HP 2008 Annual Report Download - page 32

component pricing movements, component shortages or global logistics disruptions, could adversely
impact inventory levels and results of operations in a manner that is disproportionate to the number of
days in the quarter affected.
We experience some seasonal trends in the sale of our products that also may produce variations
in quarterly results and financial condition. For example, sales to governments (particularly sales to the
United States government) are often stronger in the third calendar quarter, consumer sales are often
stronger in the fourth calendar quarter, and many customers whose fiscal and calendar years are the
same spend their remaining capital budget authorizations in the fourth calendar quarter prior to new
budget constraints in the first calendar quarter of the following year. European sales are often weaker
during the summer months. Demand during the spring and early summer also may be adversely
impacted by market anticipation of seasonal trends. Moreover, to the extent that we introduce new
products in anticipation of seasonal demand trends, our discounting of existing products may adversely
affect our gross margin prior to or shortly after such product launches. Typically, our third fiscal
quarter is our weakest and our fourth fiscal quarter is our strongest. Many of the factors that create
and affect seasonal trends are beyond our control.
Any failure by us to execute on our strategy for operational efficiency successfully could result in total costs
and expenses that are greater than expected.
We have adopted an operating framework that includes a disciplined focus on operational
efficiency. As part of this framework, we have adopted several initiatives, including:
• A multi-year plan announced in the third fiscal quarter of 2006 to consolidate HP’s 85 data
centers worldwide into six larger centers located in three U.S. cities and transform our IT
infrastructure to improve operational efficiency and workforce effectiveness and significantly
reduce our IT spending;
• A multi-year program announced in the third fiscal quarter of 2006 to reduce real estate costs
by consolidating several hundred HP real estate locations worldwide to fewer core sites; and
• A multi-year process of examining every function and every one of our businesses and functions
in order to optimize efficiency and reduce cost.
Our ability to achieve the anticipated cost savings and other benefits from these initiatives within
the expected time frame is subject to many estimates and assumptions, including estimates and
assumptions regarding the cost of consolidating the data centers and real estate locations, the amount
of accelerated depreciation or asset impairment to be incurred when we vacate facilities or cease using
equipment before the end of their respective lease term or asset life, and the costs and timing of other
activities in connection with these initiatives. These estimates and assumptions are subject to significant
economic, competitive and other uncertainties, some of which are beyond our control. If these
estimates and assumptions are incorrect, if we experience delays, or if other unforeseen events occur,
our business and results of operations could be adversely affected.
In addition, in September 2008, we announced a workforce restructuring program relating to our
acquisition of EDS. We expect that program to involve the elimination of approximately 24,700
positions worldwide through fiscal 2012. We expect to replace approximately half of these positions in
locations that will optimize our global footprint. Significant risks associated with these actions and other
workforce management issues that may impair our ability to achieve anticipated cost reductions or may
otherwise harm our business include delays in implementation of workforce reductions in highly
regulated locations outside of the United States, particularly in Europe and Asia, delays in hiring and
integrating new employees, decreases in employee morale and the failure to meet operational targets
due to the loss of employees.
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