Siemens 2010 Annual Report Download - page 188

6 To our shareholders 21 Corporate Governance 49 Combined management’s discussion and analysis
50 Business and operating environment
78 Fiscal  – Financial summary
81 Results of operations
98 Financial position
110 Net assets position
113 Overall assessment of the economic position
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nomic recovery. In many of our business areas, we intend to
expand our business activities, 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 qualified personnel. There can be no assurance that we
will continue to be successful in attracting and retaining all the
highly qualified employees and key personnel needed in the
future, including in appropriate geographic locations, and any
inability to do so could have a material adverse effect on our
business.
Increased IT security threats and higher levels of profes-
sionalism in computer crime could pose a risk to our sys-
tems, networks, products, solutions and services: We ob-
serve a global increase in IT security threats and higher levels
of professionalism in computer crime, which pose a risk to the
security of systems and networks and the confidentiality, avail-
ability and integrity of data. While we attempt to mitigate these
risks by employing a number of measures, including employee
training, comprehensive monitoring of our networks and sys-
tems, and maintenance of backup and protective systems such
as firewalls and virus scanners, our systems, networks, prod-
ucts, solutions and services remain potentially vulnerable to
attacks. Depending on their nature and scope, such attacks
could potentially lead to the leakage of confidential informa-
tion, improper use of our systems and networks, manipulation
and destruction of data, defective products, production down-
times and supply shortages, which in turn could adversely af-
fect our reputation, competitiveness and results of operations.
We may face interruption of our supply chain, including the
inability of third parties to deliver parts, components and
services on time, and could be subject to rising raw mate-
rial prices: Our financial performance depends in part on reli-
able and effective supply chain management for components,
sub-assemblies and other materials. Capacity constraints and
supply shortages resulting from ineffective supply chain man-
agement may lead to delays and additional cost. 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, qual-
ity assurance, product delivery schedules and costs. The third
parties that supply us with parts and components also have
other customers and may not have sufficient capacity to meet
all of their customers’ needs, including ours, during periods of
excess demand. Component supply delays can affect the per-
formance 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 our Sectors.
Our Sectors purchase raw materials including copper, steel,
aluminum and oil, which exposes them to fluctuations in en-
ergy and raw material prices. In recent times, commodities
have been subject to volatile markets, and such volatility is
expected to continue. If we are not able to compensate for our
increased costs or pass them on to customers, price increases
could have a material adverse impact on our financial results.
In contrast, in times of falling commodity prices, we may not
fully profit from such price decreases as we attempt to reduce
the risk of rising commodity prices by several means, such as
long-term contracting or physical and financial hedging. In
addition to price pressure that we may face from our custom-
ers expecting to benefit from falling commodity prices or ad-
verse market conditions, this could also adversely affect our
results of operations.
We may face operational failures and quality problems in
our value chain processes: Our value chain comprises all
steps, from research and development to supply chain man-
agement, production, marketing, sales and services. Opera-
tional 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 tech-
nological complexity. From time to time, some of the products
we sell might have quality issues resulting from the design or
manufacture of such products or from the software integrated
into them. Such operational failures or quality issues could
have a material adverse effect on our financial condition and
results of operations.
Our financial condition and results of operations may be
adversely affected by cost overruns or additional payment
obligations related to the management of our long-term,
fixed price or turnkey projects: We perform a portion of our
business, especially large projects, under long-term contracts
that are awarded on a competitive bidding basis. Some of
these contracts are inherently risky because we may assume
substantially all of the risks associated with completing the
project and the post-completion warranty obligations. For ex-