Symantec 1998 Annual Report Download - page 21

SYMANTEC CORPORATION
SYMANTEC CORPORATION 29
(“VAR”) and independent software ven-
dor (“ISV”) customers whereby
Symantec’s products are included with
hardware products prior to sale through
retail channels. VAR and ISV licensing
agreements are generally non-exclusive
and do not require the VAR or ISV to
make minimum purchases. If the
Company is not successful in maintain-
ing its current relationships and securing
license agreements with additional VARs
and ISVs, or if the Company’s VAR and
ISV customers are not successful in sell-
ing their products, the Company’s future
net revenues and operating results may
be adversely affected.
Acquired Companies. Symantec has
completed a number of acquisitions and
may acquire other companies in the
future. Acquisitions involve a number of
special risks, including the diversion of
management’s attention to assimilation
of the operations and personnel of the
acquired companies in an efficient and
timely manner, the retention of key
employees, the difficulty of presenting a
unified corporate image, the coordina-
tion of research and development and
sales efforts and the integration of the
acquired products. In addition, because
the employees of acquired companies
have frequently remained in their exist-
ing, geographically diverse facilities, the
Company has not realized certain
economies of scale that might otherwise
have been achieved.
Symantec typically incurs significant
expenses in connection with acquisi-
tions, which have a significant adverse
impact on the Company’s profitability
and financial resources. Future acquisi-
tions may have a significant adverse
impact on the Company’s future prof-
itability and financial resources.
Employee Risk. Competition in recruit-
ing personnel in the software industry is
intense. Symantec believes that its future
success will depend in part on its ability
to recruit and retain highly skilled man-
agement, marketing and technical
personnel. Symantec believes that it
must provide personnel with a competi-
tive compensation package, which
necessitates the continued availability of
stock options which requires ongoing
stockholder approval.
Business Disruption. A disruption in
communications between the
Company’s geographically dispersed
order entry and product shipping cen-
ters, particularly at the end of a fiscal
quarter, would likely result in an unex-
pected shortfall in net revenues and
could result in an adverse impact on
operating results. Disruptions in com-
munications and Internet connectivity
may also cause delays in customer access
to Symantec’s Internet-based services or
product sales. A business disruption
could occur as a result of natural disas-
ters or the interruption in service by
communications carriers, and may cause
delays in product development that
could adversely impact future net rev-
enues of the Company.
Litigation. Symantec is involved in a
number of judicial and administrative
proceedings incidental to its business
(See Note 15 of Notes to Consolidated
Financial Statements in Part IV, Item 14
of this Form 10-K). The Company
intends to defend and/or pursue all of
these lawsuits vigorously and, although
an unfavorable outcome could occur in
one or more of the cases, the final resolution
of these lawsuits, individually or in the
aggregate, is not expected to have a
material adverse affect on the financial
position of the Company. However,
depending on the amount and timing of
an unfavorable resolution of these lawsuits,
it is possible that the Company’s future
results of operations or cash flows could
be materially adversely affected in a par-
ticular period (See Note 15 of Notes to
Consolidated Financial Statements in
Part IV, Item 14 of this Form 10-K).
Intellectual Property Rights. Symantec
regards its software as proprietary and
relies on a combination of copyright,
patent and trademark laws and license
agreements in an attempt to protect its
rights. Despite these precautions, it may
be possible for unauthorized third parties
to copy aspects of Symantec’s products
or to obtain and use information that
Symantec regards as proprietary. All of
Symantec’s products are protected by
copyright, and Symantec has a number
of patents and patent applications pend-
ing. However, existing patent and
copyright laws afford limited practical
protection. In addition, the laws of some
foreign countries do not protect
Symantec’s proprietary rights in its prod-
ucts to the same extent as do the laws of
the United States. Symantec’s products
are not copy protected.
As the number of software products
in the industry increases and the func-
tionality of these products further
overlap, Symantec believes that software
developers will become increasingly sub-
ject to infringement claims. This risk is
potentially greater for companies, such as
Symantec, that obtain certain of their
products through publishing agreements
or acquisitions, since they have less
direct control over the development of
those products.
In addition, an increasing number of
patents are being issued that are poten-
tially applicable to software, and
allegations of patent infringement are
becoming increasingly common in the
software industry. It is impossible to
ascertain all possible patent infringement
claims because new patents are being
issued continually, the subject of patent
applications is confidential until a patent
is issued, and it may not be apparent
28
in duty rates, exchange or price controls
or other restrictions on foreign currencies.
