro forma basic and diluted net loss per share and the number of shares used in the computation of the per share amounts.

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Management's discussion and analysis of financial
condition and results of operations

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. You should review the "Risk factors" section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis.

Our company

ViewSonic Corporation is a leading global provider of visual display products. We develop, market and support a broad range of innovative products including liquid crystal display, or LCD, monitors, LCD TVs, projectors, digital signage displays and other display products. We were founded in 1987 and have a 20 year history of providing innovative products with market leading technologies. We sell our products to businesses and consumers through a variety of channels, including distributors and resellers such as solution providers, value added resellers, traditional retailers and Internet retailers. We are a Fortune 1000 company, and our products are sold in over 100 countries.

Our strategy is to effectively leverage our scale, strong global brand, close supplier and channel relationships and market knowledge to introduce industry leading products and penetrate new markets. We collaborate with a network of world class component suppliers and contract manufacturers to deliver a wide array of display products for use in a variety of consumer and commercial applications. We believe our operating model allows us to quickly develop, introduce and ramp new products while maintaining an efficient cost structure.

Financial operations overview

Three months ended March 31, 2007

In the first quarter of 2007, the LCD display industry continued to experience an oversupply situation as a result of increased LCD panel production capacities and slower than expected market demand. This resulted in rapidly declining average selling prices, or ASPs, and increased margin compression. Despite this downward trend in ASPs, we were able to grow sales in regional markets by enhancing our core product offerings across our display portfolios and increase our profits as a result of improvements made to our supply chain and logistics processes. We continue to look for opportunities to simplify our business processes in order to maximize operating efficiencies. This has resulted in increased leverage in our overall cost structure allowing us to be more competitive in the display market and effectively lowering our product costs in the first quarter of 2007. The full extent of benefits derived from our direct sourcing initiative are dependent on market conditions including periods of oversupply and rapidly dropping ASPs. In periods of oversupply, the benefits of direct LCD panel purchases are greater while our ASPs generally decrease. In periods of short supply those benefits decline, however the ASPs generally increase. This sourcing initiative helps us decrease the overall volatility of our gross margins, although we are unable to anticipate the amount of benefits, if any, that will be realized for the rest of 2007. While end user demand for LCD monitors

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continues to be slow, we are starting to see increases in panel prices and we expect pricing strategies to adjust accordingly.

Income from operations increased 30.1% to $4.3 million in the first quarter of 2007 compared to $3.3 million in the first quarter of 2006. This increase was primarily due to sales growth and increased leverage in our selling, general and administrative expenses as a percentage of net sales, which decreased to 7.1% in the first quarter of 2007 compared to 8.2% in the first quarter of 2006, partially offset by lower gross margins of 8.1% in the first quarter of 2007 compared to 9.2% in the first quarter of 2006.

Total unit shipments increased 43.5% in the first quarter of 2007 compared to the first quarter of 2006. The display industry continued to experience a shift from older technologies, such as CRT, to newer technologies, such as LCD, as well as a broadening of applications from PC monitors to TVs and other digital media products during the first quarter of 2007. Unit shipments of our LCD monitors, LCD TVs, and projectors grew 72.1%, 61.2%, and 115.9%, respectively, in the first quarter of 2007 compared to the first quarter of 2006, while shipments of our CRT monitors declined 47.2% in the first quarter of 2007 compared to the first quarter of 2006.

2006

During 2006, the LCD display industry continued to experience competitive pressures in terms of declining ASPs and margin compression. In the first half of 2006, we saw an oversupply of display panels and declining ASPs primarily resulting from an increase in LCD panel production capacities and slower than expected demand. In the second half of 2006, however, we experienced spot shortages of display panels for some LCD sizes due to an increase in demand in excess of LCD panel production capacities for certain sizes. In response to the spot shortages, panel production capacities increased during the fourth quarter of 2006. However, amidst softening fourth quarter demand, we began to experience a slight oversupply situation for some LCD panel sizes. Despite generally increasing pricing and margin pressures throughout 2006, we were able to mitigate the impact of this downward trend in ASPs primarily as a result of our implementation of key initiatives in 2006 to improve our supply chain and logistics efficiency, simplify our business processes to maximize operating efficiencies, grow sales in regional markets and expand our core product offerings. In addition, we believe our initiative to source LCD panels directly from manufacturers has resulted in higher gross margins. We believe this sourcing initiative has brought us closer to the supply base allowing us to more closely monitor market trends and supply cycles and has allowed us to consolidate our LCD panel purchasing power. By means of this key component sourcing initiative, we hope to be less vulnerable to the inherent volatility of the LCD display industry.

