Adobe 2010 Annual Report Download - page 44

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Failure to manage our sales and distribution channels and third-party customer service and technical support providers
effectively could result in a loss of revenue and harm to our business.
A significant amount of our revenue for application products is from one distributor, Ingram Micro, Inc., which
represented 15% of our net revenue for fiscal 2010. We have multiple non-exclusive, independently negotiated distribution
agreements with Ingram Micro and its 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 2010, no single
agreement with this distributor was responsible for over 10% of our total net revenue. If any one of our agreements with this
distributor was 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.
Successfully managing our indirect channel efforts to reach various potential customer segments for our products and
services is a complex process. Our distributors are independent businesses that we do not control. Notwithstanding the
independence of our channel partners, we face potential legal risk and reputational harm from the activities of these third
parties including, but not limited to, export control violations, corruption and anti-competitive behavior. Although we have
undertaken efforts to reduce these third-party risks, they remain present. We cannot be certain that our distribution channel
will continue to market or sell our products effectively. If we are not successful, we may lose sales opportunities, customers
and revenues.
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 OEMs 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 and services 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 and services. Moreover, our recent hires and sales personnel added through our recent business acquisitions may not
become as productive as we would like, as in most cases it takes a significant period of time before they achieve full
productivity. Our business could be seriously harmed if these expansion efforts do not generate a corresponding significant
increase in revenues and we are unable to achieve the efficiencies we anticipate.
We also provide products and services, directly and indirectly, to a variety of governmental entities, both domestically
and internationally. The licensing and sale of products and services to governmental entities may require adherence to
complex specific procurement regulations and other requirements. While we believe we have adequate controls in this area,
failure to effectively manage this complexity and satisfy these requirements could result in the potential assessment of
penalties and fines, harm to our reputation and lost sales opportunities to such governmental entities.
We outsource a substantial portion of our customer service and technical support activities to third-party service
providers. We rely heavily on these third-party customer service and technical support representatives working on our behalf
and we expect to continue to rely heavily on third parties in the future. This strategy provides us with lower operating costs
and greater flexibility, but also presents risks to our business, including the possibilities that we may not be able to impact the
quality of support that we provide as directly as we would be able to do in our own company-run call centers, and that our
customers may react negatively to providing information to, and receiving support from, third-party organizations, especially
if based overseas. If we encounter problems with our third-party customer service and technical support providers, our
reputation may be harmed and our revenue may be adversely affected.