Siemens 2014 Annual Report Download - page 234

108 A. To our Shareholders 131 B. Corporate Governance 171 C. Combined Management Report
172 C. Business and economic environment
187 C. Financial performance system
193 C. Results of operations
205 C. Financial position
210 C. Net assets position
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contractual penalties, damages, non-payment and contract ter-
mination. There can be no assurance that contracts and proj-
ects, in particular those with long-term duration and fixed-
price calculation, can be completed profitably.
Increased IT security threats and higher levels of profes-
sionalism in computer crime could pose a risk to our
systems, networks, products, solutions and services as well
as to those of our service providers: Our business portfolio
includes a broad array of systems, networks, products, solu-
tions and services across our businesses that rely on digital
technologies. We observe 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, availability and integrity of data. We attempt
to mitigate these risks by employing a number of measures,
including employee training, comprehensive monitoring of
our networks and systems, and maintenance of backup and
protective systems such as firewalls and virus scanners. To the
extent we employ service providers, such as in the area of IT
infrastructure, we have contractual arrangements in place in
order to ensure that these risks are reduced in a similar man-
ner. Nonetheless, our systems, networks, products, solutions
and services, as well as those of our service providers remain
potentially vulnerable to attacks. Depending on their nature
and scope, such attacks could potentially lead to the leakage of
confidential information, improper use of our systems and net-
works, manipulation and destruction of data, defective prod-
ucts, production downtimes and supply shortages, which in
turn could adversely affect our business, financial condition,
results of operations and reputation.
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 manage-
ment, production, marketing, sales and services. Operational
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 our
former Sectors 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 products we sell might have quality
issues resulting from the design or manufacture of such prod-
ucts or from the software integrated into them. Our Healthcare
business, for example, is subject to regulatory authorities
including the U.S. Food and Drug Administration and the Euro-
pean Commission’s Health and Consumer Policy Department,
which require us to make certain efforts to safeguard our prod-
uct quality. If we are not able to comply with these require-
ments, our business, financial condition, results of operations
and reputation may be adversely affected.
Furthermore, failures on the part of service providers we
employ, 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 an adverse
effect on our business, financial condition, results of opera-
tions and reputation.
We are dependent upon hiring, developing and retaining
highly qualified management and technical personnel:
Competition for highly qualified personnel remains intense
in the industries and regions in which our businesses operate.
In many of our business areas, we intend to expand our busi-
ness activities, for which we will need highly skilled employ-
ees. Our future success depends in part on our continued abil-
ity to hire, integrate, develop and retain engineers and other
qualified personnel. We address this risk with various measures,
for example succession planning, employer branding, retention
and career management. However, there can be no assurance
that we will continue to be successful in attracting and retain-
ing 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 an adverse effect on our busi-
ness, financial condition, results of operations and reputation.
We may face interruption of our supply chain, including the
inability of third parties to deliver parts, components and
services on time and in the contractually agreed quality,
and we may be subject to rising raw material prices: Our
financial performance depends in part on reliable and effective
supply chain management for components, sub-assemblies
and other materials. Capacity constraints and supply shortages
resulting from ineffective supply chain management 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 con-
trol 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 sufficient capacity to meet all of their customers’
needs, including ours, during periods of excess demand. Com-
ponent supply delays can affect the performance of our former
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 or raw materials due to market shortages
or other reasons could also adversely affect the performance of
our former Sectors. Furthermore, we may be exposed to the