ARTESYN TECHNOLOGIES INC - 10-K Annual Report

(Exact name of Registrant as specified in its charter)

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes þ No o

The aggregate market value of common stock held by non-affiliates of the Registrant as of June 28, 2003, the last day of our most recently completed second fiscal quarter, was approximately $199 million.

As of February 20, 2004, 38,879,808 shares of the Registrant’s common stock were outstanding.

Portions of our proxy statement for the annual meeting of shareholders to be held on May 6, 2004 are incorporated by reference into Part III hereof.

This Form 10-K may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. We caution readers that a number of important factors, including those identified in the section entitled “Risk Factors that May Affect Future Results” as well as factors discussed in our other reports filed with the Securities and Exchange Commission, could affect our actual results and cause them to differ materially from those expressed in the forward-looking statements. Forward-looking statements typically use words or phrases such as “estimate”, “plans”, “projects”, “anticipates”, “continuing”, “ongoing”, “expects”, “believes”, or words of similar import. Forward-looking statements included in this Form 10-K are made only as of the date hereof, based on information available as of the date hereof, and subject to applicable law to the contrary, we assume no obligation to update any forward-looking statements.

We are a leader in the design, manufacture and sale of power conversion equipment and board level computing solutions incorporated into embedded communications systems. Our products are sold to Original Equipment Manufacturers, or OEMs, within four core market sectors in the communications industry — server & storage, wireless infrastructure, networking, and telecommunications. Our operations are global with design, manufacturing and sales resources in North America, Europe and Asia.

We have provided components and solutions to the electronics industry since our establishment in 1968 as Computer Products, Inc. We changed our name to Artesyn Technologies, Inc. after our merger with Zytec Corporation in 1997. As a result of this merger, we changed our strategy to focus exclusively on the communications industry.

Our business is organized into two operating segments, Power Conversion and Communications Products. The Power Conversion group designs, manufactures and sells AC/DC and DC/DC power conversion equipment. The Communications Products group designs, manufactures and sells Central Processing Unit, or CPU, boards and Wide Area Network input/output, or WAN I/O, boards bundled with software protocols embedded in communications infrastructure systems. The two segments share a strategic direction and many of the same customers, but have separate operations.

Our mission is to be the best supplier of products and services to our global communications customers at the lowest total cost of ownership. To fulfill our mission, we have developed the following strategic goals:

Grow market share within existing markets and customer accounts. Our established customers are leaders within their market sectors, and we have long-standing relationships with them. We will continue to cultivate these relationships with the goal of growing our market share by meeting more of their power conversion and embedded system requirements. Additionally, we have a sales force that is dedicated to forming and fostering relationships with emerging customers in our core market sectors.

Expand into new markets. We will continue to seek complementary markets for our current and new product designs by leveraging our technical know-how and knowledge of customer and industry sector needs. We successfully executed on this strategy in 2003 as we entered the radio frequency power amplification market by modifying existing technology to create a lower cost power conversion solution for our wireless infrastructure customers.

Invest in technology to create new leading-edge solutions for customers and expand our product line. Our continued research and development investment in our Power Conversion and Communications Products businesses is instrumental in our ability to introduce leading-edge products to our customers. The research in our Power Conversion group is focused on Point-of-Load, or PoL, converters, a Distributed Power Architecture, or DPA, technology. Our PoL research is directed towards improving power densities, increasing switching speeds, and adding and integrating control functions for the power conversion module. New technologies and products for our Communications Products group include expanding our CPU boards with Intel-based CPU’s, new products and system architecture using the Advanced Telecommunications Computing Architecture, or ATCA, standard and increasing use of the Linux operating system.

Leverage manufacturing and operating infrastructure to support growth. During the last three years, we implemented restructuring actions to reduce our manufacturing capacity and to lower our operating expense structure. With the consolidation of our manufacturing into low-cost locations, we believe we have sufficient manufacturing capacity to support expected growth with modest investment in plant and equipment. Our selling, administrative, and engineering organizations are scalable to support higher levels of business activity. This will allow us to meet our customers’ increasing needs while improving our profitability.

The Power Conversion group is our primary business, accounting for 88%, 91% and 79% of our total sales in 2003, 2002 and 2001, respectively. Our products include AC/DC and DC/DC power supplies, also referred to as power converters.

