Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
For a list of factors that could affect the Company’s business, results of operations, and financial condition, see the risk factors discussion provided in Part I—Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The following information updates, and should be read in conjunction with, Part I - Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Our primary contract manufacturer experienced a fire at its plant in Indonesia at which Cognex products are manufactured and inventory is stored, which has had, and may continue to have, a negative impact on our business and results of operations.
On June 7, 2022, our primary contract manufacturer experienced a fire at its plant in Indonesia. The fire destroyed a significant amount of Cognex-owned consigned inventories as well as component inventories owned by the contract manufacturer that were designated for Cognex products. Since the date of the fire and continuing through the date of this report, we have worked with the contract manufacturer to assess the damage, resume production, and replenish inventories destroyed by the fire. We also have been working to ramp up an additional contract manufacturer to further mitigate risk, diversify supply chain, and expand production capacity. We expect this additional contract manufacturer to commence production later in the year, although no assurances can be made in this regard.
Our inability to manufacture and deliver quality product in a timely manner to our customers as a result of the fire could result in delayed shipments, loss of sales and/or customer dissatisfaction, any of which could adversely impact our business, financial condition or results of operations. Delays in customer orders also would result in delayed revenue recognition which could impact our operating results in a particular quarter. We cannot predict the extent to which orders may be delayed or sales may be lost. In addition, our efforts to replenish the inventory lost in the fire may include purchases at higher-than-normal prices to increase speed to production, which would put pressure on our operating margins. We also can provide no assurance that insurance coverage and/or recoveries from the contract manufacturer will be available to cover our losses from the fire. Our assessment of the impact of the fire on our business remains ongoing as of the date of this report and, as a result, we cannot predict the full extent of the impact that the fire may have on our business, results of operations and financial condition.
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