Income from operations increased 139.9% to $23.6 million in 2006 compared to $9.8 million in 2005. This increase was primarily due to sales growth and increased leverage in our selling, general and administrative expenses as a percentage of net sales, which decreased to 7.6% in 2006 compared to 8.8% in 2005, primarily as a result of strategic initiatives undertaken to maximize operating efficiencies and enhance our competitiveness.

Our total unit shipments increased 35.5% from 2005 to 2006. During 2006, the LCD display industry continued to experience a shift from older technologies, such as CRT, to newer technologies, such as LCD, as well as a broadening of applications from PC monitors to TVs and

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other digital media products. Unit shipments of our LCD monitors, LCD TVs, and projectors grew 81.1%, 106.0%, and 138.3%, respectively, from 2005 to 2006, while shipments of our CRT monitors declined 38.8% from 2005 to 2006.

The ASPs of our LCD monitors decreased 21.7% in 2006 compared to 2005. This decrease was primarily due to increased production capacities, aggressive price competition and regional and product mix.

Critical accounting policies and estimates

General

Management's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual results may differ from these estimates under different assumptions or conditions.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. Management believes the following critical accounting policies reflect its more significant estimates and assumptions used in the preparation of the consolidated financial statements.

Revenue recognition and promotional expenses

Substantially all of our revenues are derived from sales to distributors and resellers. We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 104 "Revenue Recognition." Pursuant to SAB No. 104 revenue from these customers is recognized when (1) risk of loss is transferred, which generally occurs upon delivery, (2) persuasive evidence of an arrangement exists, (3) the price is fixed or readily determinable, and (4) collectability is probable. We extend rights of return to our customers, which are accrued for based on estimated future returns determined by using estimates and historical experience and reflected as reductions to revenues. The primary factors affecting our estimates include the estimated return rate and the number of units shipped that still have a specified right of return as of the balance sheet date. If actual returns exceed our estimated returns, additional reductions to revenue would be recorded in the period the adjustments are made.

We offer several customer and distributor incentive programs, including price protection, rebates, promotions and other volume-based incentives, which are recorded as reductions to revenue. Certain incentive programs require us to estimate, based on historical experience and

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other factors, the number of customers who will actually redeem the incentive. Future market conditions and product transitions may require us to take actions to increase customer incentive offerings, possibly resulting in an incremental reduction of revenue at the time the incentive is offered. We estimate our promotions in accordance with EITF 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products), or EITF 01-9, which requires us to record sales allowances as a reduction of our revenue in our statement of operations. We offer sales allowance programs, which can generally be categorized as rebates, price protection and other "meet the competition" discounts (i.e., discounts offered to meet our competition's prices on comparable products). We consider these sales incentives to be an adjustment of the selling price to our customers. In accordance with EITF 01-9, we recognize the maximum potential liability for our sales promotions in our statement of operations unless the estimated liability can be reduced based on relevant historical experience. We monitor our various sales incentive programs by customer on a monthly basis and assess the adequacy of our accruals for such programs as necessary. Over the past three years, such programs have averaged 7.5% of our net sales per year. Therefore, if our estimates were understated by 1% of our net sales for 2006, the negative impact to our net sales would have been approximately $16.0 million. For the three months ended March 31, 2007, such programs were 6.5% of our net sales.

Allowance for doubtful accounts

Our allowance for doubtful accounts is determined using an analysis to determine whether the balance of the account sufficiently adjusts the accounts receivable balance to its net realizable value. The analysis consists of applying a historical write-off percentage against the accounts receivable aging balance to determine whether the allowance for doubtful accounts balance is sufficient to cover expected future write-offs. We maintain an allowance for all customers based on a variety of factors, including the length of time receivables are past due, trends in overall rating of the total portfolio, macroeconomic conditions, significant one-time events and historical experience. Also, we record an additional allowance for individual accounts when we become aware of a customer's inability to meet its financial obligations to us, such as in the case of bankruptcy filings or deterioration in the customer's operating results or financial position. If circumstances related to customers change, our estimates of the recoverability of receivables would be further adjusted. If our estimates for future bad debts are higher than recorded, this could result in higher bad debt expense. We monitor customer credit limits and historical payment history on a monthly basis. As of December 31, 2006, we had $277.2 million of net trade receivables and as of March 31, 2007 we had $308.0 million.

