Siemens 2011 Annual Report Download - page 226

6 A. To our shareholders
23 B. Corporate Governance 51 C. Combined management’s discussion and analysis
52 C. Business and operating environment
80 C. Fiscal  – Financial summary
83 C. Results of operations
101 C. Financial position
114 C. Net assets position
117 C. Overall assessment of the economic position
118 C. Report on post-balance sheet date events
119 C. Report on expected developments and
associated material opportunities and risks
135 C. Information required pursuant to Section  ()
and Section  () of the German Commercial
Code (HGB) and explanatory report

C.. Risks
C... STRATEGIC RISKS
We operate in highly competitive markets, which are sub-
ject to price pressures and rapid changes: The worldwide
markets for our products and solutions are highly competitive
in terms of pricing, product and service quality, development
and introduction time, customer service and financing terms.
In many of our businesses, we face downward price pressure
and we are or could be exposed to market downturns or slow-
er growth, which may increase in times of declining invest-
ment activities and consumer demand. We face strong com-
petitors, some of which are larger and may have greater re-
sources in a given business area, as well as competitors from
emerging markets, which may have a better cost structure.
Some industries in which we operate are undergoing consoli-
dation, which may result in stronger competition and a
change in our relative market position. Certain competitors
might be more effective and faster in capturing available mar-
ket opportunities, which in turn may negatively impact our
market share. These factors alone or in combination may neg-
atively impact our business, financial condition (including ef-
fects on assets, liabilities and cash flows), and results of oper-
ations.
Our business is affected by the uncertainties of economic
and political conditions, particularly in the current mac-
roeconomic environment, which is characterized by con-
tinuing crisis in financial markets and the potential threat
of a global economic downturn: Our business environment
is influenced by conditions in the domestic and global econo-
mies. Although the macroeconomic environment showed
further overall improvement in the first half of fiscal , the
development of certain economic indicators as well as the re-
cent turbulences in the financial markets in the second half
of fiscal , primarily as a result of the ongoing sovereign
debt crisis in the Eurozone, still indicate a highly volatile
macroeconomic environment. Future macroeconomic devel-
opment is dependent upon the evolution of a number of
global and local factors such as the crisis in the credit mar-
kets, economic crises arising from sovereign debt overruns,
and government budget consolidation measures related
thereto, including in the U.S., Italy, Greece and other Europe-
an countries, reduced levels of capital expenditures, declin-
ing consumer and business confidence, increasing unem-
ployment in certain countries, fluctuating commodity prices,
bankruptcies, natural disasters, political crises and other chal-
lenges affecting the speed of sustainable macroeconomic
growth.
In light of the latest economic developments, the high degree
of unemployment in certain countries, the level of public debt
in the U.S., as well as in Italy, Greece and other European coun-
tries, uncertainties with respect to the stability of the Chinese
economy, and the potential impact of budget consolidation
measures by governments around the world, the bases for our
expectations relating to the overall economic situation and
specific conditions in markets relevant to us are subject to con-
siderable uncertainties. In general, due to the significant pro-
portion of long-cycle businesses in our Sectors and the impor-
tance of long-term contracts for Siemens, there is usually a
time lag between the development of macroeconomic condi-
tions and their impact on our financial results. Important ex-
ceptions include our short- cycle businesses in the Industry
Sector, particularly those in industrial automation and drives
technologies, which are highly sensitive to volatility in market
demand. If the macroeconomic environment deteriorates and
if we are not successful in adapting our production and cost
structure to subsequent changes to conditions in the markets,
in which we operate, there can be no assurance that we will
not experience adverse effects that may be material to our
business, financial condition, results of operations and our
ability to access capital. For example, it may become more dif-
ficult for our customers to obtain financing and as a result they
may modify, delay or cancel plans to purchase our products
and services or to execute transactions. Furthermore, prices
may decline as a result of adverse market conditions to a great-
er extent than currently anticipated. In addition, contracted
payment terms, especially regarding the level of advance pay-
ments by our customers relating to long-term projects, may
become less favorable, which could negatively impact our
cash flows. Additionally, if customers are not successful in
generating sufficient revenue or securing access to the capital
markets, they may not be able to pay, or may delay payment of,
the amounts they owe us, which may adversely affect our
business, financial condition and results of operations.
Numerous other factors, such as fluctuations of energy and
raw material prices, as well as global political conflicts, in-
cluding those in the Middle East, North Africa and other re-
gions, continue to impact macroeconomic parameters and the
international capital and credit markets. The uncertainty of
economic and political conditions can have a material adverse
impact on our business, financial condition and results of op-
erations and can also make our budgeting and forecasting
more difficult.
Our business is affected by a variety of market conditions and
regulation. For example, our Energy Sector is exposed to the