Power supplies are an essential element in the supply, regulation and distribution of electrical power in all electronic systems. To operate, these systems require a steady supply of electrical power at one or more voltage levels. AC/DC power supplies convert alternating current, or AC, from a primary source, such as a wall outlet or utility grid, into a precisely controlled direct current, or DC. DC/DC converters modify an existing DC voltage level to other DC voltage levels to meet the distinct power needs of the applications they are powering.

We design our products to be used in complex communications systems such as mid- to high-end servers, data storage devices, routers, hubs, high-speed modems, access concentrators, radio frequency power amplification systems, base station controllers and base station transceivers. These systems require power supplies with higher levels of capability and reliability than those used in video gaming systems, mobile phones or other consumer products.

According to Venture Data Corp., worldwide merchant power supply industry revenues are projected to be approximately $15 billion annually. The merchant power supply industry is extremely competitive and fragmented, made up of more than 1,000 companies ranging from billion-dollar multinationals to sole proprietors. Artesyn Technologies was the sixth largest power supply manufacturer in the world in 2002, according to Micro-Tech Consultants, and one of only seven companies with sales greater than $300 million.

Our revenue is dependent on the success of our customers’ products and services in which our products are designed into as a component or sub-system. We are focused on the communications industry and our customers’ success is impacted by macroeconomic and industry trends, primarily corporate spending on information technology and capital spending by communication services providers. These areas experienced rapid growth in the late 1990’s through 2000 with the growth of the internet, expansion of networks within corporations and the increasing demand for wireless services. These technological advances required greater and more reliable power, driving demand

for power conversion products and producing double-digit annual revenue growth in the power industry.

However, the communications industry contracted sharply in 2001, 2002 and, to a lesser extent, in the first half of 2003, as consumers of computing and communications equipment became more conservative with their capital investment plans. This contraction negatively affected our performance as excess capacity throughout the power supply industry put greater downward pressure on power supply prices and compressed margins. Most companies in the power supply industry experienced substantial operating losses and implemented restructuring actions to reduce capacity. The downward trend appears to have ended in the fourth quarter of 2003 as evidenced by the higher revenues reported across the power industry.

Without exception, electronic devices are becoming more complex, particularly within the communications industry. Microprocessors, Digital Signal Processors, or DSP’s, Field Programmable Gate Arrays, or FPGAs, and memory chips are growing progressively more powerful and are being utilized in smaller and smaller spaces. This is driving the following key trends that will influence the demand for power conversion products:


	•	Lower semiconductor operating voltages;

	•	Faster operating speeds of silicon devices;

	•	Increasing number of voltages;

	•	Need for higher efficiency and efficient heat distribution; and

	•	Accelerated time to market.

We believe that these trends will accelerate the movement to DPA systems. Traditionally, electronics systems have used centralized power architectures, whereby one centralized AC/DC power supply creates multiple output voltage levels, which are fed through a cable of wires to individual components requiring a low voltage direct current. With the increasing demands for lower semiconductor operating voltages, faster operating speeds, higher efficiency levels and more efficient heat distribution, a centralized AC/DC solution can become limited both technically and economically when providing the power requirements for today’s newest generation of complex semiconductors.

The move to DPA addresses the increasing number of different and lower voltage and regulation requirements of the electronic systems being designed today. A DPA design incorporates multiple power processing or conversion locations distributed throughout the system. Typically, a “front-end” AC/DC power supply is used to convert an incoming AC voltage to an intermediate-level DC voltage, which is then fed to multiple DC/DC converters to generate the lower, regulated voltage requirements needed to power the semiconductor or peripheral load. The DC/DC converters are located throughout the system close to the device that uses power improving response time and heat distribution. Other advantages of a DPA are that it is upgradeable, flexible and expandable, and enables off-the-shelf products to be used to help shorten the time-to-market.

As a global provider of power conversion equipment, we differentiate ourselves from the competition as follows:

Global sales and engineering organized by customers. We have aligned our sales and engineering divisions by the market sectors and the customers we serve. The Power Conversion group is organized into three global business units focusing on our server and storage customers; our telecommunications and wireless customers; and sales to smaller “emerging’ customers as well as customers in segments outside of our core communications base.

We believe this sales and engineering structure allows us to form close relationships with our customers and provides better service by anticipating general market and customer specific requirements. Additionally, by concentrating on specific markets, we are able to leverage our investments in applications and design engineering resources to better serve our customers.

