SUPPLY CHAIN ISSUES ARE TOP RISK TO U.S. TECH INDUSTRY, ACCORDING TO BDO STUDY
-- Companies Increasingly Anxious Over Ability to Meet Strategic Goals --
Chicago, IL - May 10, 2011 -Supply chain issues represent one of the most prominent risks to U.S. technology companies, according to a study by BDO USA, LLP, a leading accounting and consulting organization. Of the 100 largest publicly traded technology companies analyzed, 86 percent stress supply chain concerns, including supplier relations, distribution and material costs, as a top risk factor, reflecting a 15 percent increase over 2010 (75%).
With worries over product quality and inventory levels mounting, technology companies are also significantly more preoccupied with the inability to properly execute their corporate strategy (93%) than in 2010 (68%) or in 2009 (27%).This marks a significant change in comparison to the relatively consistent rate seen in concerns over industry competition (97%) and economic conditions (96%), which remain the top two most frequently cited risks this year.
"Concerns over the ability to execute corporate strategy have more than tripled in the past two years as companies are under pressure to get back into the game and stay ahead of the competition," said Aftab Jamil, partner and National Director of the Technology & Life Sciences Practice at BDO USA, LLP. "Still, executives are approaching growth initiatives with a ‘lessons learned' attitude and honing in on the supply chain to safeguard against operational pitfalls that could lead to business interruptions or delays."
These findings are from the 2011 BDO RiskFactor Report for Technology Businesses, which examines the risk factors listed in the most recent SEC 10-K filings of the 100 largest publicly traded U.S. technology companies. The risk factors were analyzed and ranked in order by how frequently they were cited.
The following is the list of the top 20 Risk Factors cited by the 100 Largest U.S. Technology Companies:
Competition and consolidation in tech sector; pricing pressures
U.S. general economic concerns
Federal, state or local regulations
Failure to properly execute corporate strategy
Failure to develop or market new products or services
U.S. and foreign supplier/vendor concerns, supply chain issues
Management of current and future M&A or divestitures
Threats to international operations
Predicting customer demand and interest, innovation
Ability to attract or retain key personnel
Natural disasters, war, conflicts and terrorist attacks
Intellectual property infringement
Equipment failure and product liability
Cyclical revenue and stock fluctuation
Inability to acquire capital or financing
Inability to maintain operational infrastructure and systems
Credit or financial risk of customers, vendors or suppliers
Accounting, internal controls and Sarbanes-Oxley compliance
Further findings from the 2011 BDO RiskFactor Report for Technology Businesses include:
· Supply Chain Concerns Threaten from All Angles. As technology companies seek to secure business strategy goals, logistical interruptions or delays are seen as a major threat. Seventy-five percent of companies cite equipment failure and delays as risks, up from 2010 (64%) and 2009 (58%). The potential disruption to factories and distribution channels as a result of natural disasters and geopolitical issues is also a heightened concern for 81 percent of companies, up 26 percent over 2010 (55%). This marks a particularly notable jump, since these disclosures were made before the Japan earthquake. Companies are also significantly more concerned with the price and availability of raw materials (34%, compared to 19% in 2010) and balanced inventory (57%, up from 30% in 2010).
· Regulation Risks on the Rise. As evidenced byGoogle and Microsoft's skyrocketing lobbying expenses, tech companies are increasingly concerned over government regulation (the second most commonly cited risk factor this year at 96%, vs. 88% in 2010 and 81% in 2009). At the same time, uncertainty over the convergence of accounting standards and the final rule on revenue recognition is contributing to many tech companies' (58%) concerns over compliance issues.
· IP Protection Key to Preserving Customer Demand. As major players like Apple and Samsung pursue intellectual property (IP) infringement cases, companies' concerns over IP protection (79%) are on the rise after falling from 86 percent in 2009 to 74 percent in 2010. IP risks also factor into escalating concerns over legal proceedings (86%, up from 80% in 2010), as well as rising concerns over innovation and new product development. Markedly more companies (85% vs. 63% in 2010) cite the ability to satiate customer interests and demand for innovative products as a major risk. Product transition also continues to be particularly worrisome (88%).
· Infrastructure Issues Raise Threat of Security Breaches. Concerns over the ability to maintain operational infrastructure were cited by more than two-thirds (68%) of tech companies this year, representing 62 percent growth over 2010 (42%). As reports of recent data thefts at Amazon and Sony pepper news headlines, security breaches are a main cause for anxiety with 57 percent of companies citing it as a risk, up from 2010 (44%) and 2009 (30%).
· M&A Risks Remain High Amid Liquidity Concerns. With a record 881 completed tech deals during the first quarter of 2011, 85 percent of companies note concern over the inability to successfully complete M&A transactions and other divestures. While deals are up, and BDO's 2011 Technology Outlook Survey found that tech CFOs felt better about access to capital this year, recession-era concerns over liquidity linger in 10K reporting (68%).
About the Technology & Life Sciences Practice at BDO USA, LLP
BDO has been a valued business advisor to technology and life sciences companies for over 100 years. The firm works with a wide variety of technology clients, ranging from multinational Fortune 500 corporations to more entrepreneurial businesses, on myriad accounting, tax and other financial issues.
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