Adobe 2012 Annual Report Download - page 44

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failure of our network or software systems, security breaches or significant variability in visitor traffic on customer websites. In
addition, computer viruses may harm our systems causing us to lose data, and the transmission of computer viruses could expose
us to litigation. We may also find, on occasion, that we cannot deliver data and reports to our customers in near real time because
of a number of factors, including significant spikes in consumer activity on their websites or failures of our network or software.
We may be liable to our customers for damages they may incur resulting from these events, such as loss of business, loss of future
revenues, breach of contract or for the loss of goodwill to their business. In addition to potential liability, if we supply inaccurate
information or experience interruptions in our ability to capture, store and supply information in near real time or at all, our
reputation could be harmed and we could lose customers.
Failure to manage our sales and distribution channels and third-party customer service and technical support providers effectively
could result in a loss of revenue and harm to our business.
A significant amount of our revenue for application products is from one distributor, Ingram Micro, Inc., which represented
11% of our net revenue for fiscal 2012. We have multiple non-exclusive, independently negotiated distribution agreements with
Ingram Micro and its subsidiaries covering our arrangements in specified countries and regions. Each of these contracts has an
independent duration, is independent of any other agreement (such as a master distribution agreement) and any termination of one
agreement does not affect the status of any of the other agreements. In fiscal 2012, no single agreement with this distributor was
responsible for over 5% of our total net revenue. If any one of our agreements with this distributor were terminated, we believe
we could make arrangements with new or existing distributors to distribute our products without a substantial disruption to our
business; however, any prolonged delay in securing a replacement distributor could have a negative short-term impact on our
results of operations.
Successfully managing our indirect channel efforts to reach various potential customer segments for our products and
services is a complex process across the broad range of geographies where we do business. Our distributors and other channel
partners are independent businesses that we do not control. Notwithstanding the independence of our channel partners, we face
potential legal risk and reputational harm from the activities of these third parties including, but not limited to, export control
violations, workplace conditions, corruption and anti-competitive behavior. Although we have undertaken efforts to reduce these
third-party risks, they remain present. We cannot be certain that our distribution channel will continue to market or sell our products
effectively. If our distribution channel is not successful, we may lose sales opportunities, customers and revenues.
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. We also distribute some products through our OEM channel, and if our OEMs decide not to bundle our applications on
their devices, our results could suffer.
In addition, the financial health of our distributors and our continuing relationships with them are important to our success.
Some of these distributors may be adversely impacted by changes to our business model and practices, such as our launch of
Creative Cloud, including our release of Creative Cloud offerings for teams and enterprises, or unable to withstand adverse changes
in current economic conditions, which could result in insolvency and/or the inability of such distributors to obtain credit to
finance purchases of our products. In addition, weakness in the end-user market could further negatively affect the cash flows of
our distributors who could, in turn, delay paying their obligations to us, which would increase our credit risk exposure. Our business
could be harmed if the financial condition of some of these distributors substantially weakened and we were unable to timely
secure replacement distributors.
We also sell certain of our products and services through our direct sales force. Risks associated with this sales channel
include longer sales and collection cycles associated with direct sales efforts, challenges related to hiring, retaining and motivating
our direct sales force, and substantial amounts of training for sales representatives, including regular updates to cover new and
upgraded systems, products and services. Moreover, our recent hires and sales personnel added through our recent business
acquisitions may not become as productive as we would like, as in most cases it takes a significant period of time before they
achieve full productivity. Our business could be seriously harmed if these expansion efforts do not generate a corresponding
significant increase in revenues and we are unable to achieve the efficiencies we anticipate. In addition, the loss of key sales
employees could impact our relationships and future ability to sell to certain of these accounts covered by such employees.
We also provide products and services, directly and indirectly, to a variety of governmental entities, both domestically and
internationally. Risks associated with licensing and selling products and services to governmental entities include longer sales
cycles associated with selling to diverse governmental entities, varying governmental budgeting processes and timelines and
adherence to potentially complex specific procurement regulations and other requirements. Ineffectively managing these risks
could result in the potential assessment of penalties and fines, harm to our reputation and lost sales opportunities to such
governmental entities.
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