Siemens 2007 Annual Report Download - page 174

174 Management’s discussion and analysis
Moreover, according to U.S. provisions, which are more comprehensive com-
pared to German law, Siemens is required to establish and maintain adequate
internal control over fi nancial reporting. Siemens implemented an internal con-
trol system. In fi scal 2006 management concluded that the system proved to be
not effective with respect to preventing misappropriation of funds and abuse
of authority. Therefore, in fi scal 2007, management actively designed, initiated
and is in the process of implementing extensive remediation actions focusing on
anti-corruption controls. Due to ongoing investigations and the not far enough
advanced implementation of the Company’s remediation plan, management con-
cluded for fi scal 2007 that the identifi ed ineffectiveness within the internal con-
trol system has not yet been remediated.
Below we describe the risks which could have a material adverse effect on our
fi nancial condition or results of operations. The risks we describe here are not
necessarily the only ones we face. Additional risks not known to us or that we cur-
rently consider immaterial may also impair our business operations.
Strategic risks
Market Dynamics
Our business environment is infl uenced by conditions in the domestic and global
economies. Numerous factors, such as global political confl icts, including situa-
tions in the Middle East and other regions, continue to impact macroeconomic
parameters and the international capital markets. The uncertainty of economic
and political conditions can impact the demand for our products and services and
can also make our budgeting and forecasting more diffi cult.
Our Groups are affected by market conditions. For example Medical Solutions
(Med) is dependent on the healthcare markets, particularly in the U.S. Some of our
Groups are affected considerably by the markets in Asia as well as Middle East,
such
as Power Generation (PG) and Power Transmission & Distribution (PTD). In
addition, the fi nancial condition of our customers may negatively impact our
Groups.
We are in the process of strategic reorientations and constantly perform cost-
cutting initiatives, including headcount reduction, capacity adjustments 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 profi tability will be infl uenced
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, cus-
tomer service and fi nancing 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 markets, new products must be developed and introduced rapidly in
order to capture available opportunities and this can lead to quality problems.