Siemens 2007 Annual Report Download - page 176

176 Management’s discussion and analysis
Acquisitions and Dispositions
Our strategy includes divesting our interests in some business areas and
strengthening others through portfolio measures, including mergers and acquisi-
tions.
With respect to dispositions, we may not be able to divest some of our activities
as planned and our divesting activities could have a negative impact on our
results of operations, our cash fl ow at closing, as well as in the future, and on our
reputation. For example, we plan to dispose of our enterprise networks business.
The assets and liabilities of the enterprise networks business were classifi ed on
the balance sheet as held for disposal and measured at the lower of their carrying
amount and fair value less costs to sell and the historical results are reported as
discontinued operations. Further impairments may be necessary and we may not
be able to achieve the planned purchase price for the disposal group. For addi-
tional information with respect to the enterprise networks business, see “Notes to
Consolidated Financial Statements.”
Mergers and acquisitions are inherently risky because of the diffi culties of
integrating people, operations, technologies and products that may arise. There
can be no assurance that any of the businesses we acquire can be successfully
integrated or that they will perform well once integrated. In addition, we may
incur signifi cant acquisition, administrative and other costs in connection with
these transactions, including costs related to integration of acquired businesses.
Furthermore, portfolio activities may result in additional fi nancing needs and
adversely affect our fi nancial leverage and our debt-to-equity ratio. Acquisitions
may also lead to substantial increases in long-lived assets, including goodwill.
Write-downs of these assets due to unforeseen business developments may mate-
rially and adversely affect our earnings. Particularly Med, Automation and Drives
(A&D), PG and I&S have signifi cant amounts of goodwill.
Operations risks
Supply Chain Management
We rely on third parties to supply us with parts, components and services. Using
third parties to manufacture, assemble and test our products reduces our control
over manufacturing yields, quality assurance, product delivery schedules and
costs. The third parties that supply us with parts and components also have other
customers and may not have suffi cient capacity to meet all of their customers’
needs, including ours, during periods of excess demand. Component supply
delays can affect the performance of certain of our operating Groups. Although we
work closely with our suppliers to avoid supply-related problems, there can be no
assurance that we will not encounter supply problems in the future or that we will
be able to replace a supplier that is not able to meet our demand. This risk is par-
ticularly evident in businesses with a very limited number of suppliers. Shortages
and delays could materially harm our business. Unanticipated increases in the
price of components due to market shortages or other reasons could also adversely
affect the performance of certain of our business Groups.