Ingram Micro 2006 Annual Report Download - page 36

Particularly as our needs or technology in general evolve and we make enhancements to our systems, we may
experience greater than acceptable difficulty or cost in upgrading elements of our information system, we may
experience significant disruptions in our business having a material adverse effect on our financial operations or we
may be required to replace IMpulse entirely, which may require significant capital expenditures and cause material
loss of revenue due to slowdowns or delays during transitions to new systems.
We also rely on the Internet for a significant percentage of our orders and information exchanges with our
customers. The Internet and individual websites have experienced a number of disruptions and slowdowns, some of
which were caused by organized attacks. In addition, some websites have experienced security breakdowns. To
date, our website has not experienced any material breakdowns, disruptions or breaches in security; however, we
cannot assure that this will not occur in the future. If we were to experience a security breakdown, disruption or
breach that compromised sensitive information, this could harm our relationship with our customers or suppliers.
Disruption of our website or the Internet in general could impair our order processing or more generally prevent our
customers and suppliers from accessing information. This could cause us to lose business.
We believe that customer information systems and product ordering and delivery systems, including Internet-
based systems, are becoming increasingly important in the distribution of technology products and services. As a
result, we are continually enhancing our customer information systems by adding new features, including on-line
ordering through the Internet. However, we offer no assurance that competitors will not develop superior customer
information systems or that we will be able to meet evolving market requirements by upgrading our current systems
at a reasonable cost, or at all. Our inability to develop competitive customer information systems or upgrade our
current systems could cause our business and market share to suffer.
Terminations of a supply or services agreement or a significant change in supplier terms or conditions of
sale could negatively affect our operating margins, revenue or the level of capital required to fund our
operations. A significant percentage of our net sales relates to products sold to us by relatively few suppliers or
publishers. As a result of such concentration risk, terminations of supply or services agreements or a significant
change in the terms or conditions of sale from one or more of our partners could negatively affect our operating
margins, revenues or the level of capital required to fund our operations. Our suppliers have the ability to make, and
in the past have made, rapid and significantly adverse changes in their sales terms and conditions, such as reducing
the amount of price protection and return rights as well as reducing the level of purchase discounts and rebates they
make available to us. In most cases, we have no guaranteed price or delivery agreements with suppliers. In certain
product categories, such as systems, limited price protection or return rights offered by suppliers may have a bearing
on the amount of product we may be willing to stock. We expect restrictive supplier terms and conditions to
continue in the foreseeable future. Our inability to pass through to our reseller customers the impact of these
changes, as well as our failure to develop systems to manage ongoing supplier pass-through programs, could cause
us to record inventory write-downs or other losses and could have a material negative impact on our gross margins.
We receive purchase discounts and rebates from suppliers based on various factors, including sales or purchase
volume and breadth of customers. These purchase discounts and rebates may affect gross margins. Many purchase
discounts from suppliers are based on percentage increases in sales of products. Our operating results could be
negatively impacted if these rebates or discounts are reduced or eliminated or if our vendors significantly increase
the complexity of process and costs for us to receive such rebates.
Our ability to obtain particular products or product lines in the required quantities and to fulfill customer orders
on a timely basis is critical to our success. The IT industry experiences significant product supply shortages and
customer order backlogs from time to time due to the inability of certain suppliers to supply certain products on a
timely basis. As a result, we have experienced, and may in the future continue to experience, short-term shortages of
specific products. In addition, suppliers who currently distribute their products through us may decide to shift to or
substantially increase their existing distribution, through other distributors, their own dealer networks, or directly to
resellers or end-users. Suppliers have, from time to time, made efforts to reduce the number of distributors with
which they do business. This could result in more intense competition as distributors strive to secure distribution
rights with these vendors, which could have an adverse effect on our operating results. If suppliers are not able to
provide us with an adequate supply of products to fulfill our customer orders on a timely basis or we cannot
otherwise obtain particular products or a product line or suppliers substantially increase their existing distribution
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