HP 2013 Annual Report Download - page 30

• 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.
We depend on third-party suppliers, and our financial results could suffer if we fail to manage suppliers
properly.
Our operations depend on our ability to anticipate our needs for components, products and
services, as well as our suppliers’ ability to deliver sufficient quantities of quality components, products
and services at reasonable prices and in time for us to meet critical schedules. Given the wide variety
of systems, products and services that we offer, the large number of our suppliers and contract
manufacturers that are located around the world, and the long lead times required to manufacture,
assemble and deliver certain components and products, problems could arise in production, planning,
and inventory management that could seriously harm us. In addition, our ongoing efforts to optimize
the efficiency of our supply chain could cause supply disruptions and be more expensive,
time-consuming and resource intensive than expected. Other supplier problems that we could face
include component shortages, excess supply, risks related to the terms of our contracts with suppliers,
risks associated with contingent workers, and risks related to our relationships with single source
suppliers, as described below.
•Shortages. Occasionally we may experience a shortage of, or a delay in receiving, certain
components as a result of strong demand, capacity constraints, supplier financial weaknesses,
inability of suppliers to borrow funds in the credit markets, disputes with suppliers (some of
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. For example,
our PC business relies heavily upon 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 certain components may
increase, and 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 services offerings, which could result 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
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