Siemens 2008 Annual Report Download - page 198

102 Management’s discussion and analysis
Mergers and acquisitions are inherently risky because of the dif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 signi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 nancing needs
and adversely affect our 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 materially and adversely affect our earnings. All of our Sectors have signi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 deliv-
ery schedules and costs. The third parties that supply us with parts and components also have other customers
and may not have suf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 Sectors. 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 particularly 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 Sectors.
Our Sectors are exposed to uctuations in energy and raw material prices. In recent times, commodities such as
oil, steel and copper have been subject to volatile markets and temporarily subject to signicant price increases.
If we are not able to compensate for or pass on our increased costs to customers, such price increases could have
a material adverse impact on our nancial results.
Product lifecycle management
Our value chain comprises all steps, from research and development to production, marketing, sales and ser-
vices. Operational failures in our value chain processes could result in quality problems or potential product,
labor safety, regulatory or environmental risks. Such risks are particularly present in relation to our production
facilities, which are located all over the world and have a high degree of organizational and technological com-
plexity. From time to time, some of the products we sell have quality issues resulting from the design or manu-
facture of such products or from the software integrated into them. Such operational failures or quality issues
could have a material adverse effect on our nancial condition or results of operations.
Human resources
Competition for highly qualied management and technical personnel remains intense in the industries and
regions in which our Sectors and Cross-Sector Businesses operate. In many of our business areas, we further
intend to extend our service businesses signicantly, for which we will need highly skilled employees. Our
future success depends in part on our continued ability to hire, assimilate and retain engineers and other quali-
ed personnel. There can be no assurance that we will continue to be successful in attracting and retaining
highly qualied employees and key personnel in the future, and any inability to do so could have a material
adverse effect on our business.