Ingram Micro 2011 Annual Report Download - page 27

availability of price protection to us, such a change in policy could lower our gross margins on products we sell
or cause us to record inventory write-downs. In addition, suppliers could become insolvent and unable to fulfill
their protection obligations to us. We offer no assurance that price protection will continue, that unforeseen new
product developments will not adversely affect us, or that we will successfully manage our existing and future
inventories. Significant changes in supplier terms, such as higher thresholds on sales volume before distributors
may qualify for discounts and/or rebates, the overall reduction in the amount of incentives available, reduction or
termination of price protection, return levels, or other inventory management programs, or reductions in payment
terms or trade credit, or vendor-supported credit programs, may adversely impact our results of operations or
financial condition. Finally, if we were not able to adequately adapt to the emergence of alternative means of
distribution for software and hardware, such as site licenses, electronic distribution and cloud computing, our
future operating results could be adversely affected.
Terminations of a supply or services agreement or a significant change in supplier terms or conditions
of sale could negatively affect our operating margins, revenue or the level of capital required to fund our
operations. A significant percentage of our net sales relates to products sold to us by relatively few suppliers. As
a result of such concentration risk, terminations of supply or services agreements, or a significant change in the
terms or conditions of sale from one or more of our more significant partners, or bankruptcy or closure of
business by one or more of our more significant partners could negatively affect our operating margins, revenues
or the level of capital required to fund our operations. Our suppliers have the ability to make, and in the past have
made, rapid and significantly adverse changes in their sales terms and conditions, such as reducing the amount of
price protection and return rights as well as reducing the level of purchase discounts and rebates they make
available to us. In most cases, we have no guaranteed price or delivery agreements with suppliers. In certain
product categories, such as systems, limited price protection or return rights offered by suppliers may have a
bearing on the amount of product we may be willing to stock. We expect restrictive supplier terms and conditions
to continue in the foreseeable future. Our inability to pass through to our reseller customers the impact of these
changes, as well as our failure to develop systems to manage ongoing supplier programs, could cause us to record
inventory write-downs or other losses and could have a negative impact on our gross margins.
We receive purchase discounts and rebates from suppliers based on various factors, including sales or
purchase volume, breadth of customers and achievement of other goals set by the vendors. These purchase
discounts and rebates may affect gross margins. Many purchase discounts from suppliers are based on percentage
increases in sales of products. Our operating results could be negatively impacted if these rebates or discounts are
reduced or eliminated or if our vendors significantly increase the complexity of process and costs for us to
receive such rebates.
Our ability to obtain particular products or product lines in the required quantities and to fulfill customer
orders on a timely basis is critical to our success. The IT industry experiences significant product supply
shortages and customer order backlogs from time to time due to the inability of certain suppliers to supply certain
products on a timely basis. As a result, we have experienced, and may in the future continue to experience, short-
term shortages of specific products, which can in turn have significant impacts on pricing of such products. In
addition, suppliers who currently distribute their products through us may decide to shift to or substantially
increase their existing distribution, through other distributors, their own dealer networks, or directly to resellers
or end-users. Suppliers have, from time to time, made efforts to reduce the number of distributors with which
they do business. This could result in more intense competition as distributors strive to secure distribution rights
with these vendors, which could have an adverse effect on our operating results. If suppliers are not able to
provide us with an adequate supply of products to fulfill our customer orders on a timely basis or we cannot
otherwise obtain particular products or a product line or suppliers substantially increase their existing distribution
through other distributors, their own dealer networks, or directly to resellers, our reputation, sales and
profitability may suffer.
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