HP 2011 Annual Report Download - page 64

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
offset by new business and a favorable currency impact. Net revenue in Business Process Outsourcing
decreased by 4% in fiscal 2010. The revenue decrease was due primarily to a divestiture completed at
the end of the third quarter of fiscal 2010 and challenging economic conditions in certain industries,
the effect of which was partially offset by a favorable currency impact.
Services earnings from operations as a percentage of net revenue increased by 1.5 percentage
points in fiscal 2010. Operating margin increased primarily due to continued focus on operating
improvements and cost initiatives that favorably impacted the cost structure of our enterprise services
business, delivery efficiencies and cost controls in our technology services business, as well as
EDS-related acquisition synergies.
Imaging and Printing Group
For the fiscal years ended October 31
2011 2010 2009
In millions
Net revenue ........................................... $25,783 $25,764 $24,011
Earnings from operations ................................. $ 3,973 $ 4,412 $ 4,310
Earnings from operations as a % of net revenue ................ 15.4% 17.1% 18.0%
The components of the weighted net revenue change by IPG business unit were as follows for the
following fiscal years ended October 31:
2011 2010
Percentage Points
Commercial Hardware ............................................... 0.9 3.3
Supplies ......................................................... (0.4) 3.0
Consumer Hardware ................................................ (0.4) 1.0
Total IPG ........................................................ 0.1 7.3
IPG net revenue increased 0.1% (decreased 0.9% when adjusted for currency) in fiscal 2011, due
primarily to a net revenue increase in Commercial Hardware. Net revenue for Commercial Hardware
increased 4% in fiscal 2011 due primarily to double-digit net revenue growth in the graphics business,
coupled with strong performance in transactional laser products in emerging geographies. These effects
were partially offset by supply chain constraints in LaserJet printers as a result of the earthquake and
tsunami in Japan. Net revenue for Supplies decreased 1% in fiscal 2011, driven by reductions in
channel inventory and slower demand, particularly in EMEA. These effects were partially offset by
growth in large format printing supplies. Net revenue for Consumer Hardware decreased 4% in fiscal
2011, driven primarily by overall reductions in consumer electronics spending and competitive pricing
pressures reflected in a mix shift towards lower-priced products and a decline in the average revenue
per unit of 6%.
IPG earnings from operations as a percentage of net revenue decreased by 1.7 percentage points
in fiscal 2011, due primarily to a decline in gross margin, the effect of which was partially offset by
lower operating expenses as a percentage of net revenue. The gross margin decline in fiscal 2011 was
due primarily to increased logistics costs and supply chain constraints in LaserJet printers as a result of
the Japan earthquake and tsunami, an unfavorable currency impact driven primarily by the strength of
the yen, a continued mix shift in Consumer Hardware and Commercial Hardware to lower price point
products coupled with a lower mix of supplies. These effects were partially offset by reductions in IPG’s
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