HP 2007 Annual Report Download - page 71

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
On a constant currency basis, PSG’ s net revenue increased 10% in fiscal 2006. The unfavorable currency impact was due
primarily to the movement of the dollar against the euro and the yen. In fiscal 2006, net revenue increased across all regions
and each business unit with the exception of handhelds, due primarily to an overall volume increase of 15%. The volume
increase in fiscal 2006 was the result of strong growth in the consumer and commercial markets, with significant
improvement in emerging markets. Net revenue for notebook PCs increased 23% while net revenue for desktop PCs
increased slightly in fiscal 2006 from the prior year. Net revenue for consumer clients and commercial clients increased 19%
and 4%, respectively, from the prior year. The revenue increases in consumer and commercial clients were partially offset by
a decrease in handhelds revenue due to a decline in the PDA product market coupled with our product transition to converged
devices. The PSG volume increase in fiscal 2006 was moderated by a decline of 6% in consumer client ASPs and 7% in
commercial client ASPs. The ASP declines were due to pricing decisions resulting from lower component costs as well as
competitive pricing pressures, the impact of which was partially offset by a strong monitor attach rate in commercial
desktops PCs.
PSG earnings from operations as a percentage of net revenue increased by 1.4 percentage points in fiscal 2006 from
fiscal 2005 as a result of gross margin improvement and a decrease in operating expenses as a percentage of revenue. The
gross margin improvement was due primarily to reduced supply chain costs and warranty expense as a percentage of net
revenue, combined with component cost declines. The operating expense decline as a percentage of net revenue was the
result primarily of the increased net revenue and continued efforts on improving cost structure through efficiency measures.
Operating expenses decreased slightly in fiscal 2006 due primarily to savings from our expense controls, which savings were
partially offset by higher bonus accruals in fiscal 2006.
Imaging and Printing Group
For the fiscal years ended October 31
2007 2006 2005
In millions
Net revenue............................................................................................................................. $28,465 $26,786 $25,155
Earnings from operations...................................................................................................... $4,315 $3,978 $3,413
Earnings from operations as a % of net revenue................................................................... 15.2% 14.9% 13.6%
The components of weighted-average net revenue growth as compared to prior-year periods by business unit were as
follows for the following fiscal years ended October 31:
2007 2006
Percentage points
Supplies .............................................................................................................................................................. 5.2 5.4
Commercial hardware......................................................................................................................................... 1.0 1.4
Consumer hardware............................................................................................................................................ 0.1 (0.3)
Total IPG ............................................................................................................................................................ 6.3 6.5
On a constant currency basis, net revenue increased 4% in fiscal 2007 from fiscal 2006. The favorable currency impact
was due primarily to the movement of the dollar against the euro in fiscal 2007. The growth in printer supplies net revenue in
fiscal 2007 from fiscal 2006 reflected higher unit volumes of supplies as a result of the continued expansion of printer
hardware placements and the strong performance of supplies for color-related products. The growth in commercial hardware
net
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