Philips 2009 Annual Report Download - page 109

Philips’ supply chain is also exposed to fluctuations in
energy and raw material prices. In recent times,
commodities such as oil have been subject to volatile
markets and significant price increases from time to time.
If Philips is not able to compensate for or pass on its
increased costs to customers, such price increases could
have a material adverse impact on its financial results.
Most of Philips’ activities are conducted outside of the
Netherlands, and international operations bring
challenges. For example, production and procurement of
products and parts in Asian countries are increasing, and
this creates a risk that production and shipping of
products and parts could be interrupted by a natural
disaster in that region.
Due to the fact that Philips is dependent on its personnel
for leadership and specialized skills, the loss of its ability to
attract and retain such personnel would have an adverse
effect on its business.
The retention of talented employees in sales and
marketing, research and development, finance and general
management, as well as of highly specialized technical
personnel, especially in transferring technologies to low-
cost countries, is critical to Philips’ success. The loss of
specialized skills could also result in business
interruptions.
Diversity in information technology (IT) could result in
ineffective or inefficient business management. IT
outsourcing and off-shoring strategies could result in
complexities in service delivery and contract
management. Furthermore, we observe a global increase
in IT security threats and higher levels of professionalism
in computer crime, posing a risk to the confidentiality,
availability and integrity of data and information.
Philips is engaged in a continuous drive to create a more
open, standardized and, consequently, more cost-
effective IT landscape. This is leading to an approach
involving further outsourcing, off-shoring,
commoditization and ongoing reduction in the number of
IT systems. The global increase in security threats and
higher levels of professionalism in computer crime have
raised the company’s awareness of the importance of
effective IT security measures, including proper identity
management processes to protect against unauthorized
systems access. The integration of new companies and
successful outsourcing of business processes are highly
dependent on secure and well-controlled IT systems.
Warranty and product liability claims against Philips could
cause Philips to incur significant costs and affect Philips’
results as well as its reputation and relationships with key
customers.
Philips is from time to time subject to warranty and
product liability claims with regard to product
performance and effects. Philips could incur product
liability losses as a result of repair and replacement costs
in response to customer complaints or in connection with
the resolution of contemplated or actual legal proceedings
relating to such claims. In addition to potential losses
arising from claims and related legal proceedings, product
liability claims could affect Philips’ reputation and its
relationships with key customers, both customers for end
products and customers that use Philips’ products in their
production process. As a result, product liability claims
could materially impact Philips’ financial position and
results.
Any damage to Philips’ reputation could have an adverse
effect on its businesses.
Philips is exposed to developments which could affect its
reputation. Such developments could be of an
environmental or social nature, or connected to the
behavior of individual employees or suppliers and could
relate to adherence with regulations related to labor,
health and safety, environmental and chemical
management. Reputational damage could materially
impact Philips’ financial position and results.
6 Risk management 6.5 - 6.5
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