Adobe 2008 Annual Report Download - page 36

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• potential inability to obtain, or obtain in a timely manner, approvals from governmental authorities, which could
delay or prevent such acquisitions; and
• potential delay in customer and distributor purchasing decisions due to uncertainty about the direction of our
product offerings.
Mergers and acquisitions of high technology companies are inherently risky, and ultimately, if we do not complete an
announced acquisition transaction or integrate an acquired business successfully and in a timely manner, we may not realize
the benefits of the acquisition to the extent anticipated.
Failure to manage our sales and distribution channels effectively could result in a loss of revenue and harm to our business.
A significant amount of our revenue for application products is from two distributors, Ingram Micro, Inc. and Tech Data
Corporation, which represented 18% and 9% of our net revenue for fiscal 2008, respectively. We have multiple non-
exclusive, independently negotiated distribution agreements with Ingram Micro and Tech Data and their subsidiaries
covering our arrangements in specified countries and regions. Each of these contracts has an independent duration, is
independent of any other agreement (such as a master distribution agreement) and any termination of one agreement does not
affect the status of any of the other agreements. In fiscal 2008, no single agreement with these distributors was responsible
for over 10% of our total net revenue. If any one of our agreements with these distributors were terminated, we believe we
could make arrangements with new or existing distributors to distribute our products without a substantial disruption to our
business; however, any prolonged delay in securing a replacement distributor could have a negative short-term impact on our
results of operations.
Our distributors also sell our competitors’ products, and if they 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, which would cause
our results to suffer. We also distribute some products through our OEM channel, and if our OEM partners decide not to
bundle our applications on their devices, our results could suffer.
In addition, the financial health of our distributors and our continuing relationships with them are important to our
success. Some of these distributors may be unable to withstand adverse changes in current economic conditions, which could
result in insolvency of certain of our distributors and/or the inability of our distributors to obtain credit to finance purchases
of our products. In addition, weakness in the end-user market could further negatively affect the cash flow of our distributors
who could, in turn, delay paying their obligations to us, which would increase our credit risk exposure. Our business could be
harmed if the financial condition of some of these distributors substantially weakens and we were unable to timely secure
replacement distributors.
We also sell certain of our products through our direct sales force. Risks associated with this sales channel include a
longer sales cycle associated with direct sales efforts, difficulty in hiring, retaining and motivating our direct sales force, and
substantial amounts of training for sales representatives, including regular updates to cover new and upgraded products.
Catastrophic events may disrupt our business.
We are a highly automated business and rely on our network infrastructure and enterprise applications, internal
technology systems and our Web site for our development, marketing, operational, support, hosted services and sales
activities. A disruption or failure of these systems in the event of a major earthquake, fire, telecommunications failure,
cyber-attack, war, terrorist attack, or other catastrophic event could cause system interruptions, reputational harm, delays in
our product development, breaches of data security and loss of critical data and could prevent us from fulfilling our
customers’ orders. Our corporate headquarters, a significant portion of our research and development activities, our data
centers, and certain other critical business operations are located in San Jose, California, which is near major earthquake
faults. We have developed certain disaster recovery plans and certain backup systems to reduce the potentially adverse effect
of such events, but a catastrophic event that results in the destruction or disruption of any of our data centers or our critical
business or information technology systems could severely affect our ability to conduct normal business operations and, as a
result, our future operating results could be adversely affected.