HP 2009 Annual Report Download - page 25

whom are also customers), disruptions in the operations of component suppliers, other problems
experienced by suppliers or problems faced during the transition to new suppliers. In particular,
our PC business relies heavily upon outsourced manufacturers (‘‘OMs’’) to manufacture its
products and is therefore dependent upon the continuing operations of those OMs to fulfill
demand for our PC products. HP represents a substantial portion of the business of some of
these OMs, and any changes to the nature or volume of business transacted by HP with a
particular OM could adversely affect the operations and financial condition of the OM and lead
to shortages or delays in receiving products from that OM. If shortages or delays persist, the
price of these components may increase, we may be exposed to quality issues or the components
may not be available at all. We may not be able to secure enough components at reasonable
prices or of acceptable quality to build products or provide services in a timely manner in the
quantities or according to the specifications needed. Accordingly, our revenue and gross margin
could suffer as we could lose time-sensitive sales, incur additional freight costs or be unable to
pass on price increases to our customers. If we cannot adequately address supply issues, we
might have to reengineer some products or service offerings, resulting in further costs and
delays.
•Oversupply. In order to secure components for the provision of products or services, at times we
may make advance payments to suppliers or enter into non-cancelable commitments with
vendors. In addition, we may purchase components strategically in advance of demand to take
advantage of favorable pricing or to address concerns about the availability of future
components. If we fail to anticipate customer demand properly, a temporary oversupply could
result in excess or obsolete components, which could adversely affect our gross margin.
•Contractual terms. As a result of binding price or purchase commitments with vendors, we may
be obligated to purchase components or services at prices that are higher than those available in
the current market and be limited in our ability to respond to changing market conditions. In
the event that we become committed to purchase components or services for prices in excess of
the current market price, we may be at a disadvantage to competitors who have access to
components or services at lower prices, and our gross margin could suffer. In addition, many of
our competitors obtain products or components from the same OMs and suppliers that we
utilize. Our competitors may obtain better pricing and other terms and more favorable
allocations of products and components during periods of limited supply, and our ability to
engage in relationships with certain OMs and suppliers could be limited. The practice employed
by our PC business of purchasing product components and transferring those components to its
OMs may create large supplier receivables with the OMs that, depending on the financial
condition of the OMs, may have risk of uncollectability. In addition, certain of our OMs and
suppliers may decide in the future to discontinue conducting business with us. Any of these
actions by our competitors, OMs or suppliers could adversely affect our future operating results
and financial condition.
•Contingent workers. We also rely on third-party suppliers for the provision of contingent workers,
and our failure to manage our use of such workers effectively could adversely affect our results
of operations. We have been exposed to various legal claims relating to the status of contingent
workers in the past and could face similar claims in the future. We may be subject to shortages,
oversupply or fixed contractual terms relating to contingent workers, as described above. Our
ability to manage the size of, and costs associated with, the contingent workforce may be subject
to additional constraints imposed by local laws.
•Single source suppliers. Our use of single source suppliers for certain components could
exacerbate our supplier issues. We obtain a significant number of components from single
sources due to technology, availability, price, quality or other considerations. For example, we
rely on Intel Corporation to provide us with a sufficient supply of processors for many of our
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