Honeywell 2007 Annual Report Download - page 20

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
(benzene (the key component in phenol), natural gas, ethylene and sulfur), Transportation Systems (nickel, steel,
other metals and ethylene glycol) and Aerospace (nickel, titanium and other metals) segments. Our inability to
offset material price inflation through increased prices to customers, formula or 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 (including raw
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, (iv) develop, manufacture and bring products to market quickly and cost-effectively, and (v) develop
and retain individuals with the requisite expertise.
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 non-U.S. 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.
11