HP 2005 Annual Report Download - page 14

Patents
Our general policy has been to seek patent protection for those inventions and improvements
likely to be incorporated into our products and services or where proprietary rights will improve our
competitive position. At October 31, 2005, our worldwide patent portfolio included over 30,000 patents,
a significant increase over the 25,000 patents we held at the end of fiscal 2004.
Patents generally have a term of twenty years. As our patent portfolio has been built over time, the
remaining terms on the individual patents vary. While we believe that our patents and applications are
important for maintaining the competitive differentiation of our products and maximizing our return on
research and development investments, no single patent is in itself essential to us as a whole or any of
our principal business segments.
In addition to developing our patents, we license intellectual property from third parties as we
deem appropriate. We have also granted and continue to grant to others licenses under patents owned
by us when we consider these arrangements to be in our interests. These license arrangements include
a number of cross-licenses with third parties.
For a discussion of risks attendant to intellectual property rights, see ‘‘Risk Factors—Our revenue,
cost of sales, and expenses may suffer if we cannot continue to license or enforce the intellectual
property rights on which our business depends or if third parties assert that we violate their intellectual
property rights,’’ in Item 1A, which is incorporated herein by reference.
Backlog
We believe that backlog is not a meaningful indicator of future business prospects due to the large
volume of products delivered from shelf or channel partner inventories, the shortening of product life
cycles and the relative portion of net revenue related to our service and support businesses. Therefore,
we believe that backlog information is not material to an understanding of our overall business.
Seasonality
General economic conditions have an impact on our business and financial results. From time to
time, the markets in which we sell our products experience weak economic conditions that may
negatively affect sales. We experience some seasonal trends in the sale of our products and services.
For example, sales to governments (particularly sales to the U.S. government) often are stronger in the
third calendar quarter, European sales often are weaker in the summer months and consumer sales
often are stronger in the fourth calendar quarter. Demand during the spring and early summer months
also may be adversely impacted by market anticipation of seasonal trends. See ‘‘Risk Factors—Our
sales cycle makes planning and inventory management difficult and future financial results less
predictable,’’ in Item 1A, which is incorporated herein by reference.
Competition
We encounter aggressive competition in all areas of our business activity. We compete primarily on
the basis of technology, performance, price, quality, reliability, brand, reputation, distribution, range of
products and services, ease of use of our products, account relationships, customer training, service and
support, security and availability of application software and our Internet infrastructure offerings.
The markets for each of our business segments are characterized by vigorous competition among
major corporations with long-established positions and a large number of new and rapidly growing
firms. Product life cycles are short, and to remain competitive we must develop new products and
services, periodically enhance our existing products and services and compete effectively on the basis of
the factors listed above. In addition, we compete with many of our current and potential partners,
including OEMs that design, manufacture and often market their products under their own brand
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