HP 2014 Annual Report Download - page 18

We utilize two primary methods of fulfilling demand for products: building products to order and
configuring products to order. We build products to order to maximize manufacturing and logistics
efficiencies by producing high volumes of basic product configurations. Alternatively, configuring
products to order enables units to match a customer’s particular hardware and software customization
requirements. Our inventory management and distribution practices in both building products to order
and configuring products to order seek to minimize inventory holding periods by taking delivery of the
inventory and manufacturing shortly before the sale or distribution of products to our customers.
We purchase materials, supplies and product subassemblies from a substantial number of vendors.
For most of our products, we have existing alternate sources of supply or such alternate sources of
supply are readily available. However, we do rely on sole sources for laser printer engines, LaserJet
supplies, certain customized parts and parts for products with short life cycles (although some of these
sources have operations in multiple locations in the event of a disruption). We are dependent upon
Intel and AMD as suppliers of x86 processors and Microsoft for various software products; however,
we believe that disruptions with these suppliers would result in industry-wide dislocations and therefore
would not disproportionately disadvantage us relative to our competitors. See ‘‘Risk Factors—We
depend on third-party suppliers, and our financial results could suffer if we fail to manage suppliers
properly,’’ in Item 1A, which is incorporated herein by reference.
Like other participants in the IT industry, we ordinarily acquire materials and components through
a combination of blanket and scheduled purchase orders to support our demand requirements for
periods averaging 90 to 120 days. From time to time, we may experience significant price volatility or
supply constraints for certain components that are not available from multiple sources. Frequently, we
are able to obtain scarce components for somewhat higher prices on the open market, which may have
an impact on our gross margin but does not generally disrupt production. We also may acquire
component inventory in anticipation of supply constraints or enter into longer-term pricing
commitments with vendors to improve the priority, price and availability of supply. See ‘‘Risk Factors—
We depend on third-party suppliers, and our financial results could suffer if we fail to manage suppliers
properly,’’ in Item 1A, which is incorporated herein by reference.
International
Our products and services are available worldwide. We believe this geographic diversity allows us
to meet demand on a worldwide basis for both consumer and enterprise customers, draws on business
and technical expertise from a worldwide workforce, provides stability to our operations, provides
revenue streams that may offset geographic economic trends and offers us an opportunity to access new
markets for maturing products. In addition, we believe that future growth is dependent in part on our
ability to develop products and sales models that target developing countries. In this regard, we believe
that our broad geographic presence gives us a solid base on which to build such future growth.
A summary of our domestic and international net revenue and net property, plant and equipment
is set forth in Note 2 to the Consolidated Financial Statements in Item 8, which is incorporated herein
by reference. Approximately 65% of our overall net revenue in fiscal 2014 came from outside the
United States (‘‘U.S.’’).
For a discussion of risks attendant to HP’s international operations, see ‘‘Risk Factors—Due to the
international nature of our business, political or economic changes or other factors could harm our
future revenue, costs and expenses, and financial condition,’’ in Item 1A, ‘‘Quantitative and Qualitative
Disclosure about Market Risk,’’ in Item 7A and Note 11 to the Consolidated Financial Statements in
Item 8, which are incorporated herein by reference.
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