Network Computing Devices Inc. was founded in 1988 in Mountain View, California. The company develops software products such as X-terminals, Z-mail, PC X-ware, and related hardware products. Presented below is a discussion by management in its annual report.

NETWORK COMPUTING DEVICES, INC.

Management Discussion

The Company’s operating results have varied significantly, particularly on a quarterly basis, as a result of a number of factors, including general economic conditions affecting industry demand for computer products, the timing and market acceptance of new product introductions by the Company and its competitors, the timing of significant orders from large customers, periodic changes in product pricing and discounting due to competitive factors, and the availability of key components, such as video monitors and electronic subassemblies, some of which require substantial order lead times. The Company’s operating results may fluctuate in the future as a result of these and other factors, including the Company’s success in developing and introducing new products, its product and customer mix, and the level of competition which it experiences. The Company operates with a small backlog. Sales and operating results, therefore, generally depend on the volume and timing of orders received, which are difficult to forecast. The Company has experienced slowness in orders from some customers during the first quarter of each calendar year due to budgeting cycles common in the computer industry. In addition, sales in Europe typically are adversely affected in the third calendar quarter as many European customers reduce their business activities during the month of August.

Due to the Company’s rapid growth rate and the effect of new product introductions on quarterly revenues, these seasonal trends have not materially impacted the Company’s results of operations to date. However, as the Company’s product lines mature and its rate of revenue growth declines, these seasonal factors may become more evident. Additionally, the Company’s international sales are denominated in U.S. dollars, and an increase or decrease in the value of the U.S. dollar relative to foreign currencies could make the Company’s products less or more competitive in those markets.

Instructions

(a) Identify the factors that affect the budgeting process at Network Computing Devices, Inc.

(b) Explain the additional budgeting concerns created by the international operations of the company.