HP 2010 Annual Report Download - page 27

•Contractual terms. As a result of binding price or purchase commitments with vendors, we may
be obligated to purchase components or services at prices that are higher than those available in
the current market and be limited in our ability to respond to changing market conditions. In
the event that we become committed to purchase components or services for prices in excess of
the current market price, we may be at a disadvantage to competitors who have access to
components or services at lower prices, and our gross margin could suffer. In addition, many of
our competitors obtain products or components from the same OMs and suppliers that we
utilize. Our competitors may obtain better pricing and other terms and more favorable
allocations of products and components during periods of limited supply, and our ability to
engage in relationships with certain OMs and suppliers could be limited. The practice employed
by our PC business of purchasing product components and transferring those components to its
OMs may create large supplier receivables with the OMs that, depending on the financial
condition of the OMs, may have risk of uncollectability. In addition, certain of our OMs and
suppliers may decide in the future to discontinue conducting business with us. Any of these
actions by our competitors, OMs or suppliers could adversely affect our future operating results
and financial condition.
•Contingent workers. We also rely on third-party suppliers for the provision of contingent workers,
and our failure to manage our use of such workers effectively could adversely affect our results
of operations. We have been exposed to various legal claims relating to the status of contingent
workers in the past and could face similar claims in the future. We may be subject to shortages,
oversupply or fixed contractual terms relating to contingent workers, as described above. Our
ability to manage the size of, and costs associated with, the contingent workforce may be subject
to additional constraints imposed by local laws.
•Single source suppliers. Our use of single source suppliers for certain components could
exacerbate our supplier issues. We obtain a significant number of components from single
sources due to technology, availability, price, quality or other considerations. For example, we
rely on Intel Corporation to provide us with a sufficient supply of processors for many of our
PCs, workstations, handheld computing devices and servers, and some of those processors are
customized for our products. New products that we introduce may utilize custom components
obtained from only one source initially until we have evaluated whether there is a need for
additional suppliers. Replacing a single source supplier could delay production of some products
as replacement suppliers initially may be subject to capacity constraints or other output
limitations. For some components, such as customized components and some of the processors
that we obtain from Intel, alternative sources may not exist or those alternative sources may be
unable to produce the quantities of those components necessary to satisfy our production
requirements. In addition, we sometimes purchase components from single source suppliers
under short-term agreements that contain favorable pricing and other terms but that may be
unilaterally modified or terminated by the supplier with limited notice and with little or no
penalty. The performance of such single source suppliers under those agreements (and the
renewal or extension of those agreements upon similar terms) may affect the quality, quantity
and price of components to HP. The loss of a single source supplier, the deterioration of our
relationship with a single source supplier, or any unilateral modification to the contractual terms
under which we are supplied components by a single source supplier could adversely affect our
revenue and gross margins.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs
and expenses.
Our worldwide operations could be subject to earthquakes, power shortages, telecommunications
failures, water shortages, tsunamis, floods, hurricanes, typhoons, fires, extreme weather conditions,
medical epidemics or pandemics and other natural or manmade disasters or business interruptions, for
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