Ingram Micro 2010 Annual Report Download - page 24

suppliers’ price reductions (“price protection”), if major suppliers decrease the availability of price protection to us,
such a change in policy could lower our gross margins on products we sell or cause us to record inventory write-
downs. In addition, suppliers could become insolvent and unable to fulfill their protection obligations to us. We
offer no assurance that price protection will continue, that unforeseen new product developments will not adversely
affect us, or that we will successfully manage our existing and future inventories. Significant changes in supplier
terms, such as higher thresholds on sales volume before distributors may qualify for discounts and/or rebates, the
overall reduction in the amount of incentives available, reduction or termination of price protection, return levels, or
other inventory management programs, or reductions in payment terms or trade credit, or vendor-supported credit
programs, may adversely impact our results of operations or financial condition. Finally, if we were not able to
adequately adapt to the emergence of alternative means of distribution for software and hardware, such as site
licenses, electronic distribution and cloud computing, our future operating results could be adversely affected.
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. 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 more significant partners, or bankruptcy or closure of business by one
or more of our more significant 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 programs, could cause us to record inventory write-downs or other losses and
could have a negative impact on our gross margins.
We receive purchase discounts and rebates from suppliers based on various factors, including sales or purchase
volume, breadth of customers and achievement of other goals set by the vendors. 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
through other distributors, their own dealer networks, or directly to resellers, our reputation, sales and profitability
may suffer.
We have made and expect to continue to make investments in new business strategies and initiatives,
including acquisitions, which could disrupt our business and have an adverse effect on our operating results.
Such investments may involve significant risks and uncertainties, including distraction of management’s attention
away from normal business operations; insufficient revenue generation to offset liabilities assumed and expenses
associated with the strategy; difficulty in the integration of acquired businesses, including new employees, business
systems and technology; inability to adapt to challenges of new markets, including geographies, products and
services, or to attract new sources of profitable business from expansion of products or services; exposure to new
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