Siemens 2012 Annual Report Download - page 212

1 A. To our Shareholders
21 B. Corporate Governance 49 C. Combined Management Report
50 C. Business and economic environment
64 C. Financial performance measures
69 C. Results of operations
82 C. Financial position
93 C. Net assets position
95 C. Overall assessment of the economic position
96 C. Subsequent events
97 C. Sustainability
111 C. Report on expected developments and
associated material opportunities and risks

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. Operation-
al failures in our value chain processes could result in quality
problems or potential product, labor safety, regulatory or envi-
ronmental risks. Such risks are particularly present in relation
to our production and construction facilities, which are located
all over the world and have a high degree of organizational and
technological complexity. From time to time, some of the prod-
ucts we sell might have quality issues resulting from the de-
sign or manufacture of such products or from the software in-
tegrated into them. Particularly our Healthcare Sector is subject
to requirements of the U.S. Food and Drug Administration,
which require certain efforts safeguarding our product quality.
If we are not able to comply with these requirements our repu-
tation, competitiveness, business, financial condition and re-
sults of operations may be adversely affected.
Furthermore, failures on the part of service providers we em-
ploy, such as in the area of IT, may have an adverse effect on
our processes and operations and our ability to meet our com-
mitments to customers or increase our operating costs. Any
operational failures or quality issues could have a material ad-
verse effect on our business, financial condition and results of
operations.
We are dependent upon hiring, developing and retain-
ing highly qualified management and technical person-
nel:
Competition for highly qualified personnel remains intense
in the industries and regions in which our business operates. 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,
integrate, develop and retain engineers and other qualified per-
sonnel. 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.
We may face interruption of our supply chain, including
the inability of third parties to deliver parts, compo-
nents and services on time, and we may be subject to
rising raw material prices: Our financial performance de-
pends in part on reliable and effective supply chain manage-
ment for components, sub-assemblies and other materials. Ca-
pacity constraints and supply shortages resulting from ineffec-
tive supply chain management may lead to delays and addi-
tional 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 man-
ufacturing yields, quality assurance, product delivery sched-
ules and costs. The third parties that supply us with parts and
components also have other customers and may not have suf-
ficient capacity to meet all of their customers’ needs, including
ours, during periods of excess demand. Component supply de-
lays can affect the performance of our Sectors. Although we
work closely with our suppliers to avoid supply-related prob-
lems, 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
or raw materials due to market shortages or other reasons
could also adversely affect the performance of our Sectors.
Furthermore, we may be exposed to the risk of delays and in-
terruptions of the supply chain as a consequence of natural di-
sasters in case we are unable to identify alternative sources of
supply in a timely manner or at all. A general shortage of mate-
rials, components or sub-components as a result of natural di-
sasters also bears the risk of unforeseeable fluctuations in pric-
es and demand, which might adversely affect our results of op-
erations.
Our Sectors purchase raw materials including so-called rare-
earth metals, copper, steel, aluminum and oil, which exposes
them to fluctuations in energy and raw material prices. In re-
cent 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 cus-
tomers, price increases could have a material adverse impact
on our financial results. In contrast, in times of falling com-
modity prices, we may not fully profit from such price decreas-
es 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 customers expecting to benefit from falling
commodity prices or adverse market conditions, this could al-
so adversely affect our business, financial condition and re-
sults of operations.
...  
We are exposed to currency risks and interest rate risks:
We are exposed to fluctuations in exchange rates, especially
between the U.S. dollar and the euro, because a high percent-
age of our business volume is conducted in the U.S. and as ex-
ports from Europe. In addition, we are exposed to currency ef-
fects involving the currencies of emerging markets, in particu-
lar the Chinese Yuan. As a result, a strong euro in relation to
the U.S. dollar and other currencies could have an adverse im-
pact on our revenues and results of operations. Certain curren-
cy risks as well as interest rate risks are hedged on a Company-