Adobe 2013 Annual Report Download - page 25

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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 across the broad range of geographies where we do business or plan to do business. Our distributors
and other channel partners 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, workplace conditions, 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 our distribution channel is 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 adversely impacted by changes to our business model and practices, such as our release of
Creative Cloud offerings for teams and enterprises, or unable to withstand adverse changes in current economic conditions, which
could result in insolvency and/or the inability of such distributors to obtain credit to finance purchases of our products. In addition,
weakness in the end-user market could negatively affect the cash flows 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 weakened 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 longer sales and collection cycles associated with direct sales efforts, challenges related to hiring, retaining and motivating
our direct sales force, and substantial amounts of training for sales representatives, including regular updates to cover new and
upgraded systems, products and services. Moreover, our recent hires 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. In addition, the loss of key sales employees could impact our customer relationships and future ability to sell to
certain accounts covered by such employees.
We also provide products and services, directly and indirectly, to a variety of governmental entities, both domestically and
internationally. Risks associated with licensing and selling products and services to governmental entities include longer sales
cycles, varying governmental budgeting processes and adherence to complex procurement regulations and other requirements.
Ineffectively managing these risks could result in the 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 due to the fact that we may not be able to influence the quality of support as directly as we
would be able to do in our own company-run call centers. 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 we could lose customers and associated
revenues.
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 website for our development, marketing, operational, support, hosted services and sales activities. In addition,
some of our businesses rely on third-party hosted services, and we do not control the operation of third-party data center facilities
serving our customers from around the world, which increases our vulnerability. A disruption, infiltration or failure of these systems
or third-party hosted services in the event of a major earthquake, fire, flood, power loss, telecommunications failure, software or
hardware malfunctions, cyber-attack, war, terrorist attack or other catastrophic event could cause system interruptions, reputational
harm, loss of intellectual property, delays in our product development, lengthy interruptions in our services, breaches of data
security and loss of critical data. Any of these events could prevent us from fulfilling our customers' orders. Our corporate
headquarters, a significant portion of our research and development activities, certain of our data centers and certain other critical
business operations are located in the San Francisco Bay Area, and additional facilities where we conduct significant operations
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