HP 2014 Annual Report Download - page 30

Economic weakness and uncertainty could adversely affect our revenue, gross margin and expenses.
Our revenue and gross margin depend significantly on worldwide economic conditions and the
demand for technology hardware, software and services in the markets in which we compete. Economic
weakness and uncertainty have resulted, and may result in the future, in decreased revenue, gross
margin, earnings or growth rates and in increased expenses and difficulty in managing inventory levels.
For example, we are continuing to experience macroeconomic weakness across many geographic
regions, particularly in the Europe, the Middle East and Africa (‘‘EMEA’’) region, China and other
high-growth markets. The U.S. federal government spending cuts that went into effect on March 1,
2013 may further reduce demand for our products, services and solutions from organizations that
receive funding from the U.S. government and could negatively affect macroeconomic conditions in the
United States, which could further reduce demand for our products, services and solutions. Economic
weakness and uncertainty may adversely affect demand for our products, services and solutions, may
result in increased expenses due to higher allowances for doubtful accounts and potential goodwill and
asset impairment charges, and may make it more difficult for us to make accurate forecasts of revenue,
gross margin, cash flows and expenses.
We also have experienced, and may experience in the future, gross margin declines in certain
businesses, reflecting the effect of items such as competitive pricing pressures and increases in
component and manufacturing costs resulting from higher labor and material costs borne by our
manufacturers and suppliers that, as a result of competitive pricing pressures or other factors, we are
unable to pass on to our customers. In addition, our business may be disrupted if we are unable to
obtain equipment, parts or components from our suppliers—and our suppliers from their suppliers—
due to the insolvency of key suppliers or the inability of key suppliers to obtain credit.
Economic weakness and uncertainty could cause our expenses to vary materially from our
expectations. Any financial turmoil affecting the banking system and financial markets or any significant
financial services institution failures could negatively impact our treasury operations, as the financial
condition of such parties may deteriorate rapidly and without notice in times of market volatility and
disruption. Poor financial performance of asset markets combined with lower interest rates and the
adverse effects of fluctuating currency exchange rates could lead to higher pension and post-retirement
benefit expenses. Interest and other expenses could vary materially from expectations depending on
changes in interest rates, borrowing costs, currency exchange rates, costs of hedging activities and the
fair value of derivative instruments. Economic downturns also may lead to restructuring actions and
associated expenses.
The revenue and profitability of our operations have historically varied, which makes our future financial
results less predictable.
Our revenue, gross margin and profit vary among our products and services, customer groups and
geographic markets and therefore will likely be different in future periods than our current results. Our
revenue depends on the overall demand for our products and services. Delays or reductions in IT
spending could have a material adverse effect on demand for our products and services, which could
result in a significant decline in revenue. In addition, revenue declines in some of our businesses,
particularly our services businesses, may affect revenue in our other businesses as we may lose cross-
selling opportunities. Overall gross margins and profitability in any given period are dependent partially
on the product, service, customer and geographic mix reflected in that period’s net revenue.
Competition, lawsuits, investigations and other risks affecting those businesses therefore may have a
significant impact on our overall gross margin and profitability. Certain segments have a higher fixed
cost structure and more variation in gross margins across their business units and product portfolios
than others and may therefore experience significant operating profit volatility on a quarterly basis. In
addition, newer geographic markets may be relatively less profitable due to investments associated with
entering those markets and local pricing pressures, and we may have difficulty establishing and
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