1. 2011
www.bdo.Com
ContaCt:
Tim ClaCkeTT
Los Angeles
310-557-8201
tclackett@bdo.com
Hank GalliGan
Boston
617-422-7521
hgalligan@bdo.com
Jay Howell
San Francisco
415-490-3270
jhowell@bdo.com
Supply Chain VulnerabilitieS afTab Jamil
Silicon Valley
a top riSk to teCh SeCtor
408-352-1999
ajamil@bdo.com
DouG SiroTTa
The 2011 BDO RiskFactor Report for Technology Businesses examined the risk factors Silicon Valley
listed in the most recent SEC 10-K filings of the 100 largest publicly traded U.S. technology 408-278-0220
companies. The risk factors were analyzed and ranked in order of frequency cited. dsirotta@bdo.com
The report has been cited in the following media outlets: Wall Street Journal’s CFO Journal, ryan STarkeS
Baseline, CFO.com, EBN, IndustryWeek, InfoTech, ITAC Blog, @Risk, the Strategic Sourceror Woodbridge
Blog, Supply Chain Digital, Supply Chain Matters, Tech Journal South and Virtual Strategy 732-734-1011
Magazine. rstarkes@bdo.com
t
mike wHiTaCre
ech companies are changing, and The fourth annual BDO RiskFactor Report for
Atlanta
so are their risks. Challenges that Technology Businesses identified the most 404-688-6841
were put on the backburner during commonly cited risk factors among the 100 mwhitacre@bdo.com
the downturn, most notably supply chain largest U.S. public technology companies. As
issues, are once again weighing heavily on reported in an exclusive article on the study in DaviD yaSukoCHi
the minds of executives. And while economic Wall Street Journal’s CFO Journal, one function Orange County
conditions remain a concern, companies of the risk factor section in 10-Ks is to provide 714-913-2597
can no longer afford to keep their heads companies with a legal out, but they also dyasukochi@bdo.com
down and focus merely on survival. For 2011, point to the chief issues companies face. When
executives will approach growth initiatives tracked over time, as our study discovered,
with a “lessons learned” attitude, focusing on risk factors can show significant shifts in the
proactive strategy and shoring up potential sector. This year, we saw a continuation in the
weaknesses along the supply chain. With two most frequently cited risks of industry
customer demand in mind, tech companies competition (97%) and economic conditions
have a renewed laser focus on the timely (96%), but large increases in several risks that
development of innovative products and were less prominent during the downturn.
services.  Read more

2. 2 bDo 2011 riSkfaCTor reporT For TeChnology BUSineSSeS
 upply Chain iSSueS
S
Supply Chain risks escalate in Tech Sector
threaten from all
angleS 100%
As production levels begin to stabilize,
90%
companies note increased risks from the
beginning of the supply chain to the end. 80%
The vast majority of companies (86%)
stress concerns over supply chain issues 70%
(including vendor relations, distribution and
material costs) as top risk factors, reflecting 60%
a 15 percent increase over 2010 (75%).
From a sourcing perspective, concerns over 50%
the availability of raw materials saw a 79
percent increase this year, as the cost of oil 40%
and commodities rise. risks associated with
equipment failure and delays and balanced 30%
inventory saw substantial increases as well.
The potential disruption to factories and 20%
distribution channels as a result of natural
disasters and geopolitical issues is also a 10%
much greater concern for companies this
year – a particularly notable jump, especially 0%
2009 2010 2011
as these disclosures were made before the
earthquake in Japan. Connected to this risk, Supplier/vendor concerns Inventory balance
we’re seeing more tech companies focus on
ways to diversify their supplier base and look Natural disasters, war, conflicts Price/availability of raw
for vendors who can help mitigate the supply Equipment failure and product materials
chain concentration risk. liability
“There will be efforts made within
companies themselves and within to strategy with laser sharp focus, updating also top of mind for the majority (58%) of
their supply chain to mitigate risk. growth plans and improving operating companies, as concerns over the convergence
We are beginning to see companies models. This comes in the face of mounting of accounting standards and the final ruling on
competitive pressures and what some are revenue recognition mount.
question whether they are handling calling “acquisition sprees” in the sector.
their supplier concentration properly, We’ve seen this happening in the enterprise
whether sole sourcing is a best storage market, where, among others,  proteCtion key to
ip
practice, and whether or not they have
major players like SanDisk, Seagate and preSerVing CuStomer
Micron Technology are all heavily targeting demand
a plan B,” aftab Jamil, partner and acquisitions.
As sector leaders including Apple and
national Director of the Technology Samsung pursue intellectual property (iP)
& life Sciences practice told EBN. “Companies are coming up with infringement cases, and an increasingly
strategies to grow, but the execution global supply chain opens companies to iP
risk in China, it’s not a surprise that concerns
 trategy riSkS inCreaSe
S has to be flawless if they are going to over iP protection (79%) are back on the
aS teCh exeCS eye meet their objectives,” Jamil told the rise after falling from 86 percent in 2009 to
growth WSJ CFO Journal. 74 percent in 2010. iP risks factor into the
escalating concerns over legal proceedings
With bottom line concerns over product
and litigation issues, as companies look to
quality and inventory levels mounting,
 egulation riSkS on the
r fiercely protect their ideas and products amid
technology companies have become
significantly more preoccupied with the risk riSe rising concerns over innovation and new
product development. The ability to transition
of being unable to properly execute their With google and Microsoft devoting record
products and develop new technology
corporate strategy. reflecting one of the dollars to lobbying during the first quarter,
continues to be particularly worrisome for a
most dramatic increases, companies citing it’s clear that tech companies are increasingly
vast majority (88%) of technology companies.
this risk have more than tripled over the past concerned over government regulation. in
new product development has become
two years (93%, up from 68% in 2010 and fact, it was the second most commonly cited
especially crucial in many sectors including
27% in 2009). What’s driving this? Following risk factor this year at 96 percent, up 19
mobile where we see heightened demand for
the downturn, tech companies have returned percent since 2009. Accounting standards are
 Read more

