Adobe 2004 Annual Report Download - page 44

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certain of our products, or causing severe disruptions to our operations or the markets in which we compete, any one
of which could seriously harm our business.
Additionally, although we actively pursue software pirates as part of our enforcement of our intellectual
property rights, we do lose revenue due to illegal use of our software. If piracy activities increase, it may further
harm our business.
We rely on distributors to sell our products and any adverse change in our relationship with our distributors could
result in a loss of revenue and harm our business.
We distribute our application products primarily through distributors, resellers, retailers and increasingly
systems integrators, ISVs and VARs (collectively referred to as “distributors”). A significant amount of our revenue
for application products is from two distributors, Ingram Micro, Inc. and Tech Data Corporation. In addition, our
channel program focuses our efforts on larger distributors, which has resulted in our dependence on a relatively
small number of distributors licensing a large amount of our products. Our distributors also sell our competitors’
products, and if they favor our competitors’ products for any reason, they may fail to market our products as
effectively or to devote resources necessary to provide effective sales, which would cause our results to suffer. In
addition, the financial health of these distributors and our continuing relationships with them are important to our
success. Some of these distributors may be unable to withstand adverse changes in business conditions. Our business
could be seriously harmed if the financial condition of some of these distributors substantially weakens.
If our internal computer network and applications suffer disruptions or fail to operate as designed our operations
will be disrupted and our business may be harmed.
We rely on our network infrastructure and enterprise applications, internal technology systems and our website
for our development, marketing, operational, support and sales activities. The hardware and software systems related
to such activities are subject to damage from earthquakes, floods, fires, power loss, telecommunication failures and
other similar events. They are also subject to acts such as computer viruses, physical or electronic vandalism or
other similar disruptions also could cause system interruptions, delays in our product development and loss of
critical data and could prevent us from fulfilling our customers’ orders. We have developed disaster recovery plans
and backup systems to reduce the potentially adverse effect of such events, as they could impact our sales and
damage our reputation and the reputation of our products. Any event that causes failures or interruption in our
hardware or software systems could result in disruption in our business operations, loss of revenues or damage to
our reputation.
We rely on turnkey assemblers and any adverse change in our relationship with our turnkey assemblers could result
in a loss of revenue and harm our business.
We currently rely on six turnkey assemblers of our products, with at least two turnkeys located in each major
region we serve. If any significant turnkey assembler terminates its relationship with us, or if our supply from any
significant turnkey assembler is interrupted or terminated for any other reason, we may not have enough time or be
able to replace the supply of products replicated by that turnkey assembler to avoid serious harm to our business.
Our future operating results are difficult to predict and are likely to fluctuate substantially from quarter to quarter
and as a result the market price of our common stock may be volatile and our stock price could decline.
As a result of a variety of factors discussed herein, our quarterly revenues and operating results for a particular
period are difficult to predict. Our revenues may grow at a slower rate than experienced in previous periods and, in
particular periods, may decline. Additionally, we periodically provide operating model targets for revenue, gross
margin, operating expenses, operating margin, other income, tax rate, share count and earnings per share. These
targets reflect a number of assumptions, including assumptions about product pricing and demand, economic and
seasonal trends, manufacturing costs and volumes, the mix of shrink-wrap and licensing revenue, full and upgrade
products, distribution channels and geographic markets. If one or more of these assumptions prove incorrect, our
actual results may vary materially from those anticipated, estimated or projected.