Blackberry 2012 Annual Report Download - page 69

The Company generally uses rolling forecasts based on anticipated product orders to determine component requirements. Lead times
for materials and components vary significantly and depend on factors such as specific supplier requirements, contract terms, rapid
changes in technology, and current market demand for particular components. As the number of different products manufactured by
the Company and its outsourcing partners, increases, it is increasingly difficult to estimate component requirements. If the Company
overestimates its component requirements based on anticipated demand for its products, it may result in excess inventory, which
would increase the risk of obsolescence. If the Company underestimates component requirements, it may have inadequate inventory,
which could interrupt manufacturing operations and delay delivery of products. Any of these occurrences could have a material
adverse effect on the Company’s business, results of operations and financial condition.
The Company has negotiated favorable pricing terms with many of its suppliers, some of which have volume-based pricing. In the
case of volume-based pricing arrangements, the Company may experience higher than anticipated costs if current volume-based
purchase projections are not met. Some contracts have minimum purchase commitments and the Company may incur large financial
penalties or increased production costs if these commitments are not met. The Company may also have unused production capacity if
its current volume projections are not met, increasing the Company’s production cost per unit. In addition, some contracts require the
Company to agree to a flat fee regardless of volumes, which can result in higher unit costs than anticipated if demand is lower than
anticipated. In the future, as the Company establishes new pricing terms, reduced demand for any of its products and services could
negatively impact future pricing from suppliers. Any of these outcomes may result in the Company’s products being more costly to
manufacture and less competitive, which could have a material adverse effect on the Company’s business, results of operations and
financial condition.
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