HP 2008 Annual Report Download - page 68

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
The decrease in consumer hardware net revenue in fiscal 2008 from fiscal 2007 was due primarily to
discontinued sales of cameras, competitive pricing pressures and lower unit volumes of consumer
hardware as a result of slower growth in the overall consumer printer market. Both consumer and
commercial hardware were impacted by the continued shift in demand to lower-priced products and a
slowing economy, which caused average revenue per unit in each category to decline.
IPG earnings from operations as a percentage of net revenue increased by 0.4 percentage points in
fiscal 2008 from the prior fiscal year. The operating margin improvement in fiscal 2008 was due to
lower operating expenses as a percentage of net revenue. In fiscal 2008, the gross margin remained flat
driven by improved margins for supplies as a result of product mix, the effect of which was offset by
unfavorable hardware margins. The decrease in operating expenses as a percentage of net revenue in
fiscal 2008 was due primarily to higher revenue and continued cost controls, the effect of which was
partially offset by increased investments in our enterprise printing sales force.
IPG net revenue increased 6.3% (4.3% when adjusted for currency) 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
revenue in fiscal 2007 was attributable mainly to unit volume growth in multifunction printers and
revenue from our digital press and large format printing products. The slight increase in consumer
hardware net revenue in fiscal 2007 was attributable to increased unit volumes, improved average
revenue per unit performance and a mix shift from single function products to All-in-Ones, the impact
of which was partially offset by the continued shift in demand to lower priced products and strategic
pricing decisions.
IPG earnings from operations as a percentage of net revenue increased by 0.3 percentage points in
fiscal 2007 from fiscal 2006, driven by a decrease in operating expenses as a percentage of net revenue
that was partially offset by a decrease in gross margin. Gross margin decreased due primarily to
unfavorable hardware margins, increased costs associated with new product introductions and a change
in product mix. Operating expenses as a percentage of net revenue decreased due primarily to higher
prior-year research and development expenses associated with product introduction costs, coupled with
higher revenue and more effective spending controls.
HP Financial Services
For the fiscal years ended October 31
2008 2007 2006
In millions
Net revenue ........................................ $2,698 $2,336 $2,078
Earnings from operations .............................. $ 192 $ 155 $ 147
Earnings from operations as a % of net revenue ............. 7.1% 6.6% 7.1%
HPFS net revenue increased by 15.5% in fiscal 2008 from fiscal 2007. The net revenue increase
was due primarily to a shift towards operating leases from financing leases in the overall portfolio asset
mix, higher average portfolio assets during the year, higher end-of-lease activity and a favorable
currency impact.
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