HP 2009 Annual Report Download - page 31

• Our financial results could be materially adversely affected due to channel conflicts or if the
financial conditions of our channel partners were to weaken.
Our future operating results may be adversely affected by any conflicts that might arise between
our various sales channels, the loss or deterioration of any alliance or distribution arrangement
or the loss of retail shelf space. Moreover, some of our wholesale and retail distributors may
have insufficient financial resources and may not be able to withstand changes in business
conditions, including economic weakness and industry consolidation. Many of our significant
distributors operate on narrow product margins and have been negatively affected by business
pressures. Considerable trade receivables that are not covered by collateral or credit insurance
are outstanding with our distribution and retail channel partners. Revenue from indirect sales
could suffer, and we could experience disruptions in distribution if our distributors’ financial
conditions, abilities to borrow funds in the credit markets or operations weaken.
• Our inventory management is complex as we continue to sell a significant mix of products
through distributors.
We must manage inventory effectively, particularly with respect to sales to distributors, which
involves forecasting demand and pricing issues. Distributors may increase orders during periods
of product shortages, cancel orders if their inventory is too high or delay orders in anticipation
of new products. Distributors also may adjust their orders in response to the supply of our
products and the products of our competitors and seasonal fluctuations in end-user demand. Our
reliance upon indirect distribution methods may reduce visibility to demand and pricing issues,
and therefore make forecasting more difficult. If we have excess or obsolete inventory, we may
have to reduce our prices and write down inventory. Moreover, our use of indirect distribution
channels may limit our willingness or ability to adjust prices quickly and otherwise to respond to
pricing changes by competitors. We also may have limited ability to estimate future product
rebate redemptions in order to price our products effectively.
If we do not effectively manage our product and services transitions, our revenue may suffer.
Many of the industries in which we compete are characterized by rapid technological advances in
hardware performance and software features and functionality; frequent introduction of new products;
short product life cycles; and continual improvement in product price characteristics relative to product
performance. Among the risks associated with the introduction of new products and services are delays
in development or manufacturing, variations in costs, delays in customer purchases or reductions in
price of existing products in anticipation of new introductions, difficulty in predicting customer demand
for the new offerings and effectively managing inventory levels so that they are in line with anticipated
demand, risks associated with customer qualification and evaluation of new products and the risk that
new products may have quality or other defects or may not be supported adequately by application
software. If we do not make an effective transition from existing products and services to future
offerings, our revenue may decline.
Our revenue and gross margin also may suffer due to the timing of product or service
introductions by our suppliers and competitors. This is especially challenging when a product has a
short life cycle or a competitor introduces a new product just before our own product introduction.
Furthermore, sales of our new products and services may replace sales, or result in discounting of some
of our current offerings, offsetting the benefit of even a successful introduction. There also may be
overlaps in the current products and services of HP and portfolios acquired through mergers and
acquisitions that we must manage. In addition, it may be difficult to ensure performance of new
customer contracts in accordance with our revenue, margin and cost estimates and to achieve
operational efficiencies embedded in our estimates. Given the competitive nature of our industry, if any
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