Avid 2004 Annual Report Download - page 42

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When we acquire other companies or businesses, we become subject to potential events or circumstances that could
hurt our business.
We periodically acquire other companies or businesses. For example, in January 2004, we acquired NXN
Software GmbH, a company that manufactures asset and production management systems specifically targeted for the
entertainment and computer graphics industries, and in August 2004, we acquired Midiman, Inc. (d/b/a M-Audio), a leading
provider of digital audio and MIDI solutions for electronic musicians and audio professionals. The risks associated with
such acquisitions include, among others:
• the difficulty of assimilating the operations, policies and personnel of the target companies;
• the failure to realize anticipated returns on investment, cost savings and synergies;
• the diversion of management’s time and attention;
• the dilution existing stockholders may experience if we issue shares of our common stock or other rights to
purchase our common stock as consideration in the acquisition;
• the potential loss of key employees of the target company;
• the difficulty in complying with a variety of foreign laws and regulations;
• the impairment of relationships with customers or suppliers;
• the risks associated with contingent payments and earnouts;
• the possibility of incurring debt and amortization expenses related to goodwill and other intangible assets; and
• unidentified issues not discovered in our due diligence process, which may include product quality issues and
legal contingencies.
Such acquisitions often involve significant transaction-related costs and could cause disruption to normal
operations. In the future, we may also make debt or equity investments. If so, we may fail to realize anticipated returns on
such investments. If we are unable to overcome or mitigate these risks, they could undermine our business and lower our
operating results.
The markets for our products are competitive, and we expect competition to intensify in the future.
The digital video and, audio markets are highly competitive, with limited barriers to entry, and are characterized by
pressure to reduce prices, incorporate new features, and accelerate the release of new products. Some of our current and
potential competitors have substantially greater financial, technical, distribution, support, and marketing resources than we
do. Such competitors may use these resources to lower their product costs, allowing them to reduce prices to levels at which
we could not operate profitably. Delays or difficulties in product development and introduction may also harm our
business. In addition to price, our products must also compete favorably with our competitors’ products in terms of
reliability, performance, ease of use, range of features, product enhancements, reputation and training. If we are unable to
compete effectively in our target markets, our business and results of operations could suffer.
New product announcements by our competitors and by us also could have the effect of reducing customer demand
for our existing products. New product introductions require us to devote time and resources to training our sales channels
in product features and target customers, with the temporary result that the sales channels may have less time to devote to
selling our products. In addition, our introduction of new products and expansion into new markets can put us into
competition with companies with whom we formerly collaborated. To the extent such companies discontinue their alliances
with Avid, it could have a negative impact on our business.
Our products are complex, and may contain errors or defects resulting from such complexity.
As we continue to enhance and expand our product offerings, our products have grown increasingly complex and,
despite extensive testing and quality control, may contain errors or defects. Such errors or defects could cause us to issue
corrective releases and could result in loss of revenues, delay of revenue recognition, increased product returns, lack of
market acceptance, and damage to our reputation.
We have a significant share of the audio market, and therefore our growth in this market will depend in part on our
ability to successfully introduce new products.
Products from our Digidesign division have captured a significant portion of the audio market, due in large part to
a series of successful product introductions. Our future success will depend in part upon our ability to offer, on a timely and
cost-effective basis, new audio products and enhancements of our existing audio products. This can be a complex and