Adobe 2007 Annual Report Download - page 35

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• potential failure of the due diligence processes to identify significant issues with product quality, architecture and
development, or legal and financial contingencies, among other things;
• incurring significant exit charges if products acquired in business combinations are unsuccessful;
• potential inability to assert that internal controls over financial reporting are effective;
• potential inability to obtain, or obtain in a timely manner, approvals from governmental authorities, which could delay
or prevent such acquisitions; and
• potential delay in customer and distributor purchasing decisions due to uncertainty about the direction of our product
offerings.
Mergers and acquisitions of high technology companies are inherently risky, and ultimately, if we do not complete the
integration of acquired businesses successfully and in a timely manner, we may not realize the anticipated benefits of the
acquisitions to the extent anticipated, which could adversely affect our business, financial condition or results of operations.
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 which represented 21% and 10% of our net
revenue for fiscal 2007, respectively. 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.
Catastrophic events may disrupt our business.
We are a highly automated business and rely on our network infrastructure and enterprise applications, internal
technology systems and our Website for our development, marketing, operational, support, hosted services and sales
activities. A disruption or failure of these systems in the event of a major earthquake, fire, telecommunications failure, cyber-
attack, terrorist attack, or other catastrophic event could cause system interruptions, delays in our product development and
loss of critical data and could prevent us from fulfilling our customers’ orders. Our corporate headquarters, a significant
portion of our research and development activities, our data centers, and certain other critical business operations are located
in San Jose, California, which is near major earthquake faults. We have developed certain disaster recovery plans and certain
backup systems to reduce the potentially adverse effect of such events, but a catastrophic event that results in the destruction
or disruption of any of our data centers or our critical business or information technology systems could severely affect our
ability to conduct normal business operations and, as a result, our future operating results could be adversely affected.
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 revenue and operating results for a particular period are
difficult to predict. Our revenue may grow at a slower rate than experienced in previous periods and, in particular periods,
may decline. Additionally, we periodically provide operating model targets. These targets reflect a number of assumptions,
including assumptions about product pricing and demand, economic and seasonal trends, competitive factors, 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.