HP 2012 Annual Report Download - page 27

Economic weakness and uncertainty could adversely affect our revenue, gross margin and expenses.
Our revenue and gross margin depend significantly on worldwide economic conditions and the
demand for technology hardware, software and services in the markets in which we compete. Economic
weakness and uncertainty have resulted, and may result in the future, in decreased revenue, gross
margin, earnings or growth rates and in increased difficulty in managing inventory levels. For example,
in recent periods we have experienced macroeconomic challenges across many geographic regions,
particularly in the United States and Western Europe, broad-based weakness in consumer demand,
decelerating growth in China, the impact of the continuing uncertainties associated with the debt crisis
in certain countries in the European Union and austerity measures being implemented or contemplated
by various countries in the Europe, Middle East and Africa region. In addition, sustained uncertainty
about current global economic conditions may adversely affect demand for our products, services and
solutions. Economic weakness and uncertainty also make it more difficult for us to make accurate
forecasts of revenue, gross margin and expenses.
We also have experienced, and may experience in the future, gross margin declines in certain
businesses, reflecting the effect of items such as competitive pricing pressures, inventory write-downs
and increases in component and manufacturing costs resulting from higher labor and material costs
borne by our manufacturers and suppliers that, as a result of competitive pricing pressures or other
factors, we are unable to pass on to our customers. In addition, our business may be disrupted if we
are unable to obtain equipment, parts or components from our suppliers—and our suppliers from their
suppliers—due to the insolvency of key suppliers or the inability of key suppliers to obtain credit.
Economic weakness and uncertainty could cause our expenses to vary materially from our
expectations. Any financial turmoil affecting the banking system and financial markets or any significant
financial services institution failures could negatively impact our treasury operations, as the financial
condition of such parties may deteriorate rapidly and without notice in times of market volatility and
disruption. Poor financial performance of asset markets combined with lower interest rates and the
adverse effects of fluctuating currency exchange rates could lead to higher pension and post-retirement
benefit expenses. Other income and expense could vary materially from expectations depending on
changes in interest rates, borrowing costs, currency exchange rates, hedging expenses and the fair value
of derivative instruments. Economic downturns also may lead to restructuring actions and associated
expenses.
We depend on third-party suppliers, and our revenue and gross margin could suffer if we fail to manage
suppliers properly.
Our operations depend on our ability to anticipate our needs for components, products and
services, as well as our suppliers’ ability to deliver sufficient quantities of quality components, products
and services at reasonable prices in time for us to meet critical schedules. Given the wide variety of
systems, products and services that we offer, the large number of our suppliers and contract
manufacturers that are located around the world, and the long lead times required to manufacture,
assemble and deliver certain components and products, problems could arise in production, planning,
and inventory management that could seriously harm us. In addition, our ongoing efforts to optimize
the efficiency of our supply chain could cause supply disruptions and be more expensive,
time-consuming and resource intensive than expected. Other supplier problems that we could face
include component shortages, excess supply, risks related to the terms of our contracts with suppliers,
risks associated with contingent workers, and risks related to our relationships with single source
suppliers, as described below.
• Shortages. Occasionally we may experience a shortage of, or a delay in receiving, certain
components as a result of strong demand, capacity constraints, supplier financial weaknesses,
inability of suppliers to borrow funds in the credit markets, disputes with suppliers (some of
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