HP 2011 Annual Report Download - page 28

rely on Intel to provide us with a sufficient supply of processors for many of our PCs,
workstations and servers, and some of those processors are customized for our products. New
products that we introduce may utilize custom components obtained from only one source
initially until we have evaluated whether there is a need for additional suppliers. Replacing a
single source supplier could delay production of some products as replacement suppliers initially
may be subject to capacity constraints or other output limitations. For some components, such as
customized components and some of the processors that we obtain from Intel, alternative
sources may not exist or those alternative sources may be unable to produce the quantities of
those components necessary to satisfy our production requirements. In addition, we sometimes
purchase components from single source suppliers under short-term agreements that contain
favorable pricing and other terms but that may be unilaterally modified or terminated by the
supplier with limited notice and with little or no penalty. The performance of such single source
suppliers under those agreements (and the renewal or extension of those agreements upon
similar terms) may affect the quality, quantity or price of components to HP. The loss of a single
source supplier, the deterioration of our relationship with a single source supplier, or any
unilateral modification to the contractual terms under which we are supplied components by a
single source supplier could adversely affect our revenue and gross margins.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs
and expenses.
Our worldwide operations could be disrupted by earthquakes, telecommunications failures, power
or water shortages, tsunamis, floods, hurricanes, typhoons, fires, extreme weather conditions, medical
epidemics or pandemics and other natural or manmade disasters or catastrophic events, for which we
are predominantly self-insured. The occurrence of any of these business disruptions could result in
significant losses, seriously harm our revenue and financial condition, adversely affect our competitive
position, increase our costs and expenses, and require substantial expenditures and recovery time in
order to fully resume operations. Our corporate headquarters, and a portion of our research and
development activities, are located in California, and other critical business operations and some of our
suppliers are located in California and Asia, near major earthquake faults known for seismic activity. In
addition, all six of our principal worldwide IT data centers are located in the southern United States,
making our operations more vulnerable to natural disasters or other business disruptions occurring in
that geographical area. The manufacture of product components, the final assembly of our products
and other critical operations are concentrated in certain geographic locations, including Shanghai,
Singapore and India. We also rely on major logistics hubs primarily in Asia to manufacture and
distribute our products and in the southwestern United States to import products into the Americas
region. Our operations could be adversely affected if manufacturing, logistics or other operations in
these locations are disrupted for any reason, including natural disasters, information technology system
failures, military actions or economic, business, labor, environmental, public health, regulatory or
political issues. The ultimate impact on us, our significant suppliers and our general infrastructure of
being located near major earthquake faults and being consolidated in certain geographical areas is
unknown. However in the event of a major earthquake or other natural disaster or catastrophic event,
our revenue, profitability and financial condition could suffer.
In late July 2011, Thailand began experiencing severe flooding that has caused widespread damage
to the local manufacturing industry. HP obtains disk drive components used in its PCs, servers and
storage devices from suppliers with operations in Thailand that were and continue to be severely
impacted by the flooding. We have experienced and expect to continue to experience a short-term
reduction in the supply of these disk drive components. If we are unable to support our ongoing
demand for disk drive components, the revenue, gross margins and results of operations of our PC,
server and storage businesses may be adversely affected.
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