Adobe 2000 Annual Report Download - page 40

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In addition, we continue to expand into third-party distribution channels, including
VARs and systems integrators, in our effort to further broaden our customer base. As a
result, the financial health of these third parties and our continuing relationships with
them are becoming more important to our success. Some of these companies are thinly
capitalized and may be unable to withstand changes in business conditions. Our business
could be seriously harmed if the financial condition of some of these third parties sub-
stantially weakens or if our relationships with them deteriorate. Also, as we seek to further
broaden our customer base in the corporate business and consumer markets, we may not
successfully adapt our application software distribution channels, which could cause our
operating results to suffer. We could experience decreases in average selling prices and
some transitions in our distribution channels that could seriously harm our business.
We currently rely on three manufacturers of our products, each located in a different
region. If a manufacturer terminates its relationship with us or if our supply from a
manufacturer is interrupted or terminated for any other reason, we may not have enough
time or be able to replace the supply of products manufactured by that manufacturer to
avoid harm to our business.
Revenue from our OEM PostScript and Other segment experienced a 5% decline in fiscal
2000 compared to fiscal 1999, primarily as a result of a decline in revenue from the licens-
ing of Adobe PostScript technology. We expect this trend to continue, with this revenue
declining a further 10% during fiscal 2001 from fiscal 2000, and we believe that our
financial results could be harmed if it decreases further. The ongoing weakness in the
monochrome laser printer market as a result of the decline in average selling prices of
monochrome laser printers and the increasing use of inkjet printers was a factor causing
the revenue decline. In addition, the loss of royalty revenue from HP’s desktop
monochrome laser printer division, which has been incorporating a clone version of
Adobe PostScript technology in some printers, has resulted in lower licensing revenue to
us over the past three years. Even though we continue to work with HP printer operations
to incorporate Adobe PostScript and other technologies into other HP products, we
expect continued lower revenue in this segment from HP. If other significant partners
also decide to incorporate a clone version instead of Adobe PostScript technology, it
could seriously harm our business. Further, OEM partners on occasion seek to renegoti-
ate their royalty arrangements. We evaluate these requests on a case-by-case basis. If an
agreement is not reached, a customer may decide to pursue other options, which could
result in lower licensing revenue for us.
We are currently experiencing a slow-down in certain geographic market areas, primarily
in the U.S. We attribute this slow-down, which is affecting all of our product segments, to
weakening economic conditions. In addition, from the end of fiscal 1997 through the first
quarter of fiscal 1999, we experienced a decline in revenue from the Japanese market due
to a weak Japanese computer market and general economic conditions in Japan.
Although revenue from our Japanese operation has increased since that time, these
adverse economic conditions in the U.S. and other geographic markets may continue in
the short term, and they may continue to adversely affect our revenue and earnings.
Although there were also adverse conditions in other countries, the countries affected
represent a much smaller portion of our revenue and thus have less impact on our
operational results.
Although we implemented two restructurings of our business during fiscal 1999, resulting in a
collective workforce reduction of 9%, we plan to continue to invest in certain areas, which
will require us to hire a significant number of additional employees. Competition for high-
quality personnel, especially highly skilled engineers, is extremely intense. Our ability to
effectively manage this growth will require us to continue to improve our operational and
financial controls and information management systems, and to attract, retain, motivate,
and manage employees effectively; otherwise our business could be seriously harmed.
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