HP 2009 Annual Report Download - page 71

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
unfavorable currency impacts and declines in average revenue per unit. The decrease in operating
expenses as a percentage of net revenue in fiscal 2009 was due primarily to effective cost controls.
IPG net revenue increased 3.5% (decreased 0.8% when adjusted for currency) in fiscal 2008 from
fiscal 2007. The growth in printer supplies net revenue in fiscal 2008 from fiscal 2007 reflected higher
unit volumes of supplies as a result of the strong performance of color-related products. The slight
increase in commercial hardware net revenue in fiscal 2008 from fiscal 2007 was due mainly to unit
volume growth in multifunction printers, color laser printers and large format printing products and
revenue from recent acquisitions, partially offset by continued competitive pricing pressures. 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.
HP Financial Services
For the fiscal years ended October 31
2009 2008 2007
In millions
Net revenue ........................................ $2,673 $2,698 $2,336
Earnings from operations .............................. $ 206 $ 192 $ 155
Earnings from operations as a % of net revenue ............. 7.7% 7.1% 6.6%
HPFS net revenue decreased by 0.9% in fiscal 2009 from fiscal 2008. The net revenue decrease
was due to unfavorable currency movements. On a constant currency basis, fiscal 2009 net revenue
increased due primarily to portfolio growth, increased operating lease mix and higher buyout activities,
the effect of which was partially offset by lower levels of remarketing and end-of-lease activity.
HPFS earnings from operations as a percentage of net revenue increased by 0.6 percentage points
in fiscal 2009 from fiscal 2008 due primarily to a decrease in operating expenses, the effect of which
was partially offset by a decline in gross margin. The operating expense decrease was due to continued
cost controls. The decline in gross margin was driven by an unfavorable currency impact, lower margins
relating to end of lease activity, higher bad debt expenses, and lower remarketing and buyout margins,
the effect of which was partially offset by higher portfolio margins.
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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