HP 2008 Annual Report Download - page 57

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
ESS net revenue growth during fiscal 2007 was the result primarily of strong blade revenue and
unit growth in our industry standard servers business, increased option attach rates in our ProLiant
server line, continued strong performance in mid-range EVA products, growth in commercial storage
area networks and revenue increases from our Integrity servers. The ESS growth was partially
moderated by the revenue declines in our tape business, high-end arrays and our PA-RISC and Alpha
server product lines during fiscal 2007.
The net revenue growth in HP Software during fiscal 2007 was due primarily to growth in our
BTO business as a result of the acquisition of Mercury Interactive Corporation (‘‘Mercury’’) and
increases in revenue from license and support contracts.
The HPFS net revenue increase during fiscal 2007 was due primarily to operating lease growth and
higher end-of-lease activity.
Gross Margin
The weighted-average components of the change in gross margin as compared to prior-year
periods were as follows for the following fiscal years ended October 31:
2008 2007
Percentage points
HP Software ...................................................... 0.1 0.6
Enterprise Storage and Servers ......................................... (0.1) (0.1)
Personal Systems Group .............................................. (0.1) (0.2)
Imaging and Printing Group ........................................... (0.1) (0.2)
HP Services ....................................................... (0.2) 0.1
HP Financial Services ................................................ — (0.1)
Corporate Investments/Other .......................................... — —
Total HP ......................................................... (0.4) 0.1
Total company gross margin decreased slightly in fiscal 2008 from fiscal 2007. On a segment basis,
an increase in HP Software gross margin and a small increase in ESS gross margin were offset by small
gross margin declines in HPS and HPFS and flat gross margin growth across our remaining segments.
For fiscal 2008 as compared to fiscal 2007, the improvement in HP Software gross margin was
primarily the result of cost savings in the BTO business unit.
The slight improvement in ESS gross margin in fiscal 2008 from the prior year was primarily a
result of improved cost management and attach rates in industry standard servers.
In fiscal 2008, PSG gross margin remained flat due primarily to declining ASPs offset by an
increase in the attach rate of higher-margin options.
IPG gross margin remained flat in fiscal 2008 as compared to fiscal 2007 with improved supplies
margins resulting from mix shifts being offset by unfavorable hardware margins.
HPS gross margin declined in fiscal 2008 from the prior year due primarily to the acquisition of
EDS in the fourth quarter. Without the impact of the EDS acquisition, HPS gross margin would have
increased for the fiscal year.
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