Symantec 1996 Annual Report Download - page 24

1996 we r e from sales to two large distributors. These customers
tend to make the majority of their purchases at the end of the fis-
cal quart e r, in part because they are able, or believe that they are
able, to negotiate lower prices and more favorable terms. T h i s
end-of-period buying pattern means that forecasts of quart e r l y
and annual financial results are particularly vulnerable to the risk
that they will not be achieved, either because expected sales do
not occur or because they occur at lower prices or on less favo r a b l e
terms to the Company. The Company’s distribution customers
also carry the products of Sy m a n t e c ’s competitors, some of which
h a ve greater financial re s o u rces than the Company. The distribu-
tors have limited capital to invest in inve n t o r y, and their decisions
to purchase the Company’s products is partly a function of pric-
ing, terms and special promotions offered by Symantec as well as
by its competitors over which the Company has no control and
which it cannot pre d i c t .
While Sy m a n t e c ’s diverse product line has tended to lessen
fluctuations in quarterly net re v enues, these fluctuations have
o c c u r r ed recently and are likely to occur in the future. T h e s e
fluctuations may be caused by a number of factors, including the
timing of announcements and releases of new or enhanced ve r -
sions of its products and product upgrades, the introduction of
c o m p e t i t i ve products by existing or new competitors, re d u c e d
demand for any given product, seasonality in the retail software
m a rket in Eu rope, the mark e t’s transition between operating sys-
tems and the transition from a desktop P C e n v i r onment to an
enterprise-wide environment. These factors may cause significant
fluctuations in net re venues and, accord i n g l y, operating re s u l t s .
The Company is devoting substantial efforts to the deve l o p-
ment of software products that are designed to operate on
Mi c r o s o f t ’s Wi n d ow s 95 and/or Wi n d ows N T operating systems.
Mi c r osoft has incorporated advanced utilities including telecom-
munications, facsimile and data re c ove ry utilities in Wi n d ow s 9 5
and may include additional product features in future releases of
Wi n d ow s 95 or Wi n d ow s N T that may decrease the demand for
c e rtain of the Company’s products, including those curre n t l y
under development. Should Wi n d ows 95 or Wi n d ow s N T n o t
a c h i e ve timely market acceptance, or should the Company be
unable to successfully or timely develop products that operate
under these operating systems, the Company’s future net re ve n u e s
and operating results would be immediately and significantly
a d versely affected. In addition, as the timing of delive ry and adop-
tion of many of Sy m a n t e c ’s products is dependent on the
adoption rate of these operating systems, which the Company
and securities analysts are unable to predict, the ability of
Symantec and securities analysts to forecast the Company’s net
re venues has been and will continue to be adversely impacted. As
a result, there is a heightened risk that net re venues and pro f i t s
will not be in line with analysts’ expectations in the periods fol-
l owing the introduction of or upgrades to Wi n d o ws 95 and
Wi n d ow s N T.
The length of Sy m a n t e c’s product development cycle has
generally been greater than Symantec originally expected.
Although such delays have undoubtedly had a material adve r s e
effect on Sy m a n t e c’s business, Symantec is not able to quantify
the magnitude of net re venues that we r e deferred or lost as a
result of any particular delay because Symantec is not able to
p redict the amount of net re venues that would have been
obtained had the original development expectations been met.
Delays in product development, including products being deve l-
oped for Wi n d ow s 95 or Wi n d ow s N T, are likely to occur in the
f u t u re and could have a material adverse effect on the amount
and timing of future re venues. Due to the inherent uncert a i n t i e s
of software development projects, Symantec does not generally
disclose or announce the specific expected shipment date of the
C o m p a n y’s product introductions. In addition, there can be no
assurance that any products currently being developed by
Symantec, including products being developed for Wi n d ow s 9 5
or Wi n d ow s N T, will be technologically successful, that any
resulting products will achieve market acceptance or that the
C o m p a n y’s products will be effective in competing with pro d-
ucts either currently in the market or introduced in the future .
During fiscal 1993, Symantec believes net re venues we re
a d versely affected by an unexpected substantial price reduction in
486-based personal computers that caused a shift in customer
spending from software to personal computer hard w a re .
Symantec also believes that the shift was caused by the intro d u c-
tion of Wi n d o ws 3.1, which re q u i r ed more computing capability.
If the next class of personal computers, including those based on
In t e l ’s P6/Pentium Pro micro p rocessor or Mo t o rola, In c .’s Powe r
P C, are also rapidly reduced in price, there may be another unex-
pected shift in customer buying away from software and
Sy m a n t e c’s products, which could result in significantly re d u c e d
re venues and a material adverse effect on operating results. In
addition, Wi n d o ws 95 and Wi n d ows N T re q u i res significantly
m o r e computer memory and hard disk space than Wi n d ows 3.1,
and if there is a shift from software to hard w a r e spending, there
could be an adverse effect on the sales of computer hard w a re and
s o f t w a re. Either of these events could result in significantly
reduced net re venues and have a material adverse effect on
Sy m a n t e c ’s operating results. Symantec has noted that P6/Pe n t i u m
Pro micro p r ocessors have been reduced in price and are being
m a r keted aggre s s i vely by In t e l .
The Company estimates and maintains re s e rves for pro d u c t
returns. Sy m a n t e c’s return policy allows its distributors, subject to
c e r tain limitations, to return purchased products in exchange for
n e w products or for credit tow a r ds future purchases. End users
may return products through dealers and distributors within a
reasonable period from the date of purchase for a full refund, and
retailers may return older versions of products. Various distributors
and resellers may have different return policies that may negative l y
impact the level of products which are returned to Sy m a n t e c .
Product returns occur when the Company introduces upgrades
and new versions of products or when distributors order too
much product. In addition, competitive factors often re q u i re the
Company to offer rights of return for products that d i s t r i b u t o r s