Industry leading technology development. We have industry-recognized engineers on staff dedicated to the design and development of new technologies that will meet our customers’ increasing demands. We have a high retention level of engineers and continue to grow our base of engineers globally to meet our development needs. Our power engineers have demonstrated an expertise in designing power solutions for the entire spectrum of power conversion architectures. Our research is focused on PoL converters and other DPA applications, which we believe have the greatest potential for growth.

Broad product line. We market hundreds of products, ranging from one-watt PoL modules to several kilowatt AC/DC front ends. Customers can utilize our off-the-shelf standard products or request a modified or custom solution for their unique power needs. Our product line offers a complete DPA solution, including the AC/DC front end, intermediate DC/DC converters and PoL modules. As our customers move towards reducing the number of approved vendors, our ability to provide a complete power solution is critical in establishing our position as one of a limited number of strategic suppliers.

Low cost global manufacturing structure. We have a global manufacturing presence with most of our products produced in China and Hungary, both low-cost manufacturing locations. We have been manufacturing in China for almost twenty years and are experienced in implementing the initial manufacture of new products designed at our engineering locations around the world. To support our manufacturing operations, we have also developed a global supply chain to focus on securing better leverage of our component costs, as well as to work with our designers to ensure we are coordinating the commonality of component usage in our products.

Our power conversion solutions are offered to customers through standard products, modified-standard products and custom products. Standard products, which are manufactured based on standard design topologies and are offered to customers off-the-shelf, provide for rapid time-to-market and minimal risk due to the proven design. They are ideal for low to moderate volume applications or for application-specific requirements. Modified-standard products are slightly customized from an existing product to meet a particular customer’s special requirements. Custom products are developed specifically for a single customer and are tailored to its performance, capability and cost requirements.


	•	AC/DC Power Supplies. These products represent approximately 62% of our power conversion product sales. Typical AC/DC power supplies include open-frame, closed-frame and external units, as well as a series of rack-mountable front-end power supplies for DPA systems. Most are advanced switch mode designs ranging in power from a few watts to several kilowatts.


		Rectifiers were recently added to our portfolio of front-end power supplies. In addition to converting AC to DC, these products can also charge batteries and are primarily used by wireless infrastructure customers in base stations. Our product is a new design of rectifier that is more efficient than the typical rectifier currently offered by our competitors.


	•	DC/DC Power Supplies. These products represent approximately 38% of our power conversion product sales. Each market sector we focus on has embraced the use of DPA for their communication systems, and to respond, we have grown our DC/DC product portfolio


		to include one of the broadest ranges of power conversion products available in the industry today.


		With the emergence of low-voltage, high performance silicon, the development of DC/DC converters has migrated toward smaller, highly efficient low voltage modules with higher current outputs and improved thermal performance. During 2003, we introduced a new line of ultra low-profile, high power board-mounted DC/DC converters known as the Typhoon^TM line of products. The Typhoon converters provide increased output power capabilities at a relatively low voltage, improved conversion efficiencies and radical reductions in physical size from previous options.

		Our fastest growing line of DC/DC converters provide power directly at the point of use and are referred to as PoL modules. The power requirements of advanced microprocessors, DSPs, FPGAs and memory chips can go from zero to full load in micro-seconds. In order to provide the low voltages, high currents and fast response time necessary, the power converter must be placed in close proximity to the semiconductor load. While we design and sell custom isolated PoL modules, we are also currently shipping eight distinct product families of non-isolated standard PoL products. During 2003, revenue from our PoL business continued to improve, resulting in sales of approximately $40 million, compared to sales of approximately $20 million in 2002.

Commercially we have aligned our sales, application engineering and design resources by the market sectors and customers we serve.

Our Power Conversion group is organized into three global strategic business units:


	•	Enterprise Computing Group, or ECG, serves our server and storage customers such as Dell, EMC, Hewlett-Packard, IBM, Sun Microsystems and others.

	•	Communications Infrastructure Group, or CIG, addresses the needs of telecommunications and wireless infrastructure customers such as Alcatel, Ericsson, Lucent, Motorola, Nortel, Siemens and others.

	•	Marketing and Standard Products Group, or MSP, provides standard and modified-standard products to emerging customers through direct sales, manufacturer’s representatives and global distributors.

Each group has dedicated sales people supported by applications engineers knowledgeable in both power technology and the customer product applications. Additionally, both ECG and CIG have design teams strategically located near our customers’ design teams to customize or create new products to meet their specific requirements, time-to-market and required price points.

