Adobe 2001 Annual Report Download - page 34

the early stages and may never materialize. Our investment activities can impact our net income. For fiscal
2001, we recorded pre-tax losses from marketable securities and other investments in privately held
companies of $93.4 million, compared to pre-tax gains in fiscal 2000 of $14.3 million. These amounts
reflect realized gains or losses from the sale of marketable equity investments, other-than-temporary
declines in the value of marketable equity securities, and equity method gains and losses of Adobe
Ventures. In fiscal 2001, decreases in the market prices of these securities resulted in a significant
reduction in our pre-tax income, and future price fluctuations in these securities and any significant
long-term declines in value could reduce our net income in future periods. We are uncertain of future
investment gains and losses, as they are primarily dependent upon the operations of the underlying
investee companies.
The market for our graphics and ePaper applications is intensely and increasingly competitive and is
significantly affected by product introductions and market activities of industry competitors. Additionally,
Microsoft has increased its presence in the low-end consumer digital imaging/graphics market and the
electronic document sharing markets. We believe that, due to Microsoft’s market dominance, any new
Microsoft products in these markets will be highly competitive with our products. If competing new
products achieve widespread acceptance, our operating results would suffer.
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
substantially weakens or if our relationships with them deteriorate. Also, as we seek to further broaden our
customer base in the enterprise, corporate business and consumer markets, we may not successfully adapt
our application software distribution channels, which could cause our operating results to suffer. As we
currently have limited experience in these markets, we believe we will need to recruit, train, and retain
personnel with experience in these markets, and our failure to do so may harm our ability to penetrate
these markets. We could experience decreases in average selling prices and some transitions in our
distribution channels that could seriously harm our business.
In some markets and for some products, we have adopted a strategy aiming to increase our market
share and therefore may receive significantly less revenue from certain licensing arrangements than we
otherwise would receive for licensing these products. Therefore, increased market penetration may in fact
lead to lower revenue growth in these areas. While we believe that this potential market share increase will
ultimately benefit us, this strategy could instead harm our business through reduced revenue growth.
We generally offer our application-based products on Macintosh, Windows, and UNIX platforms, and
we generally offer our server-based products on the Linux platform as well as these three platforms. To the
extent that there is a slow-down of customer purchases of personal computers on either the Windows or
Macintosh platform or in general, our business could be harmed.
We distribute our application products primarily through distributors, resellers, and retailers
(collectively referred to as ‘‘distributors’’). A significant amount of our revenue for application products is
from two distributors. One of these distributors recently restructured its operations, reducing the number
of facilities it operates, including those handling Adobe products, which may harm our operating results. In
addition, we have revised our channel program to reduce the overall number of our distributors worldwide
and focus our channel efforts on larger distributors. This revision of the channel program has resulted in
an increase in our dependence on a smaller number of distributors selling through a larger amount of our
products. Additionally, one of our goals is to increase our direct distribution of our products to end users
through our online store located on our Web site at www.adobe.com. Any such increase in our direct
revenue efforts will place us in increased competition with our channel distributors and with newer types of
distribution of our products by online, Internet-based resellers of our products. While we anticipate that
the restructuring and streamlining of our product distribution channels and the increase in the scope of our
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