HP 2009 Annual Report Download - page 65

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Services net revenue (including EDS results from August 26, 2008) increased 36.8% (30.0% when
adjusted for currency) for fiscal 2008, as compared to fiscal 2007. Net revenue increased from the prior
year primarily due to the acquisition of EDS. Services net revenue (excluding EDS results from
August 26, 2008) increased 11.7% (4.8% when adjusted for currency) for fiscal 2008, as compared to
fiscal 2007. Services net revenue (including EDS results from August 26, 2008) for fiscal 2008 includes
revenue from technology services, infrastructure technology outsourcing, application services and
business process outsourcing, which accounted for approximately 49%, 36%, 12% and 3% of revenues,
respectively. Net revenue in technology services increased in fiscal 2008 from the prior year due
primarily to growth in IT solution support services, extended warranty revenue and favorable currency
impacts, the impact of which was partially offset by competitive pricing pressures. Net revenue in
infrastructure technology outsourcing, application services and business process outsourcing increased
driven mainly by the EDS acquisition, an increase in volume, favorable currency impacts and new
business.
Services earnings from operations as a percentage of net revenue (including EDS results from
August 26, 2008) increased by 0.4 percentage points for fiscal 2008, as compared to fiscal 2007. The
operating margin increase was the result of a decrease in operating expenses as a percentage of net
revenue, partially offset by a slight decrease in gross margin. The gross margin decrease in fiscal 2008
was due primarily to the impact of the continued competitive pricing environment, which was partially
offset by the continued focus on cost structure improvements generated by delivery efficiencies and cost
controls. In fiscal 2008, continued efficiency improvements in our operating expense structure
contributed to the decline in operating expenses as a percentage of net revenue compared to the prior
year.
Combined Segment Results
The combined segment results below refer to the results of our services business for fiscal 2008,
which include the results of EDS from the acquisition date, combined with the EDS results for the nine
months ended June 30, 2008 and the period from August 1, 2008 to the acquisition date. The combined
segment results are presented for informational purposes only and are not indicative of the results of
operations that would have been achieved had the businesses been operated together during that
period.
For the fiscal year ended October 31
Combined
Segment %
Results (Decrease)
2009 2008(1) Increase
In millions In millions
Net revenue ......................................... $34,693 $39,194 (11.5)%
Earnings from operations ................................ $ 5,044 $ 3,216 56.9%
Earnings from operations as a % of net revenue ............... 14.5% 8.2%
(1) Refers to the results of Services for the year ended October 31, 2008 combined with the EDS
results for the nine months ended June 30, 2008 and for the period from August 1, 2008 to the
acquisition date. In order to conform the presentation to our segment earnings from operations,
we excluded certain EDS expenses that we do not allocate to our segments.
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