MSP has in-house regional sales representatives who oversee our network of manufacturers’ representatives. These representatives are part of an independent sales force that manages sales for emerging customers, some key accounts in remote locations and customers outside of our core communications market. During 2002, we established the first pan-European network of independent manufacturers’ representatives to sell power supplies. Our MSP sales force also manages sales of our power supplies to stocking distributors, including Arrow Electronics and Avnet, and liaises with the contract manufacturers who provide manufacturing services to our customers.

A typical power supply generally consists of the combination of printed circuit boards along with a number of electronic and magnetic components attached. In many cases, these components can be combined in a sheet metal chassis that provides a structure for the finished product. The production of our power supplies involves the combination of these components and circuit boards

utilizing highly automated surface mount technology, or SMT, in the assembly process. The number of components in our products range from 50 components in a low-end PoL module to 2,500 components in a high-end AC/DC converter.

In response to market demands for increased quality, reliability and product capability, reduced costs and time-to-market, we continue to invest in state-of-the-art equipment and will continue to automate as many of the assembly and testing processes as possible. The use of SMT reduces board size by eliminating the need for through-hole placements allowing us to use smaller components. The use of SMT has also improved our development process, production capacity and product quality, and has considerably lowered our manufacturing cost due to the increased speed and efficiency gained in comparison with alternative methods of completing the same tasks.

Product quality and responsiveness to our customers’ needs are of critical importance to our ability to successfully compete in our industry. We emphasize quality and reliability in both the design and manufacture of our products. In addition to testing throughout the design and manufacturing process, we test and/or burn-in all the products we ship using automated equipment and customer-approved processes.

We have four manufacturing facilities worldwide, in China, Hungary, Germany and the United States. During 2002 and 2003, we closed three manufacturing facilities and consolidated production in China and Hungary, our low cost manufacturing locations. The reduction in capacity through the factory closures and the demand increases seen in the fourth quarter of 2003 have increased our current utilization to approximately 75% of total capacity.

The Communications Products group represented 12%, 9% and 11% of our total sales in 2003, 2002 and 2001, respectively. This group designs, manufactures and sells CPU boards and WAN I/O boards bundled with software protocols that are incorporated into embedded communications systems. These embedded systems are specifically configured using various hardware and software components, often from multiple suppliers, to meet a variety of end applications found in markets such as telecommunications and wireless infrastructure. The system architecture may be proprietary or based on open standards.

A typical application for our CPU boards is to control and monitor the activities of a high-speed line interface card, or coordinate the activities of an entire rack of interface boards, while a typical application of our WAN I/O boards is to provide a link and carry data from the wireless infrastructure systems to the wire-line telephone network or the Internet.

The worldwide embedded systems market is estimated to be over $3 billion in annual revenues. This market includes proprietary embedded systems and products built by telecommunications equipment and wireless infrastructure suppliers. The embedded systems industry is competitive and made up of approximately twenty companies, none of which has a dominant market share.

The embedded systems industry was severely impacted by the downturn in the communications industry that started in 2001. This was reflected in the performance of the Communications Products group where revenues fell almost 60% from 2000 to 2002. However, out of the downturn are several emerging trends that are expected to drive growth in the embedded systems market, particularly for products based on open standards:


	•	Increased deployment of broadband access.

	•	Acceptance and deployment of 3G wireless infrastructure.


	•	New equipment deployment to support the growing use of the internet for voice traffic, known as Voice Over Internet Protocol, or VoIP.

	•	Telecommunications equipment and wireless infrastructure suppliers have downsized resources and as a result are outsourcing system design to outside vendors, such as our Communications Products group, that design and sell systems or products using open standards.

These trends have already started to impact our business as evidenced by the 33% growth in the Communications Products group’s revenue in 2003 compared to 2002. The served available embedded systems market that we target within communications has estimated annual revenues of over $2 billion and is predicted to grow at an 11% compound annual growth rate over the next three years.

As a global provider of board level solutions incorporated into embedded communications systems, we differentiate ourselves from the competition as follows:

Global sales and engineering organized by customers. We have aligned our sales and engineering resources to target the top customers in the telecommunications and wireless infrastructure sectors. We believe this sales and engineering structure allows us to form close relationships with our customers and provides better service by anticipating general market and customer specific requirements. With the downsizing of our customer’s internal resources, strong relationships are critical as our customers see us as an extension of their engineering capabilities.

Industry leading technology development using open standards. We have industry-recognized engineers on staff dedicated to the design and development of new technologies that will meet our customers’ increasing demands. As a result, we have become known as an industry leader in ATCA development and related technologies.