Inventories

Inventories consist primarily of finished goods and are stated at the lower of cost or market. Cost is determined using the first-in, first-out method of accounting. We write down our inventory for estimated lower of cost or market which is equal to the difference between the cost of inventory and the net realizable value based upon assumptions about future demand and market conditions. Other factors influencing these write-downs include rapid technological changes, product life cycle and product pricing. We evaluate our inventory on a monthly basis and make necessary adjustments. Inventory write-downs totaled $2.8 million, $14.0 million, $11.5 million and $9.8 million in the three months ended March 31, 2007 and in 2006, 2005 and 2004, respectively. Our inventory write-downs as a percentage of cost of sales have

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averaged approximately 1% for the three months ended March 31, 2007 and for 2006, 2005 and 2004.

We operate in a rapidly changing business environment in which changes in technology and customer demand may have a significant impact on the valuation of our inventory. We adjust our inventories for obsolescence, excess or amount in excess of net realizable value to reflect inventory at the lower of cost or market. Factors influencing these adjustments include changes in demand, technological changes, product life cycle and development plans, component cost trends, product pricing, physical deterioration and quality issues. Revisions to these adjustments are required if any of these factors differ from our estimates.

We review the amount of inventory in our various sales channels, sales forecasts and historical trends such as sell through activity, as well as price trends and other relevant data. Based upon this market information, we adjust our related inventory values. Major changes in inventory values usually relate to technological changes and market acceptance of new products, which are difficult to predict. If we are unable to properly monitor and manage our sales channel inventory and maintain an appropriate level and mix of products with our customers, we may experience inventory losses.

Promotional pricing incentives from our vendors

We receive promotional pricing incentives from several of our product vendors. The amount of the pricing incentives is based on the market competition and the quantity of historical purchases of these components from such vendors. The pricing incentives have no impact on future component purchases from these vendors. We record the reimbursement from our vendors for these promotional pricing incentives when we are released of the legal liability for the payment of the product purchases by our vendors.

Warranty provision

We provide product warranty programs on a worldwide basis that vary in term from 12 to 36 months. The length of the warranty period and the specific warranty coverage are based on the type of product and geographic location. We accrue for estimated warranty costs at the time the product is sold, and such amounts are based upon historical experience. The historical data that determines the warranty accrual and the overall estimate of the warranty reserve includes the following key factors: net cost of repair (repair costs less reimbursements from suppliers), defect rates and total number of products under warranty. If our estimates for net cost of repair and defect rates are higher than recorded, this could result in higher future warranty expenses.

Patent litigation expenses

There are certain claims against us that are related to patent infringement cases. We accrue for these claims whenever we determine an unfavorable outcome is probable and the liability is reasonably estimable. The amount of the accrual is estimated based on a review of each individual claim, including the type and facts of the claim and an assessment of the claim's merits. In accordance with Statement of Financial Accounting Standards, or SFAS No. 5, Accounting for Contingencies, we make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a

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particular case. Litigation is inherently unpredictable. However, we believe that we have valid defenses with respect to the legal matters pending against us, as well as adequate provisions for any probable and estimable losses. While the outcome of these proceedings and claims cannot be predicted with certainty, management does not believe that the outcome of any pending legal matters will have an adverse material effect on our consolidated financial statements.

Long-term investments

For our publicly-traded investments, we follow SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and account for such investments as available for sale. Unrealized gains (losses) are recorded in other comprehensive income, net of tax. Any realized gains (losses) are recorded in other income (expense) and cost is determined by specific identification.

We account for our investments in privately-held companies under the cost method. Our investment in privately-held companies was valued at $0.1 million as of March 31, 2007 and December 31, 2006 and 2005. We are under no contractual obligation to provide additional funding to these privately-held companies and do not exercise significant influence over them.

