Dell 2008 Annual Report Download - page 17

Table of Contents
• Unfavorable results of legal proceedings could harm our business and result in substantial costs. We are involved in various claims, suits,
investigations, and legal proceedings that arise from time to time in the ordinary course of our business and that are not yet resolved, including
those that are set forth under Note 10 of Notes to Consolidated Financial Statements included in "Part II — Item 8 — Financial Statements and
Supplementary Data." Additional legal claims or regulatory matters may arise in the future and could involve stockholder, consumer, antitrust, tax
and other issues on a global basis. Litigation is inherently unpredictable. Regardless of the merit of the claims, litigation may be both time-
consuming and disruptive to our business. Therefore, we could incur judgments or enter into settlements of claims that could adversely affect our
operating results or cash flows in a particular period. For example, we could be exposed to enforcement or other actions with respect to the
continuing SEC investigation into certain accounting and financial reporting matters. In addition, if any infringement or other intellectual property
claim made against us by any third party is successful, or if we fail to develop non-infringing technology or license the proprietary rights on
commercially reasonable terms and conditions, our business, operating results, and financial condition could be materially and adversely affected.
• The acquisition of other companies may present new risks. We acquire companies as a part of our overall growth strategy. These acquisitions may
involve significant new risks and uncertainties, including distraction of management attention away from our current business operations,
insufficient new revenue to offset expenses, inadequate return of capital, integration challenges, new regulatory requirements, and issues not
discovered in our due diligence process. No assurance can be given that such acquisitions will be successful and will not adversely affect our
profitability or operations.
• Failure to properly manage the distribution of our products and services may result in reduced revenue and profitability. We use a variety of
distribution methods to sell our products and services, including directly to customers and through select retailers and third-party value-added
resellers. As we reach more customers worldwide through an increasing number of new distribution channels, such as consumer retail, and
continue to expand our relationships with value-added resellers, inventory management becomes more challenging and successful demand
forecasting becomes more difficult. Our inability to properly manage and balance inventory levels and potential conflicts among these various
distribution methods could harm our operating results.
• If our cost cutting measures are not successful, we may become less competitive. A variety of factors could prevent us from achieving our goal of
better aligning our product and service offerings and cost structure with customer needs in the current business environment through reducing our
operating expenses; reducing total costs in procurement, product design, and transformation; simplifying our structure; and eliminating
redundancies. For example, we may experience delays in the anticipated timing of activities related to our cost savings plans and higher than
expected or unanticipated costs to implement them. As a result, we may not achieve our expected cost savings in the time anticipated, or at all. In
such case, our results of operations and profitability may be negatively impaired, making us less competitive and potentially causing us to lose
market share.
• Failure to effectively hedge our exposure to fluctuations in foreign currency exchange rates and interest rates could unfavorably affect our
performance. We utilize derivative instruments to hedge our exposure to fluctuations in foreign currency exchange rates and interest rates. Some
of these instruments and contracts may involve elements of market and credit risk in excess of the amounts recognized in our financial statements.
• We are subject to counterparty default risks. We enter into numerous financing arrangements, including foreign currency option contracts and
forward contracts, with a wide array of bank counterparties. As a result, we are subject to the risk that the counterparty to one or more of these
contracts defaults, either voluntarily or involuntarily, on its performance under the contract. In times of market distress, a counterparty may default
rapidly and without notice to us, and we may be unable to take action to cover our exposure, either because we lack the contractual ability or
because market conditions make it difficult to take effective action. In the event of a counterparty default, we could incur significant losses, which
could harm our business, results of operations, and financial condition. In the event that one of our counterparties becomes insolvent or files for
bankruptcy, our ability to eventually recover any losses suffered as a result of that counterparty's default may be limited by the liquidity of the
counterparty or the applicable legal regime governing the bankruptcy proceeding. In addition, our deposits at financial institutions are at risk. As of
January 30, 2009, approximately 25% of our cash and cash equivalents were deposited with two large financial institutions rated AA and A. If an
institution which is holding our deposits fails, we could lose all uninsured funds in those accounts.
• Our continued business success may depend on obtaining licenses to intellectual property developed by others on commercially reasonable and
competitive terms. If we or our suppliers are unable to obtain desirable technology licenses, we may be prevented from marketing products; could
be forced to market products without desirable features; or could incur substantial costs to redesign products, defend legal actions, or pay damages.
While our suppliers may be contractually obligated to obtain such licenses and indemnify us against such expenses, those suppliers could be unable
to meet their obligations. In addition, our operating costs could increase because of copyright levies or similar fees by rights holders and collection
agencies in European and other countries. For a
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