HP 2013 Annual Report Download - page 32

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, profitability 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, 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 locations more vulnerable to the occurrence of the aforementioned
business disruptions, such as near major earthquake faults, and being consolidated in certain
geographical areas is unknown and remains uncertain.
Our sales cycle makes planning and inventory management difficult and future financial results less
predictable.
In some of our segments, our quarterly sales often have reflected a pattern in which a
disproportionate percentage of each quarter’s total sales occurs towards the end of such quarter. This
uneven sales pattern makes predicting revenue, earnings, cash flow from operations and working capital
for each financial period difficult, increases the risk of unanticipated variations in quarterly results and
financial condition and places pressure on our inventory management and logistics systems. If predicted
demand is substantially greater than orders, there may be excess inventory. Alternatively, if orders
substantially exceed predicted demand, we may not be able to fulfill all of the orders received in the
last few weeks of each quarter. Depending on when they occur in a quarter, developments such as a
systems failure, component pricing movements, component shortages or global logistics disruptions,
could adversely impact inventory levels and results of operations in a manner that is disproportionate
to the number of days in the quarter affected.
We experience some seasonal trends in the sale of our products that also may produce variations
in quarterly results and financial condition. For example, sales to governments (particularly sales to the
U.S. government) are often stronger in the third calendar quarter, consumer sales are often stronger in
the fourth calendar quarter, and many customers whose fiscal and calendar years are the same spend
their remaining capital budget authorizations in the fourth calendar quarter prior to new budget
constraints in the first calendar quarter of the following year. European sales are often weaker during
the summer months. Demand during the spring and early summer also may be adversely impacted by
market anticipation of seasonal trends. Moreover, to the extent that we introduce new products in
anticipation of seasonal demand trends, our discounting of existing products may adversely affect our
gross margin prior to or shortly after such product launches. Typically, our third fiscal quarter is our
weakest and our fourth fiscal quarter is our strongest. Many of the factors that create and affect
seasonal trends are beyond our control.
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