HP 2005 Annual Report Download - page 37

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated Financial Statements
and the related notes that appear elsewhere in this document.
OVERVIEW
We are a leading global technology company and generate net revenue and earn our profits from
the sale of products, technologies, solutions and services to consumers, businesses and governments.
Our portfolio is broad and includes personal computers, handheld computing devices, home and
business imaging and printing devices, publishing systems, storage and servers, a wide array of
information technology (‘‘IT’’) services and software solutions. We have seven business segments:
Enterprise Storage and Servers (‘‘ESS’’), HP Services (‘‘HPS’’) Software, the Personal Systems Group
(‘‘PSG’’), the Imaging and Printing Group (‘‘IPG’’), HP Financial Services (‘‘HPFS’’), and Corporate
Investments. ESS, HPS and Software are structured beneath a broader Technology Solutions Group
(‘‘TSG’’). While TSG is not an operating segment, we sometimes provide financial data aggregating the
segments within TSG in order to provide a supplementary view of our business.
Our product and geographic breadth requires us to focus on strategic imperatives within individual
product categories and to manage across our portfolio in order to drive growth while optimizing cost
structure. Our financial results also are impacted by our ability to predict and to respond to
industry-wide trends. For instance, a trend that is significant to our business and financial results is the
shift toward standardized products, which presents revenue opportunities for certain of our businesses
but presents an ongoing challenge to our margins. To help address the potential margin impact of
standardization, we take ongoing actions related to both revenue generation and cost structure
management. In the sales and marketing area, we have programs designed to improve the rates at
which we sell higher-margin configurations or options. We also continue to focus on managing
procurement and labor expenses. Key to our overall efforts in delivering superior products while
maintaining a world-class cost structure is the increasingly global nature of technology expertise. This
trend is allowing us to develop a global delivery structure to take advantage of regions where advanced
technical expertise is available at lower costs.
As part of this effort, we continually evaluate our workforce and make adjustments we deem
appropriate. In the fourth quarter of fiscal 2005, our Board of Directors approved a restructuring plan
recommended by our CEO and senior management. Under this restructuring plan, we expect to
terminate approximately 15,300 employees through workforce restructurings or early retirement
programs through the first quarter of fiscal 2007. Approximately 4,700 of these employees exited HP as
of October 31, 2005. We expect approximately half of the cost savings from these actions to be
reinvested in our businesses or used to offset market forces. When we make adjustments to our
workforce, we may incur incremental expenses associated with workforce reductions that delay the
benefit of a more efficient workforce structure, but we believe that the fundamental shift to global
delivery is crucial to maintaining a long-term competitive cost structure. For more information on our
restructuring plan, see Note 7 of the Consolidated Financial Statements in Item 8.
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