Harman Kardon 2011 Annual Report Download - page 34

have filed for bankruptcy protection or ceased operations. The continuation of financial distress within the
supplier base may lead to increased commercial disputes and possible supply chain interruptions. The
continuation or worsening of these industry conditions may have a negative effect on our business.
We depend on our suppliers for key production materials and any disruption in the supply of such materials
could interrupt product manufacturing and increase product costs.
Many of our suppliers have significantly decreased their manufacturing capacity and inventory levels. These
steps taken by our suppliers make us more vulnerable to disruptions in the supply chain. In the near term, an
increase in our demand for parts may place an undue strain on our suppliers. Additionally, the supply of raw
materials including, without limitation, petroleum, copper, steel, aluminum, synthetic resins, rare metals and rare
earth minerals, such as neodymium used in the production of loudspeakers, has been and could continue to be
significantly constrained, which is likely to result in continued elevated price levels. As a result, we may not be
able to obtain the materials necessary to manufacture our products, which could force us to cease production or
search for alternative supply sources, possibly at a higher cost. Such disruptions may have a material adverse
effect on our business, financial condition, results of operations and cash flows.
We may lose market share if we are unable to compete successfully against our current and future
competitors.
The audio and video product markets that we serve are fragmented, highly competitive, rapidly changing
and characterized by intense price competition. Many manufacturers, large and small, domestic and foreign, offer
audio and video systems that vary widely in price and quality and are marketed through a variety of channels,
including audio and video specialty stores, discount stores, department stores, mail order firms and the Internet.
Some of our competitors have financial and other resources greater than ours. We cannot assure you that we will
continue to compete effectively against existing or new competitors that may enter our markets. We also compete
indirectly with automobile manufacturers that may improve the quality of original equipment audio and
electronic systems, reducing demand for our aftermarket mobile audio products, or change the designs of their
cars to make installation of our aftermarket products more difficult or expensive.
If we do not continue to develop, introduce and achieve market acceptance of new and enhanced products, our
sales may decrease.
Our business is based on the demand for premium audio and video products. In order to increase sales in
current markets and gain entry into new markets, we must innovate to maintain and improve existing products,
while successfully developing and introducing distinctive new and enhanced products that anticipate changing
consumer preferences and capitalize upon emerging technologies. We may experience difficulties that delay or
prevent the development, introduction or market acceptance of new or enhanced products. Furthermore, we may
be unable to detect and correct defects in some of our products before we ship them. Delays or defects in new
product introduction may result in loss of sales or delays in market acceptance. Even after introduction, our new
or enhanced products may not satisfy consumer preferences and product failures may cause consumers to reject
our products. As a result, these products may not achieve market acceptance and our brand image could suffer. In
addition, our competitors may introduce superior designs or business strategies, impairing our distinctive image
and our products’ desirability, which may cause consumers to defer or forego purchases of our products.
Our success depends substantially on the value of our brands and our implementation of a sufficient brand
protection program.
Our success is dependent in large part upon our ability to maintain and enhance the value of our brands, and
our customers’ connection to our brands. Brand value can be severely damaged even by isolated incidents,
particularly if the incidents receive considerable negative publicity or result in litigation. Some of these incidents
may relate to our growth strategies, our development efforts in domestic and foreign markets, or the ordinary
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