Time to market. We have demonstrated the ability to quickly bring a new product from conception to design and into production. Our product development and new product introduction processes are rigorous and entail a high level of cross-functional coordination. This allows us to consistently meet or exceed customer expectations for new product releases.

The main product lines of our Communications Products group are WAN I/O boards, such as T1 and E1, used to interconnect computers over long distances carrying voice or data, CPU boards to control these interfaces and other specialized hardware/software subsystems used in communication infrastructure systems. These products are employed in a wide range of worldwide telecommunications and datacommunications networks, such as gateway/routers, switching, call processing and wireless communications infrastructure. Our products are designed and manufactured to worldwide industry standards primarily using open systems technology such as PCI, CompactPCI^TM, and ATCA, and can be supplied off-the-shelf or customized to meet customers’ specific cost and performance requirements. Many of these products are integrated hardware/software bundles used in a range of applications.

Our Communications Products group has two primary types of protocol software – control software and data software – that comprise our SpiderWare product line. Both types of software are bundled with different interface boards to provide a subsystem for our customers’ communications infrastructure applications.


	•	Control software. Otherwise known as signaling software, control software is used to control telephone calls in both the landline and wireless networks. Industry standard names for this software are SS7 and SIGTRAN. This software is used for actions such as setting up


		a call, identifying a route for the call to take through the specific phone network, and providing information to the end user like “caller ID’.

	•	Data software. This software is used to enable a call, for either voice or data, from a mobile handset to a voice network or to the Internet. Our customers integrate this software with their proprietary software to create an end application.

We believe that our SpiderWare products and our development in ATCA will provide us with significant opportunities in telecommunications as this new technology gains market and customer acceptance.

The Communications Products sales force is divided into Global Accounts, aligned to support the ten largest telecommunication equipment and wireless infrastructure suppliers, and Key Accounts, a separate sales group targeting emerging companies.

A typical Global Accounts team includes dedicated sales people, supported by application engineers, serving a customer with both standard off-the-shelf product and custom designs. The Key Accounts group has regionally based account managers overseeing manufacturers’ representatives. This group uses standard products to develop viable solutions that meet the needs of emerging companies.

The Communications Products group manufactures CPU boards and WAN I/O boards, primarily employing SMT technology in production. A printed circuit board that has been manufactured to our specifications is processed through an SMT line where electronic components, which can include microchip processors, are attached to the board. The SMT equipment will place the parts according to our design based on our customers’ requirements. The number of components incorporated into our boards range from 300 components on a low-end T1 or E1 interface board to over 2,500 components on a high-end bundled hardware/software subsystem. All of our products in the Communications Products segment are manufactured at our facility in Madison, Wisconsin.

Our current customer list is made up of world-class organizations within the communications industry with whom we have developed long-standing relationships based on the quality, reliability and efficiency of our products. Our ten largest customers (in alphabetical order) are Alcatel, Cisco, Dell, Hewlett-Packard, IBM, Lucent, Motorola, Nokia, Nortel and Sun Microsystems. These customers are leaders in the server and storage, networking, telecommunications and wireless infrastructure market sectors. The following table is an illustration of sales within our core market sectors.

A large percentage of our sales are to a small group of customers, with our ten largest customers representing 71%, 73% and 64% of our total sales in 2003, 2002 and 2001, respectively. However, we are currently participating in more than 100 separate projects limiting our exposure to the failure or cancellation of any one project. Hewlett-Packard, Dell and Sun Microsystems each represented more than 10% of sales during 2003. The table below shows the percent of total sales generated from these companies for the respective years:

We maintain a network of suppliers for our components and other materials used in the manufacture of our power conversion and communications products. We typically design products using materials readily available from several sources and attempt to minimize our use of single-source components. We procure based upon our enterprise resource planning system and use a combination of forecasts, customer purchase orders and formal purchase agreements to create our materials requirements plan. The number of components in one of our products can range from fifty on some small power products to nearly 2,500 components on some of our AC/DC power supplies and high-end communications products subsystems.

We occasionally use components or other materials from a single source when introducing new technology and products to the market. In these situations, we may seek to establish long-term relationships with these suppliers. We frequently enter into volume purchase agreements with suppliers of key materials. This practice enables us to maintain a more constant source for required supplies, reduce inventory and produce substantial cost savings through volume purchase discounts.

