Adobe 1998 Annual Report Download - page 22

under ‘‘Year 2000 Issues’’), and adverse changes in general economic conditions in any of the countries in
which the Company does business.
The Company has stated that in fiscal 1999 its annual revenue growth target is 15% and its operating
margin target is 25% of total revenue. These targets are used to assist the Company’s management in
making decisions about the allocation of resources and investments, not as predictions of future results.
The targets reflect a number of assumptions, including assumptions about the Company’s pricing,
manufacturing costs and volumes and the mix of application products and licensing revenue, full and
upgrade products, distribution channels and geographic distribution. These and many other factors
described herein affect the Company’s financial performance and may cause the Company’s future results,
including results for the current quarter, to vary materially from these targets.
The Company’s ability to develop and market products, including upgrades of current products that
successfully adapt to changing customer needs, may also have an impact on the results of operations. The
Company’s ability to extend its core technologies into new applications and to anticipate or respond to
technological changes could affect its ability to develop these products. A portion of the Company’s future
revenue will come from these new applications. Delays in product or upgrade introductions, whether by
the Company or its OEM customers, could have an adverse effect on the Company’s revenue, earnings, or
stock price. The Company cannot determine the ultimate effect that these new products or upgrades will
have on its revenue or results of operations.
The market for the Company’s graphics applications, particularly the consumer products, is intensely
and increasingly competitive and is significantly affected by product introductions and market activities of
industry competitors. Additionally, Microsoft Corporation has stated its intention to increase its presence
in the digital imaging/graphics market by mid-1999; the Company believes that, due to Microsoft’s market
dominance, any new Microsoft digital imaging products will be highly competitive with the Company’s
products. If competing new products achieve widespread acceptance, it would have a significant adverse
impact on the Company’s operating results.
Although the Company generally offers its application products on Macintosh, Windows, and UNIX
platforms, a majority of the overall revenue from these products prior to fiscal 1997 has been from the
Macintosh platform, particularly for the higher end Macintosh computers. In the last two years, Windows-
based application revenue exceeded that from the Macintosh platform, and for the past several quarters,
Macintosh platform sales of application products have continued to decline year over year while Windows
platform sales have continued to rise. If there is a continuing slowdown of customer purchases in the
higher end Macintosh market, or if the Company is unable to continue to increase its revenue from
Windows customers commensurate with such a slowdown, the Company’s operating results could be
materially adversely affected. In addition, to the extent that there is a slowdown of customer purchases of
personal computers in general, the Company’s operating results could be materially adversely affected.
Also, as the Company seeks to further broaden its customer base to achieve greater penetration in the
corporate business and consumer markets, the Company may not successfully adapt its application
software distribution channels, which could materially adversely affect the Company’s operating results.
The Company could experience decreases in average selling prices and some transitions in its distribution
channels that could materially adversely affect its operating results.
The Company continues to expand into third-party distribution channels, including value-added
resellers and systems integrators, in its effort to further broaden its customer base. As a result, the financial
health of these third parties, and the Company’s continuing relationships with them, are becoming more
important to the Company’s success. Some of these companies are thinly capitalized and may be unable to
withstand changes in business conditions. The Company’s financial results could be adversely affected if
the financial condition of certain of these third parties substantially weakens or if the Company’s
relationships with them deteriorate.
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