Symantec 1996 Annual Report Download - page 23

the Central Point products during fiscal 1995, in the Ma rc h 1 9 9 5
q u a rter Symantec was able to assess the remaining Central Po i n t
p r oduct returns in the No rth American distribution channel and,
as a result, re c o g n i zed approximately $3.0 million of No rt h
American net re venues previously deferred by Central Po i n t .
Net re venues from international sales grew from approx i m a t e-
ly $116.4 million in fiscal 1994 to $134.6 million in fiscal 1995
and to $142.2 million in fiscal 1996 and re p resented 29%, 31%
and 32% of net re venues, re s p e c t i ve l y. The increase in interna-
tional net re venues from fiscal 1995 to fiscal 1996 re s u l t e d
primarily from increased Delrina international net re venues and
g rowth in Sy m a n t e c ’s Asia/Pacific region, product upgrade sales
of international versions of Sy m a n t e c’s Wi n d ows 95 pro d u c t s
and recognition of the Central Point deferred re venue discussed
a b ove. The increase in international net re venues from fiscal
1994 to fiscal 1995 was largely due to the favorable impact of the
change in foreign currency exchange rates during fiscal 1995.
Enhanced product releases typically result in an increase in net
re venues during the first three to six months following their
i n t roduction due to purchases by existing users, usually at dis-
counted prices, and initial inve n t o ry purchases by Sy m a n t e c’s
distributors. In addition, between the date Symantec announces
a new version or new product and the date of release, distributors,
dealers and end users often delay purchases, cancel orders or
return p roducts in anticipation of the availability of the new ve r -
sion or new pro d u c t .
The Company’s pattern of re venues and earnings may also be
affected by a phenomenon known as “channel fill.” Channel fill
occurs following the introduction of a new product or a new
version of a product as distributors buy significant quantities of
the new product or version in anticipation of sales of such pro d -
uct or version. Fo l l owing such purchases, the rate of distributors’
p u rchases often declines in a material amount, depending on
the rates of purchases by end users or “s e l l - t h r ough.” The phe-
nomenon of channel fill may also occur in anticipation of price
i n c r eases or in response to sales promotions or incentives, some
of which may be designed to encourage customers to accelerate
p u rchases that might otherwise occur in later periods. Channels
may also become filled simply because the distributors are
unable to, or do not, sell their inventories to retail distribution
or end users as anticipated. If sell-through does not occur at a
sufficient rate, distributors will delay purchases or cancel ord e r s
in later periods or return prior purchases in order to reduce their
i n ventories. Such order delays or cancellations can cause materi-
al fluctuations in re venues from one quarter to the next. T h e
impact is somewhat mitigated by the Company’s deferral of re v-
enue associated with inventories estimated to be in excess of leve l s
deemed appropriate in the distribution channel; howe ve r , net
re venues may still be materially affected favorably or adve r s e l y
by the effects of channel fill. Channel fill did not have a material
impact on the Company’s re venues in fiscal 1996, 1995 or 1994
but may have a material impact in future periods, especially in
periods where a large number of new products are intro d u c e d .
Symantec believes that many of its customers are mov i n g
t ow a r d an enterprise-wide computing environment where more
desktop personal computers will be interconnected into large
l o c a l - a r ea and wide-area networks administered by corporate M I S
d e p a rtments as well as the Internet. Sy m a n t e c’s entry into the
enterprise software market is re l a t i vely new and, as a re s u l t ,
Symantec is beginning to compete with companies with which it
has not previously competed. As a result, there is uncert a i n t y
re g a r ding customer acceptance of the Company’s products as
Symantec has not been a major supplier in the enterprise mark e t .
These factors increase the uncertainty of forecasting financial
results. While the Company expects the mark e t’s shift tow a rd
enterprise and Internet products to continue, there can be no
assurance that the Company’s enterprise products will be successful
or will gain customer acceptance.
With the expansion to enterprise-wide computing systems
m a rk e t s , Symantec believes that it must continue to develop re l a-
tionships with systems integrators and other third - p a r ty ve n d o r s
that provide consulting and integration services to customers and
d e l i ver products developed for this market segment. Fu r t h e r m o re ,
the sales cycle with respect to enterprise products is lengthy and
may be subject to integration and acceptance by the customer. In
addition, a ve ry high pro p o rtion of enterprise product sales are
completed in the last few days of each quart e r, in part because
customers are able, or believe that they are able, to negotiate lowe r
prices and more favorable terms. Each of these factors increases the
risk that forecasts of quarterly financial results will not be achieve d .
Enterprise products are frequently sold through site licenses
where a license for multiple workstations is sold to a customer
at a negotiated price. Desktop software products are generally
sold through the distribution channel or directly to end-users.
Enterprise product re venues are typically comprised of lowe r
volume, high dollar site license transactions compared to desk-
top product re venues which are typically comprised of higher
volume, low dollar pre-packaged product transactions. T h e
prices of site licenses tend to va ry based upon the individual
products purchased, the number of units licensed and the num-
ber of workstations at the customer’s site.
Price competition is significant in the microcomputer business
s o f t w a r e market and may continue to increase and become eve n
m o re significant in the future, resulting in reduced profit mar-
gins. Should competitive pre s s u r es in the industry continue to
i n c r ease, Symantec may be re q u i red to reduce software prices
and/or increase its spending on sales, marketing and re s e a rch and
d e velopment as a percentage of net re venues, resulting in lowe r
p rofit margins. In addition, aggre s s i ve pricing strategies of
competitors in other software markets, some of whom have sig-
nificantly more financial re s o u r ces than Symantec, may cause the
Company to further reduce software prices and/or increase sales
and marketing expenses on a number of the Company’s pro d -
ucts. T h e re was no material impact to net re venues re s u l t i n g
f rom changes in product pricing in fiscal 1996, 1995 or 1994.
Ap p roximately 37% of the Company’s net re venues in fiscal