Avid 2004 Annual Report Download - page 43

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uncertain process, and we could experience design, manufacturing, marketing, or other difficulties that delay or prevent the
introduction of new or enhanced products, or the integration of acquired products, which, in turn, could harm our business.
A component of M-Audio’s business strategy is to expand into the highly competitive consumer market channel, a
sales channel in which we have limited experience.
Historically, a significant portion of our audio revenues has been derived from sales to professional musicians and
studios. M-Audio is currently expanding its sales channel to include sales through the broader consumer market channel.
Members of M-Audio’s senior staff have experience in this market, but our overall experience addressing the consumer
market channel is limited, and the process of developing a channel for non-specialty stores and establishing our products in
these stores will be difficult. While we are not anticipating that a material portion of our revenues will come through this
channel in the near term, there are costs related to pursuing the consumer market channel which are, to a large extent, fixed.
As a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected revenue
shortfall, which would harm our operating results. Also, to the extent we increase sales of our audio products through the
consumer market channel, we expect to experience greater seasonality in sales of such products. Typically, sales of
consumer electronics and software increase in the second half of the year, reaching their peak during the year-end holiday
season.
Our use of independent firms and contractors to perform some of our product development and manufacturing
activities could expose us to risks that could adversely impact our revenues.
Independent firms and contractors, some of whom are located in other countries, perform some of our product
development and manufacturing activities. We generally own the software developed by these contractors. The use of
independent firms and contractors, especially those located abroad, could expose us to risks related to governmental
regulation (including tax regulation), intellectual property ownership and rights, exchange rate fluctuation, political
instability and unrest, natural disasters, and other risks, which could adversely impact our revenues.
An interruption of our supply of certain products or key components from our sole source suppliers, or a price
increase in such products or components, could hurt our business.
We are dependent on a number of specific suppliers for certain products and key components of our products. We
purchase these sole source products and components pursuant to purchase orders placed from time to time. We generally do
not carry significant inventories of these sole source products and components and have no guaranteed supply arrangements.
If any of our sole source vendors should fail to produce such products or to supply or enhance such components, it could
imperil our supply and our ability to continue selling and servicing products that use these components. Similarly, if any of
our sole source vendors should encounter technical, operating or financial difficulties, it could threaten our supply of these
products or components. While we believe that alternative sources for these products and components could be developed,
or our products could be redesigned to permit the use of alternative components, an interruption of our supply could damage
our business and negatively affect our operating results.
Our gross profit margin varies from product to product depending primarily on the proportion and cost of third-
party hardware included in each product. From time to time, we add functionality and features to our products. If we effect
such additions through the use of more, or more costly, third-party hardware, and are not able to increase the price of such
products to offset these increased costs, our gross profit margin on these products could decrease and our operating results
could be adversely affected.
We rely on third party software for some of our products and if we are unable to use or integrate such software, our
product and service development may be delayed.
We rely on certain software that we license from third parties, including software that is bundled with our products
and sold to end users and software that is integrated with internally developed software and used in our products to perform
key functions. These third-party software licenses may not continue to be available on commercially reasonable terms, and
the software may not be appropriately supported, maintained or enhanced by the licensors. The loss of licenses to, or
inability to support, maintain and enhance any such software, could result in increased costs, or in delays or reductions in
product shipments until equivalent software could be developed, identified, licensed and integrated, which would likely
harm our business.