We are focused on increasing our vendor-managed inventories, whereby the vendor holds the inventory in a location near our factory and we pull the inventory as it is needed for production. This arrangement allows us to reduce our inventory while ensuring a continued supply of raw materials and components for our manufacturing process. In 2003, approximately 55% of our materials and components were purchased using vendor managed inventory.

Sales are generally made pursuant to purchase orders rather than long-term contracts. Backlog consists of purchase orders on hand with delivery dates scheduled within the next six months. Order backlog at December 26, 2003 was $86.7 million as compared to $72.7 million at December 27, 2002. The level of backlog was considerably higher at the end of 2003 compared to the end of 2002 due to an increase in demand we experienced with our server and storage customers in the fourth quarter of 2003. We expect to ship substantially all of the December 26, 2003 backlog in the first six months of 2004.

We maintain an active research and development department, which is engaged in the development of new products and technologies, devising solutions for our clients and modifying and improving existing products. Expenditures for research and development during fiscal years 2003, 2002 and 2001 were approximately $34.3 million, $34.3 million and $41.5 million, respectively. These amounts represented 10%, 10% and 8% of revenue in the respective periods presented. Research and development spending decreased in absolute dollars from 2001 to 2002 due to the restructuring initiatives announced and carried out during that time. It was necessary to reduce the total amount spent in order to properly match our cost structure with our levels of revenue. We believe, however, that the percentage of spending for research and development is among the highest in our industry in relation to revenue, reflecting our commitment to maintaining our level of timely introduction of new technology and products.

We believe that our future success is primarily dependent upon the technical competence and creative skills of our personnel, rather than upon any patent or other proprietary rights. However, we have protected certain products with patents where appropriate and have defended, and will continue to defend, our rights under these patents. We currently maintain approximately 36 patents related to technology included in the products we sell.

The industry in which we compete is highly competitive and characterized by customer expectations for continually improved product performance, shorter manufacturing cycles and lower prices. These trends result in frequent introductions of new products with added capabilities and features and continuous improvements in the relative price/performance of the products.

Our principal competitors include Acbel Polytech (Taiwan), Delta Electronics (Taiwan and Thailand), Emerson Electric, Invensys (UK), Lite-On (Taiwan), Power-One and Tyco International. Our broad strategies to deal with competition include, but are not limited to, a continued commitment to investment in research and development, continually lowering our product costs, and maintaining and expanding our relationships with customers in the growth sectors of our industry.

We presently have approximately 1,300 full-time employees. In addition, we presently have approximately 3,500 temporary employees and contractors, the majority of which work at our facility in China. We believe our ability to conduct our present and proposed activities is dependent on retaining qualified engineers and technicians. We have not, to date, experienced difficulty in attracting and retaining sufficient engineering and technical personnel to meet our needs and business objectives. Additionally, none of our domestic employees are covered by collective bargaining agreements.

Compliance with federal, state, local and foreign laws and regulations regulating the discharge of materials into the environment has not had, and, under present conditions, we do not anticipate that such laws and regulations will have a material effect on our results of operations, capital expenditures, financial condition or competitive position.

If you would like any additional information on the business, please visit our website at www.artesyn.com. Information contained in our website, however, is not part of this form 10-K. All annual reports, quarterly reports, current reports and all amendments to these reports are available free of charge as soon as reasonably practicable after such material is electronically filed with or furnished to the Commission through our website.

We currently occupy approximately 1.4 million square feet of office and manufacturing space worldwide, some of which we own and maintain. All facilities are in good condition and are adequate for their current intended use. We maintain the following facilities:

In addition to the above locations, we have leased or own sales/engineering offices located in or near Tucson, Arizona; Milpitas, California; Westminster, Colorado; Tokyo, Japan; and Paris, France. All facilities operate within the Power Conversion segment except the facilities in Boca Raton, Florida (Corporate) and in Madison, Wisconsin and Edinburgh, Scotland (Communications Products). The facilities described in this Item provide us with enough capacity to meet our current needs.

On February 8, 2001, VLT, Inc. and Vicor Corporation filed a suit against us in the United States District Court of Massachusetts alleging that we have infringed and are infringing on U.S. Reissue Patent No. 36,098 entitled “Optimal Resetting of The Transformer’s Core in Single Ended Forward Converters.” VLT has alleged that it is the owner of the patent and that we have manufactured, used or sold electronic power converters with reset circuits that fall within the claims of the patent. The suit requests that we pay damages, including royalties, lost profits, interest, attorneys’ fees and increased damages under 35 U.S.C. § 284. We have challenged the validity of the patent and have denied the infringement claims. Based on the district court’s claim construction rulings on January 3, 2003, we reached an agreement with VLT on a stipulated judgment, which the court entered on May 31, 2003.