3. bDo 2011 riSkfaCTor reporT For TeChnology BUSineSSeS 3
the latest and greatest. responding to that
demand, markedly more companies (85% ip risks rise to meet Demand for innovative products
vs. 63% in 2010) cite the ability to satiate
customer interests and desires for innovative 100%
products as a major risk.
90%
infraStruCture iSSueS
 80%
raiSe threat of SeCurity 70%
breaCheS
Concerns over the ability to maintain 60%
operational infrastructure were cited by more
50%
than two-thirds (68%) of tech companies 2009 2010 2011
this year, representing 62 percent growth
over 2010 (42%). While infrastructure Intellectual property risks
vulnerabilities remain a top consideration,
many companies also reported that they are Ability to meet customer demand for innovative products
in process of launching new systems that Legal proceedings
were previously deferred during the recession.
in addition to weaknesses and changes to
infrastructure, recent reports of data theft at the inability to successfully complete M&A associated with iP. in fact, 100 percent of tech
Sony and Amazon have contributed to a large transactions and other divestitures. While companies in this region cited concerns over
increase in companies citing security breaches deals are up, and BDo’s 2011 Technology protecting their iP, compared to 79 percent
as a risk. Fifty-seven percent of companies Outlook Survey found that tech CFos felt of the national sample. These companies
cited it this year, up from 2010 (44%) and better about access to capital this year, also cite greater product transition pressures,
2009 (30%). We predicted this increase last recession-era concerns over liquidity linger in with 95 percent pointing to concerns over the
year, as the amount of data collected and used 10-K reporting (68%). failure to develop new products or services,
by technology companies is substantial and compared to 88 percent of companies overall.
only increasing. The West Coast is also the scene of fierce
 egional analySiS – top
r competition for the best and brightest talent
“iT infrastructure and networks are riSkS in weSt CoaSt teCh and they are notably more concerned over
hub attracting and retaining key personnel (95%,
no longer a back office function; compared to 82% of the national sample).
they are integral to how businesses in addition to the top risks for U.S. companies This risk is embodied in a recent New York
overall, we analyzed regional cuts of the
are managed and should be data for companies based in the largest
Times article which reported that the demand
for hiring top talent has led to an increase
front and center from a strategy tech hub included in the sample – the West in companies buying start-ups not for the
standpoint. While these risks cannot Coast. Some notable trends emerged. For products, but for their people. This trend is
West Coast-based companies, the innovative
be eliminated, tech companies known as “acqhiring.”
culture seems to have led to amplified risks
should look for ways to manage
them, including putting monitoring
risks Differ in west Coast Tech Hub
processes and failsafe mechanisms in 100%
place,” Jamil discussed on the ITAC 100%
94% 94%
Blog.
90% 88%
82%
m&a riSkS remain high
 80%
79%
amid liquidity ConCernS
70%
We’ve seen a busy year already in 2011,
marked by a record 881 completed tech deals
60%
during the first quarter of 2011. According
to Thomson reuters, the recent Microsoft-
Skype deal lifted the total value of announced 50%
merger transactions in the tech sector product ability to intellectual
worldwide to $85.5 billion since Jan. 1, making Transition attract/retain property risks
this the strongest start since 2000 for tech key talent
All companies
transactions. Amid this heightened activity,
West Coast companies
85 percent of companies note concern over
 Read more

4. 4 bDo 2011 riSkfaCTor reporT For TeChnology BUSineSSeS
the top 20 risk factors of the 100 largest u.S. technology Companies
2011
2011 2010 2009
rank
1. Competition and consolidation in tech sector; pricing
97% 94% 97%
pressures
2. U.S. general economic concerns 96% 93% 85%
2t. Federal, state or local regulations 96% 88% 81%
4. Failure to properly execute corporate strategy 93% 68% 27%
5. Product transition, failure to develop new products or
88% 94% 91%
services
6. legal proceedings 86% 80% 68%
6t. U.S. and foreign supplier/vendor concerns, supply chain issues 86% 75% 78%
8. Management of current and future M&A or divestitures 85% 86% 86%
8t. Threats to international operations 85% 83% 90%
8t. Predicting customer demand and interest, innovation 85% 63% 62%
11. Ability to attract or retain key personnel 82% 83% 82%
12. natural disasters, war, conflicts and terrorist attacks 81% 55% 60%
13. intellectual property infringement 79% 74% 86%
14. equipment failure and product liability 75% 64% 58%
15. Cyclical revenue and stock fluctuation 70% 57% 83%
16. inability to acquire capital or financing 68% 55% 42%
16t. inability to maintain operational infrastructure and systems 68% 42% 41%
18. labor concerns 61% 49% 22%
18t. Credit or financial risk of customers, vendors or suppliers 61% 48% 33%
20. Accounting, internal controls and Sarbanes-oxley
58% 54% 62%
compliance
*t indicates a tie in the risk factor ranking
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