Honeywell 2006 Annual Report Download - page 21

Raw material price fluctuations and the ability of key suppliers to meet quality and delivery requirements can increase the cost of
our products and services and impact our ability to meet commitments to customers.
The cost of raw materials is a key element in the cost of our products, particularly in our Specialty Materials (fluorspar, benzene
(the key component in phenol) and natural gas), Transportation Systems (nickel and steel) and Aerospace (nickel, titanium and other
metals) segments. Our inability to offset material price inflation through increased prices to customers, long-term fixed price contracts
with suppliers, productivity actions or through commodity hedges could adversely affect our results of operations.
Our manufacturing operations are also highly dependent upon the delivery of materials by outside suppliers and their assembly of
major components and subsystems used in our products in a timely manner and in full compliance with purchase order terms and
conditions, quality standards, and applicable laws and regulations. We also depend in limited instances on sole source suppliers. Our
suppliers may fail to perform according to specifications as and when required and we may be unable to identify alternate suppliers or
to otherwise mitigate the consequences of their non-performance. The supply chains for our businesses could also be disrupted by
external events such as natural disasters, pandemic health issues, terrorist actions, labor disputes or governmental actions. Our
inability to fill our supply needs would jeopardize our ability to fulfill obligations under commercial and government contracts, which
could, in turn, result in reduced sales and profits, contract penalties or terminations, and damage to customer relationships.
Our future growth is largely dependent upon our ability to develop new technologies that achieve market acceptance with
acceptable margins.
Our businesses operate in global markets that are characterized by rapidly changing technologies and evolving industry standards.
Accordingly, our future growth rate depends upon a number of factors, including our ability to (i) identify emerging technological
trends in our target end-markets, (ii) develop and maintain competitive products, (iii) enhance our products by adding innovative
features that differentiate our products from those of our competitors, and (iv) develop, manufacture and bring products to market
quickly and cost-effectively.
Our ability to develop new products based on technological innovation can affect our competitive position and requires the
investment of significant resources. These development efforts divert resources from other potential investments in our businesses,
and they may not lead to the development of new technologies or products on a timely basis or that meet the needs of our customers as
fully as competitive offerings. In addition, the markets for our products may not develop or grow as we currently anticipate. The
failure of our technologies or products to gain market acceptance due to more attractive offerings by our competitors could
significantly reduce our revenues and adversely affect our competitive standing and prospects.
Protecting our intellectual property is critical to our innovation efforts. We own or are licensed under a large number of U.S. and
foreign patents and patent applications, trademarks and copyrights. Our intellectual property rights may be challenged, invalidated or
infringed upon by third parties or we may be unable to maintain, renew or enter into new licenses of third party proprietary intellectual
property on commercially reasonable terms. In some non-U.S. countries, laws affecting intellectual property are uncertain in their
application, which can affect the scope or enforceability of our patents and other intellectual property rights. Any of these events or
factors could diminish or cause us to lose the competitive advantages associated with our intellectual property, subject us to
judgments, penalties and significant litigation costs, and/or temporarily or permanently disrupt our sales and marketing of the affected
products or services.
An increasing percentage of our sales and operations is in non-U.S. jurisdictions and is subject to the economic, political,
regulatory and other risks of international operations.
Our international operations, including U.S. exports, comprise a growing proportion of our operating results and our strategy calls
for increasing sales to and operations in overseas markets, including developing markets such as China, India and the Middle East. In
2006, 48 percent of our total sales
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