The Company expects that its non-U.S.
dollar denominated sales activities may
increase in the future. Symantec utilizes
natural hedging to mitigate Symantec’s
transaction exposures and hedges certain
residual balance sheet positions through
the use of one-month forward contracts.
These strategies may not continue to be
effective, and the Company may not be
successful in minimizing or accurately
forecasting transaction gains or losses.
The Company’s international opera-
tions are subject to certain risks common
to international operations, such as gov-
ernment regulations, import restrictions,
currency fluctuations, repatriation restric-
tions and, in certain jurisdictions, reduced
protection for the Company’s copyrights
and trademarks and economic volatility.
Sales and Marketing. Symantec believes
substantial sales and marketing efforts
are essential to achieve revenue growth
and to maintain and enhance Symantec’s
competitive position. There can be no
assurance that these sales and marketing
efforts will be successful.
Technical Support. Consistent with
many companies in the software industry,
technical support costs comprise a signif-
icant portion of the Company’s operating
costs and expenses. The Company’s
technical support levels are based, in a
large part, on projections of future sales
levels. Over the short term, the Company
may not be able to respond to fluctuations
in customer demand for support services
or modify the format of the Company’s
support services to compete with changes
in support services provided by competi-
tors. While the Company performs
extensive quality control review over its
technical support services provided by
corporate personnel and, to a lesser
extent, over support services outsourced
to third-party vendors, customer satisfac-
tion with the services rendered may not
be favorable. In the event of customer
dissatisfaction, future product and up-
grade sales to that customer base may be
negatively impact-ed. Fee-based techni-
cal support services did not generate
material revenues in any fiscal year pre-
sented and are not expected to generate
material revenues in the near future.
Uncertainty of Research and
Development Efforts. Symantec believes
significant research and development
expenditures will be necessary in order to
remain competitive. While the Company
performs extensive usability and beta
testing of new products, any products
currently being developed by Symantec
may not be technologically successful,
resulting products may not achieve mar-
ket acceptance, and the Company’s
products may not be effective in compet-
ing with products either currently in the
market or introduced in the future.
Length of Product Development Cycle.
The length of Symantec’s product develop-
ment cycle has generally been greater
than Symantec originally expected.
Although such delays have undoubtedly
had a material adverse affect on Symantec’s
business, Symantec is not able to quan-
tify the magnitude of net revenues that
were deferred or lost as a result of any
particular delay because Symantec is not
able to predict the amount of net revenues
that would have been obtained had the
original development expectations been
met. Delays in future product develop-
ment are likely to occur and could have a
material adverse affect on the amount
and timing of future revenues. Due to
the inherent uncertainties of software
development projects, Symantec does
not generally disclose or announce the
specific expected shipment dates of the
Company’s product introductions.
Operating Leverage. Consistent with
many companies in the software industry,
employee and facility related expenditures
comprise a significant portion of the
Company’s operating costs and expenses.
The Company’s expense levels are based,
in a large part, on projections of future
revenue levels. Given the fixed nature of
these expenses over the short term, if rev-
enue levels fall below expectations,
Symantec’s operating results are likely to
be adversely affected.
Management of Expanding Operations.
Symantec continually evaluates its product
and corporate strategy and has in the
past and will in the future undertake
organizational changes, product and
marketing strategy modifications which
are designed to maximize market pene-
tration, maximize use of limited corporate
resources and develop new products and
product channels. These organizational
changes increase the risk that objectives
will not be met due to the allocation of
valuable limited resources to implement
changes. Further, due to the uncertain
nature of any of these undertakings,
these efforts may not be successful, and
the Company may not realize any benefit
from these efforts.
Reliance on Joint Business Arrangements.
Symantec has entered, and may in the
future enter, into various development or
joint business arrangements for the purpose
of developing new software products or en-
hancements to existing software products.
Depending on the nature of each such
arrangement, the development, distribu-
tion, sale or marketing of the resulting
product may be controlled either by
Symantec or its business partner. Resulting
products from joint business arrangements
may not be technologically successful,
may not achieve market acceptance and
may not be effective in competing with
products either currently in the market
or introduced in the future.
Symantec distributes certain of its
products through value-added reseller