When events dictate, we perform an impairment analysis to determine whether the loss, if any, is other than temporary. Private and public securities investment impairments totaled $0, $1.7 million, $1.8 million and $4.3 million in the three months ended March 31, 2007 and in 2006, 2005 and 2004, respectively. In determining whether impairment exists, we evaluate the latest financial operating results of the investment and review discounted cash flow projections. The actual amount of impairment is based on the difference between the discounted cash flows versus the recorded value.

Income taxes

Deferred income tax assets and liabilities are computed annually for differences between the financial statement and income tax bases of assets and liabilities. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to reverse. If necessary, a valuation allowance is established to reduce deferred income tax assets in accordance with SFAS 109, Accounting for Income Taxes.

The establishment of a valuation allowance requires the assessment of both positive and negative evidence. This evidence includes our past and projected future performance, the market environment in which we operate, the utilization of past tax credits and the length of the carry-back and carry-forward periods of net operating losses. As of March 31, 2007 and December 31, 2006, we had a valuation allowance of $10.8 million, of which $10.3 million was against domestic net deferred income tax assets.

Pursuant to Accounting Principles Board Opinion No. 23, Accounting for Income Taxes-Special Areas, or APB 23, we do not provide for federal income taxes or tax benefits on the undistributed earnings associated with the non-U.S. operations. In the event some or all of the earnings were distributed to the U.S. entity, some portion of the distribution would be subject to both U.S. income taxes and foreign withholding taxes. However, foreign tax credits may become available to reduce or eliminate the U.S. income tax liability.

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In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48, which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Additionally, FIN 48 provides guidance on derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. FIN 48 became effective for us on January 1, 2007, and as a result, we recognized a $0.4 million increase to our January 1, 2007 accumulated deficit balance. In addition, consistent with the provisions of FIN 48, we reclassified $3.1 million of income tax liabilities from current to non-current liabilities because payment of cash is not anticipated within one year of the balance sheet date. As of January 1, 2007, the balance of gross unrecognized tax benefit was $4.4 million. To the extent these unrecognized tax benefits are ultimately recognized, they will impact our effective tax rate in a future period.

Results of operations

Net sales

We generate revenues primarily from the sale of our visual display technology products to our channel partners, including distributors and resellers. We sell to a geographically diversified customer base with 53%, 53%, 55% and 45% of our consolidated net sales generated outside of the Americas in the three months ended March 31, 2007 and in 2006, 2005 and 2004, respectively. We extend price reductions and sales incentives to our customers including price protection, promotions and other volume-based sales incentives. Sales to Ingram Micro Inc. in 2006, 2005 and 2004 were 11%, 11% and 14%, respectively, of our total consolidated net sales. Sales to Tech Data Corporation in 2005 and 2004 were 10% and 13%, respectively, of our total consolidated net sales. No single customer generated over 10% of our consolidated net sales in the three months ended March 31, 2007.

Cost of sales

Our cost of sales consists primarily of the cost of inventory purchased from our contract manufacturers, manufacturing support costs, inventory provisions, warranty, shipping, warehouse and storage costs. We maintain relationships with third-party contract manufacturers, which we believe will be able to provide us with sufficient quantities of product in the normal course of business. We expect to continue to experience price fluctuations for our products. Changes in gross profit as a percentage of revenue, or gross margin, are primarily the result of changes in product mix and geographic mix, as well as general industry pricing dynamics.

Selling, general and administrative expenses

Our selling, general and administrative expenses consist primarily of salaries, commissions and bonuses, promotional tradeshow and advertising expenses, research and development, travel and entertainment expenses, and legal and accounting expenses.

Total other income (expense), net

Total other income (expense) primarily includes interest income, interest expense, gains and losses on sales of investments and transaction related foreign currency gains and losses.

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Preferred stock accretion

Preferred stock accretion represents the accretion value of our Series B Preferred Stock from its initial value to the redemption price. We redeemed all outstanding shares of our Series B Preferred Stock in January 2006.

Comparison of the three months ended March 31, 2007 and 2006

The following table sets forth our condensed consolidated statements of operations data for the periods indicated:

*

Percentage not meaningful.

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The following table sets forth our condensed consolidated statements of operations data expressed as a percentage of net sales for the periods indicated: