HP 2014 Annual Report Download - page 39

Finally, our results of operations and cash flows have been and could continue to be affected in
certain periods and on an ongoing basis by the imposition, accrual and payment of copyright levies or
similar fees. In certain countries (primarily in Europe), proceedings are ongoing or have been
concluded involving HP in which groups representing copyright owners have sought or are seeking to
impose upon and collect from HP levies upon equipment (such as PCs, MFDs and printers) alleged to
be copying devices under applicable laws. Other such groups have also sought to modify existing levy
schemes to increase the amount of the levies that can be collected from us. Other countries that have
not imposed levies on these types of devices are expected to extend existing levy schemes, and countries
that do not currently have levy schemes may decide to impose copyright levies on these types of
devices. The total amount of the copyright levies will depend on the types of products determined to be
subject to the levy, the number of units of those products sold during the period covered by the levy,
and the per unit fee for each type of product, all of which are affected by several factors, including the
outcome of ongoing litigation involving us and other industry participants and possible action by the
legislative bodies in the applicable countries, and could be substantial. Consequently, the ultimate
impact of these copyright levies or similar fees, and our ability to recover such amounts through
increased prices, remains uncertain.
Our revenue and profitability could suffer if we do not manage the risks associated with our services business
properly.
The risks that accompany our services business differ from those of our other businesses and
include the following:
• The success of our services business is to a significant degree dependent on our ability to retain
our significant services clients and maintain or increase the level of revenues from these clients.
We may lose clients due to their merger or acquisition, business failure, contract expiration or
their selection of a competing service provider or decision to in-source services. In addition, we
may not be able to retain or renew relationships with our significant clients. As a result of
business downturns or for other business reasons, we are also vulnerable to reduced processing
volumes from our clients, which can reduce the scope of services provided and the prices for
those services. We may not be able to replace the revenue and earnings from any such lost
clients or reductions in services. In addition, our contracts may allow a client to terminate the
contract for convenience, and we may not be able to fully recover our investments in such
circumstances.
• The pricing and other terms of some of our IT services agreements, particularly our long-term
IT outsourcing services agreements, require us to make estimates and assumptions at the time
we enter into these contracts that could differ from actual results. Any increased or unexpected
costs or unanticipated delays in connection with the performance of these engagements,
including delays caused by factors outside our control, could make these agreements less
profitable or unprofitable, which could have an adverse effect on the profit margin of our IT
services business.
• Some of our IT services agreements require significant investment in the early stages that is
expected to be recovered through billings over the life of the agreement. These agreements
often involve the construction of new IT systems and communications networks and the
development and deployment of new technologies. Substantial performance risk exists in each
agreement with these characteristics, and some or all elements of service delivery under these
agreements are dependent upon successful completion of the development, construction and
deployment phases. Any failure to perform satisfactorily under these agreements may expose us
to legal liability, result in the loss of customers and harm our reputation, which could decrease
the revenues and profitability of our IT services business.
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