HP 2009 Annual Report Download - page 23

markets in which we do business, particularly the personal computer and printing markets, are highly
competitive, and we encounter aggressive price competition for all of our products and services from
numerous companies globally. Over the past several years, price competition in the market for personal
computers, printers and related products has been particularly intense as competitors have aggressively
cut prices and lowered their product margins for these products. In addition, competitors in some of
the markets in which we compete with a greater presence in lower-cost jurisdictions may be able to
offer lower prices than we are able to offer. Our results of operations and financial condition may be
adversely affected by these and other industry-wide pricing pressures.
Because our business model is based on providing innovative and high quality products, we may
spend a proportionately greater amount on research and development than some of our competitors. If
we cannot proportionately decrease our cost structure on a timely basis in response to competitive price
pressures, our gross margin and, therefore, our profitability could be adversely affected. In addition, if
our pricing and other factors are not sufficiently competitive, or if there is an adverse reaction to our
product decisions, we may lose market share in certain areas, which could adversely affect our revenue
and prospects.
Even if we are able to maintain or increase market share for a particular product, revenue could
decline because the product is in a maturing industry. Revenue and margins also could decline due to
increased competition from other types of products. For example, refill and remanufactured alternatives
for some of HP’s LaserJet toner and inkjet cartridges compete with HP’s supplies business. In addition,
other companies have developed and marketed new compatible cartridges for HP’s LaserJet and inkjet
products, particularly in jurisdictions outside of the United States where adequate intellectual property
protection may not exist. HP expects competitive refill and remanufacturing and cloned cartridge
activity to continue to pressure margins in IPG, which in turn has a significant impact on HP margins
and profitability overall.
If we cannot continue to develop, manufacture and market products and services that meet customer
requirements for innovation and quality, our revenue and gross margin may suffer.
The process of developing new high technology products and services and enhancing existing
products and services is complex, costly and uncertain, and any failure by us to anticipate customers’
changing needs and emerging technological trends accurately could significantly harm our market share
and results of operations. We must make long-term investments, develop or obtain appropriate
intellectual property and commit significant resources before knowing whether our predictions will
accurately reflect customer demand for our products and services. After we develop a product, we must
be able to manufacture appropriate volumes quickly and at low costs. To accomplish this, we must
accurately forecast volumes, mixes of products and configurations that meet customer requirements,
and we may not succeed at doing so at all or within a given product’s life cycle. Any delay in the
development, production or marketing of a new product could result in our not being among the first
to market, which could further harm our competitive position.
In the course of conducting our business, we must adequately address quality issues associated with
our products and services, including defects in our engineering, design and manufacturing processes, as
well as defects in third-party components included in our products. In order to address quality issues,
we work extensively with our customers and suppliers and engage in product testing to determine the
cause of the problem and to determine appropriate solutions. However, we may have limited ability to
control quality issues, particularly with respect to faulty components manufactured by third parties. If
we are unable to determine the cause, find an appropriate solution or offer a temporary fix (or
‘‘patch’’), we may delay shipment to customers, which would delay revenue recognition and could
adversely affect our revenue and reported results. Finding solutions to quality issues can be expensive
and may result in additional warranty, replacement and other costs, adversely affecting our profits. If
new or existing customers have difficulty operating our products, our operating margins could be
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