HP 2015 Annual Report Download - page 26

Table of Contents
favorable pricing or to address concerns about the availability of future components. If we fail to anticipate customer demand properly, a
temporary oversupply could result in excess or obsolete components, which could adversely affect our business and financial performance.
• As a result of binding long-term price or purchase commitments with vendors, we may be obligated to purchase
components or services at prices that are higher than those available in the current market and be limited in our ability to respond to changing
market conditions. If we commit to purchasing components or services for prices in excess of the then-current market price, we may be at a
disadvantage to competitors who have access to components or services at lower prices, our gross margin could suffer, and we could incur
additional charges relating to inventory obsolescence. In addition, many of our competitors obtain products or components from the same
OMs and suppliers that we utilize. Our competitors may obtain better pricing, more favorable contractual terms and conditions, and more
favorable allocations of products and components during periods of limited supply, and our ability to engage in relationships with certain
OMs and suppliers could be limited. The practice employed by our PC business of purchasing product components and transferring those
components to its OMs may create large supplier receivables with the OMs that, depending on the financial condition of the OMs, may create
collectability risks. In addition, certain of our OMs and suppliers may decide to discontinue conducting business with us. Any of these
developments could adversely affect our future results of operations and financial condition.
• We also rely on third-party suppliers for the provision of contingent workers, and our failure to manage our use of such
workers effectively could adversely affect our results of operations. We have been exposed to various legal claims relating to the status of
contingent workers in the past and could face similar claims in the future. We may be subject to shortages, oversupply or fixed contractual
terms relating to contingent workers. Our ability to manage the size of, and costs associated with, the contingent workforce may be subject to
additional constraints imposed by local laws.
• We obtain a significant number of components from single sources due to technology, availability, price, quality or
other considerations. For example, we rely on Canon for laser printer engines and laser toner cartridges. We also rely on Intel to provide us
with a sufficient supply of processors for many of our PCs and workstations, and we rely on AMD to provide us with a sufficient supply of
processors for other products. 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 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 either may not exist or 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 and price of our components. 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 business and financial performance.
24
Source: HP INC, 10-K, December 16, 2015 Powered by Morningstar® Document Research℠
The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.