Computer Associates 2006 Annual Report Download - page 39

Additionally, competition from any of these sources can result in price reductions or displacement of our products,
which could have a material adverse effect on our business, financial condition, operating results and cash flow.
Our competitors include large vendors of hardware or operating system software. The widespread inclusion of
products that perform the same or similar functions as our products bundled within computer hardware or other
companies’ software products could reduce the perceived need for our products and services, or render our products
obsolete and unmarketable. Furthermore, even if these incorporated products are inferior or more limited than our
products, customers may elect to accept the incorporated products rather than purchase our products. In addition,
the software industry is currently undergoing consolidation as software companies seek to offer more extensive
suites and broader arrays of software products, as well as integrated software and hardware solutions. This
consolidation may negatively impact our competitive position, which could adversely affect our business, financial
condition, operating results and cash flow. Refer to Item 1, “Business — (c) Narrative Description of the
Business — Competition”, for additional information.
Failure to adapt to technological change in a timely manner could adversely affect our revenues and earnings.
If we fail to keep pace with technological change in our industry, such failure would have an adverse effect on our
revenues and earnings. We operate in a highly competitive industry characterized by rapid technological change,
evolving industry standards, changes in customer requirements and frequent new product introductions and
enhancements. During the past several years, many new technological advancements and competing products
entered the marketplace. The distributed systems and application management markets in which we operate are far
more crowded and competitive than our traditional mainframe systems management markets. Our ability to
compete effectively and our growth prospects depend upon many factors, including the success of our existing
distributed systems products, the timely introduction and success of future software products, and the ability of our
products to interoperate and perform well with existing and future leading databases and other platforms supported
by our products. We have experienced long development cycles and product delays in the past, particularly with
some of our distributed systems products, and expect to have delays in the future. In addition, we have incurred, and
expect to continue to incur, significant research and development costs, as we introduce new products. If there are
delays in new product introductions or less-than-anticipated market acceptance of these new products, we will have
invested substantial resources without realizing adequate revenues in return, and our revenues and earnings could be
adversely affected.
If our products do not remain compatible with ever-changing operating environments we could lose customers and
the demand for our products and services could decrease, which would negatively impact sales and revenue.
IBM, HP, Sun Microsystems, EMC and Microsoft are the largest suppliers of systems and computing software and,
in most cases, are the manufacturers of the computer hardware systems used by most of our customers. Historically,
these operating system developers have modified or introduced new operating systems, systems software and
computer hardware. Such new products could, in the future, incorporate features that perform functions currently
performed by our products, or could require substantial modification of our products to maintain compatibility with
these companies’ hardware or software. Although we have to date been able to adapt our products and our business
to changes introduced by hardware manufacturers and system software developers, there can be no assurance that
we will be able to do so in the future. Failure to adapt our products in a timely manner to such changes or customer
decisions to forego the use of our products in favor of those with comparable functionality contained either in the
hardware or operating system could have a material adverse effect on our business, financial condition, operating
results and cash flow.
Certain software that we use in daily operations is licensed from third parties and thus may not be available to us in
the future, which has the potential to delay product development and production and, therefore, could adversely
affect our revenues and profits.
Some of our products contain software licensed from third parties. Some of these licenses may not be available to us
in the future on terms that are acceptable to us or allow our products to remain competitive. The loss of these
licenses or the inability to maintain any of them on commercially acceptable terms could delay development of
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