Adobe 2002 Annual Report Download - page 68

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technological changes could affect our ability to develop these products. A portion of our future revenue will come
from these new applications. Delays in product or upgrade introductions could cause a decline in our revenue,
earnings, or stock price. We cannot determine the ultimate effect that these new products or upgrades will have on
our revenue or results of operations.
We offer our application-based products primarily on Macintosh and Windows platforms, and on some UNIX
platforms. We generally offer our server-based products, but not desktop products, on the Linux platform as well as
the three platforms mentioned above. 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, or to the extent that significant demand arises
for our products or competitive products on the Linux desktop platform before we choose and are able to offer our
products on this platform, our business could be harmed.
We distribute our application products primarily through distributors, resellers, retailers, and increasingly,
systems integrators and VARs (collectively referred to as “distributors”). A significant amount of our revenue for
application products is from two distributors. In addition, our channel program now focuses our efforts on larger
distributors, which has resulted in our dependence on a relatively small number of distributors selling through a
large amount of our products. Sales through the distribution channel result in unstable pricing and significant
product returns. Our distributors sell our competitors’ products; if our distributors favor our competitors’ products
for any reason, they may fail to market our products as effectively or to devote resources necessary to provide
effective sales, and in that case, our results would suffer. Additionally, one of our goals is to increase our direct
distribution of our products to end users through our online store located on our website 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.
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
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.
In connection with the enforcement of our own intellectual property rights or in connection with disputes
relating to the validity or alleged infringement of third-party rights, we have been, are currently, and may in the
future be subject to complex, protracted litigation or negotiations as part of our policy to vigorously defend our
intellectual property rights, including rights derived from third party licensors. Intellectual property litigation is
typically very costly and can be disruptive to our business operations by diverting the attention and energies of
management and key technical personnel. Although we have successfully defended or resolved past litigation and
disputes, we may not prevail in any ongoing or future litigation and disputes. Adverse decisions in such litigation or
disputes could have negative results, including subjecting us to significant liabilities, requiring us to seek licenses
from others, preventing us from manufacturing or licensing certain of our products, or causing severe disruptions to
our operations or the markets in which we compete, any one of which could seriously harm our business.
Our computer network and applications could be adversely impacted by malicious code such as worms and
viruses, which are released into the public Internet using recently discovered vulnerabilities in popular software
programs. Although we have a response team that is notified of high-risk malicious events from multiple sources
and we take certain preventative measures, these procedures may not be sufficient to avoid harm to our business.
In some markets and for some products, we have adopted a strategy aiming to increase our market share where
it is low and therefore may receive significantly less revenue from certain licensing arrangements than we otherwise
would receive for licensing these products. 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 currently rely on five turnkey assemblers of our products, with at least two turnkeys located in each major
region we serve. If any significant turnkey assembler terminates its relationship with us, or if our supply from any
significant turnkey 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 turnkey assembler to avoid serious harm to our business.