The respective parties each disagree with certain aspects of the district court’s claim construction, and the stipulated judgment allowed the parties to appeal the construction to the United States Court of Appeals for the Federal Circuit in Washington, DC. Both parties have now filed appeals to the claim construction contained within the stipulated judgment. At this time, no determination of the outcome of the appeals or any proceedings after the appeals can be reasonably estimated. Although we believe that we have a strong defense to the claims asserted by VLT, if we eventually were found liable to pay all of the damages requested by VLT, such a payment could have a material adverse effect on our business, operating results and financial condition.

For additional detail with regards to the VLT/Vicor suit, please refer to Note 10 of the Consolidated Financial Statements in Item 8 of the Annual Report on Form 10-K.

We are a party to various other legal proceedings, which have arisen in the ordinary course of business. While the results of these matters cannot be predicted with certainty, we believe that losses, if any, resulting from the ultimate resolution of these matters will not have a material adverse effect on our consolidated results of operations, cash flows or financial position.

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 26, 2003.

Our common stock is traded on The NASDAQ Stock Market^SM under the symbol ATSN. High and low sales prices by quarter for the common stock appears in Note 19 of the Notes to Consolidated Financial Statements entitled “Selected Consolidated Quarterly Data” accompanying the annual report.

As of February 20, 2004, there were approximately 11,697 shareholders consisting of record holders and individual participants in security position listings.

To date, we have not paid any cash dividends on our capital stock. The Board of Directors presently intends to retain all of our earnings for use in our business and does not anticipate paying cash dividends in the foreseeable future. In addition, the payment of dividends is prohibited by our current credit agreement.

In August 2003, we completed a private placement of $90 million of 5.5% Convertible Senior Subordinated Notes due 2010 to Lehman Brothers Inc. and Stephens Inc. in a private offering pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended. The Convertible Notes were offered and sold by Lehman Brothers Inc. and Stephens Inc. to qualified institutional buyers in reliance on the exemption from registration provided by rule 144A of the Securities Act. Net proceeds from this offering were $86.3 million, after deducting discounts and commissions paid to the underwriters of approximately $3.7 million and other expenses incurred in connection with the offering.

The Convertible Notes bear interest at 5.5% payable semiannually on February 15 and August 15 of each year beginning on February 15, 2004. The Convertible Notes may be converted into shares of our common stock at any time prior to their maturity date at a conversion price of $8.064 per share (equivalent to an initial conversion rate of 124.0079 shares per $1,000 principal amount of Convertible Notes), subject to adjustments for certain events as set forth in the registration statement on Form S-3 filed after the completion of the offering. On or after August 15, 2008, we may redeem some or all of the Convertible Notes at 100% of their principal amount plus accrued and unpaid interest to, but excluding, the redemption date. The Convertible Notes and the common stock issuable upon conversion were subsequently registered for resale pursuant to a shelf registration statement on Form S-3 under the Securities Act.

The following table sets forth information regarding shares issued under equity compensation plans as of December 26, 2003:


(1)	Under the terms of the 2000 Plan, the Company reserved 4,400,000 shares of Common Stock for issuance. Additionally, options under the Company’s 1990 Performance Equity Plan that expire or terminate unexercised after the adoption of the 2000 Plan, and options under the 2000 Plan that expire or terminate unexercised, are available for new grants pursuant to the terms of the 2000 Plan.

The following discussion should be read in conjunction with the consolidated financial statements and related notes as well as the section under the heading “Risk Factors that May Affect Future Results.” With the exception of historical information, the matters discussed below may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Forward-looking statements typically use words or phrases such as “estimate”, “plans”, “projects”, “anticipates”, “continuing”, “ongoing”, “expects”, “believes”, or words of similar import. We caution readers that a number of important factors, including those identified in the section entitled “Risk Factors that May Affect Future Results” as well as factors discussed in our other reports filed with the Securities and Exchange Commission, could affect our actual results and cause them to differ materially from those expressed in the forward-looking statements. Forward-looking statements included in this Form 10-K are made only as of the date hereof, based on information available as of the date hereof, and subject to applicable law to the contrary, we assume no obligation to update any forward-looking statements.

