Circuit City 2003 Annual Report Download - page 19

our competitors are larger companies with greater financial, marketing and product development resources
than ours. In addition, new competitors may enter our markets. This may place us at a disadvantage in
responding to competitors' pricing strategies, technological advances and other initiatives, resulting in our
inability to increase our revenues or maintain our gross margins in the future.
In many cases our products compete directly with those offered by other manufacturers and distributors. If
any of our competitors were to develop products or services that are more cost-effective or technically
superior, demand for our product offerings could decrease.
Our margins are also dependent on the mix of products we sell and could be adversely affected by a
continuation of our customers
’
shift to lower
-
priced products.
• We are dependent on third-party suppliers.
We purchase a significant portion of our computer related products from major distributors such as Tech
Data Corporation and Ingram Micro Inc. and directly from large manufacturers such as IBM and Hewlett
Packard, who deliver those products directly to our customers. These relationships enable us to make
available to our customers a wide selection of products without having to maintaining large amounts of
inventory. The termination or interruption of our relationships with any of these suppliers could materially
adversely affect our business.
Our PC products contain electronic components, subassemblies and software that in some cases are supplied
through sole or limited source third-party suppliers, some of which are located outside of the U.S. Although
we do not anticipate any problems procuring supplies in the near-
term, there can never be any assurance that
parts and supplies will be available in a timely manner and at reasonable prices. Any loss of, or interruption
of supply from key suppliers may require us to find new suppliers. This could result in production or
development delays while new suppliers are located, which could substantially impair operating results. If
the availability of these or other components used in the manufacture of our products was to decrease, or if
the prices for these components were to increase significantly, operating costs and expenses could be
adversely affected.
A portion of our revenues is derived from the sale of products manufactured using licensed patents, software
and/or technology. Failure to renew these licenses on favorable terms or at all could force us to stop
manufacturing and distributing these products and our financial condition could be adversely affected.
Many product suppliers provide us with co-
op advertising support in exchange for featuring their products in
our catalogs and on our internet sites. Certain suppliers provide us with other incentives such as rebates,
reimbursements, payment discounts, price protection and other similar arrangements. These incentives are
offset against cost of goods sold or selling, general and administrative expenses, as applicable. The level of
co-op advertising support and other incentives received from suppliers may decline in the future, which
could increase our cost of goods sold or selling, general and administrative expenses and have an adverse
effect on results of operations and cash flows.
• We are exposed to inventory risks.
Our inventory is subject to risk due to technological change and changes in market demand for particular
products. Certain of our suppliers offer limited price protection from the loss in value of inventory and we
have limited right to return purchases to suppliers. The decrease or elimination of price protections or
purchase returns could lower our gross margin or result in inventory write-downs. We also periodically take
advantage of attractive product pricing by making opportunistic bulk inventory purchases; any resulting
excess and/or obsolete inventory that we are not able to re-sell could have an adverse impact on our results
of operations. Any inability to enter into such arrangements may significantly impact our sales and
profitability.
• State and local sales tax collection may affect demand for our products.
Our United States subsidiaries collect and remit sales tax in states in which the subsidiaries have physical