HP 2012 Annual Report Download - page 26

of HP’s LaserJet toner and inkjet cartridges compete with HP’s supplies business. Other companies
have also developed and marketed new compatible cartridges for HP’s LaserJet and inkjet products,
particularly in jurisdictions outside of the United States where adequate intellectual property protection
may not exist.
If we cannot successfully execute on our strategy and continue to develop, manufacture and market products,
services and solutions that meet customer requirements for innovation and quality, our revenue and gross
margin may suffer.
Our long-term strategy is focused on leveraging our portfolio of hardware, software and services as
we adapt to a changing/hybrid model of IT delivery and consumption driven by the growing adoption of
cloud computing and increased demand for integrated IT solutions. To successfully execute on this
strategy, we need to continue to further evolve the focus of our organization towards the delivery of
integrated IT solutions for our customers and to invest and expand into cloud computing, security, and
information management and analytics. Any failure to successfully execute this strategy could adversely
affect our operating results.
The process of developing new high technology products, software services and solutions and
enhancing existing hardware and software products, services and solutions is complex, costly and
uncertain, and any failure by us to anticipate customers’ changing needs and emerging technological
trends accurately could significantly harm our market share and results of operations. For example, as
we transition to an environment characterized by cloud-based computing and software being delivered
as a service, we must continue to successfully develop and deploy cloud-based solutions for our
customers. We must make long-term investments, develop or obtain, and protect appropriate
intellectual property and commit significant resources before knowing whether our predictions will
accurately reflect customer demand for our products, services and solutions. In addition, after we
develop a product, we must be able to manufacture appropriate volumes quickly and at low costs. To
accomplish this, we must accurately forecast volumes, mixes of products and configurations that meet
customer requirements, and we may not succeed at doing so within a given product’s life cycle or at all.
Any delay in the development, production or marketing of a new product, service or solution could
result in us not being among the first to market, which could further harm our competitive position.
In the course of conducting our business, we must adequately address quality issues associated with
our products, services and solutions, including defects in our engineering, design and manufacturing
processes and unsatisfactory performance under service contracts, as well as defects in third-party
components included in our products and unsatisfactory performance by third-party contractors. In
order to address quality issues, we work extensively with our customers and suppliers and engage in
product testing to determine the causes of problems and to determine appropriate solutions. However,
the products, services and solutions that we offer are complex, and our regular testing and quality
control efforts may not be effective in controlling or detecting all quality issues or errata, particularly
with respect to faulty components manufactured by third parties. If we are unable to determine the
cause, find an appropriate solution or offer a temporary fix (or ‘‘patch’’) to address quality issues with
our products, we may delay shipment to customers, which would delay revenue recognition and could
adversely affect our revenue and reported results. Addressing quality issues can be expensive and may
result in additional warranty, replacement and other costs, adversely affecting our profits. If new or
existing customers have difficulty operating our products or are dissatisfied with our services or
solutions, our operating margins could be adversely affected, and we could face possible claims if we
fail to meet our customers’ expectations. In addition, quality issues can impair our relationships with
new or existing customers and adversely affect our brand and reputation, which could, in turn,
adversely affect our operating results.
18