We are a leading designer and manufacturer of advanced power conversion products and board level computing solutions incorporated into embedded communications systems. W


Florida		59-1205269
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

7900 Glades Road, Suite 500, Boca Raton, FL (Address of principal executive offices)		33434-4105 (Zip Code)


	2003

Server and Storage		46	%
Wireless Infrastructure		25	%
Distribution and Other		18	%
Networking and Telecommunications		11	%


	2003		2002		2001

Hewlett Packard		15%		17%		19%
Dell		11%		15%		12%
Sun Microsystems		10%		13%		9%


		Approximate
		Square		Owned vs
Facility	Primary Activity	Footage		Leased

Boca Raton, FL	Corporate Headquarters		8,700		Leased
Eden Prairie, MN	Engineering, Administration		28,000		Leased
Edinburgh, Scotland	Engineering, Administration		7,000		Leased
Einsiedel, Germany	Manufacturing		28,400		Owned
Framingham, MA	Engineering, Administration		23,000		Leased
Hong Kong, China	Engineering, Administration		144,900		Owned
Madison, WI	Manufacturing/ Administration		45,000		Owned
Redwood Falls, MN	Manufacturing		117,000		Owned
Tatabanya, Hungary	Manufacturing		118,000		Owned
Vienna, Austria	Engineering, Administration		20,600		Leased
Youghal, Ireland	Engineering		36,000		Owned
Zhongshan, China	Manufacturing		800,000		Leased


		Number of Securities to Be		Weighted Average		Number of Securities
		Issued Upon Exercise of		Exercise Price of		Remaining Available for
		Outstanding Options		Outstanding Options		Future Issuance

Equity Compensation Plans
	Not approved by stockholders		—		—		—
	Approved by stockholders		6,931,359	$	11.68		654,000	(1)


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the Fiscal year ended December 26, 2003


Item 4.	*Submission of Matters to a Vote of Security Holders*


Item 5.	*Market for Registrant’s Common Equity and Related Stockholder Matters*


For the Fiscal Years		2003			2002			2001			2000			1999


		(Dollars in thousands except per share data)
Results of Operations
Sales		$	356,871		$	350,829		$	493,968		$	690,083		$	594,155
Net income (loss)			(15,622	)		(108,822	)		(31,763	)		43,253			43,362
	Per share — basic		(0.40	)		(2.84	)		(0.83	)		1.15			1.16
	Per share — diluted		(0.40	)		(2.84	)		(0.83	)		1.10			1.11
Financial Position
Working capital		$	109,519		$	89,025		$	152,776		$	176,113		$	127,637
Property, plant & equipment, net			64,210			78,631			103,291			105,059			88,468
Total assets			316,676			303,587			426,483			497,815			359,050
Total debt, including current maturities			90,004			69,533			100,606			74,813			46,110
Shareholders’ equity			114,037			123,446			219,245			256,512			199,912
Total capitalization (total debt plus equity)			204,041			192,979			319,851			331,325			246,022
Financial Statistics
Selling, general and administrative expenses		$	38,898		$	36,593		$	54,057		$	62,771		$	50,185
	— as a % of sales		10.9	%		10.4	%		10.9	%		9.1	%		8.4	%
Research and development expenses			34,329			34,341			41,470			44,867			36,413
	— as a % of sales		9.6	%		9.8	%		8.4	%		6.5	%		6.1	%
Operating income (loss)			(9,584	)		(120,569	)		(31,945	)		67,139			64,861
	— as a % of sales		(2.7	)%		(34.4	)%		(6.5	)%		9.7	%		10.9	%
Total debt as a % of total capitalization			44.1	%		36.0	%		31.4	%		22.6	%		18.7	%
Debt to equity ratio			78.9	%		56.3	%		45.9	%		29.2	%		23.1	%
Other Data
Capital expenditures		$	7,081		$	5,230		$	28,763		$	39,256		$	33,359
Depreciation and amortization (includes impairment of goodwill in 2002)		$	22,937		$	78,834		$	34,423		$	27,195		$	20,109
Common shares outstanding (000’s)			38,755			38,389			38,253			38,282			37,127
Employees			1,341			2,366			2,427			5,227			4,628
Temporary employees and contractors			3,492			2,310			2,818			3,960			3,269


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*


Item 1.	*Business*


Item 2.	*Properties*


Item 3.	*Legal Proceedings*


	*Sales of Unregistered Securities*