Siemens 2005 Annual Report Download - page 124

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In light of these economic conditions, in fiscal year 2005, we continued our strategic reorien-
tation and cost-cutting initiatives across our business Groups but particularly at Com, SBS and
L&A. These include reducing headcount, adjusting existing capacities through consolidation of
business activities and manufacturing facilities, as well as streamlining product portfolios. These
measures impact our earnings results, and any future contribution of these measures to our
profitability will be influenced by the actual savings achieved and by our ability to sustain these
ongoing efforts.
The worldwide markets for our products are highly competitive in terms of pricing, product
and service quality, development and introduction time, customer service and financing terms.
We face strong competitors, some of which are larger and may have greater resources in a given
business area. Siemens faces downward price pressure and is exposed to market downturns or
slower growth. Some industries in which we operate are undergoing consolidation, which may
result in stronger competitors and a change in our relative market position. In some of our mar-
kets new products must be developed and introduced rapidly in order to capture available oppor-
tunities, and this can lead to quality problems. Our operating results depend to a significant
extent on our ability to adapt to changes in the market and reduce the costs of producing high-
quality new and existing products. Any inability to do so could have a material adverse effect on
our financial condition or results of operations.
The markets in which our businesses operate experience rapid and significant changes due to
the introduction of innovative technologies. To meet our customers’ needs in these businesses,
we must continuously design new, and update existing, products and services and invest in and
develop new technologies. This is especially true for our Groups Com, SBS, Med and SV. For exam-
ple, Com is continuously involved in developing marketable components, products and systems,
such as for a new generation of wireless communications technology. Introducing such new offer-
ings requires a significant commitment to R&D, which may not always result in success. Our sales
and profits may suffer if we invest in technologies that do not function as expected or are not
accepted in the marketplace as anticipated, if our products or systems are not brought to market
in a timely manner, or as they become obsolete.
Our strategy includes divesting our interests in some business areas and strengthening oth-
ers through portfolio measures, including acquisitions, strategic alliances, joint ventures and
mergers. Transactions such as these are inherently risky because of the difficulties of integrating
people, operations, technologies and products that may arise. Strategic alliances may also pose
risks for us because we compete in some business areas with companies with which we have
strategic alliances. Our divesting activities could have a negative impact on our results of opera-
tions and cash flow. In addition, we may incur significant acquisition, administrative and other
costs in connection with these transactions, including costs related to integration of acquired or
restructured businesses. There can be no assurance that any of the businesses we acquire can be
successfully integrated or that they will perform well once integrated. Acquisitions may also lead
to substantial increases in long-lived assets, including goodwill. Write-downs of these assets due
to unforeseen business developments may materially and adversely affect our earnings. Particu-
larly Med, SV and PG have significant amounts of goodwill.
Management’s discussion and analysis
Risk management