HP 2014 Annual Report Download - page 53

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
solutions, our business-specific competitors are exerting increased competitive pressure in targeted
areas and are entering new markets, our emerging competitors are introducing new technologies and
business models, and our alliance partners in some businesses are increasingly becoming our
competitors in others. A third set of challenges relates to business model changes and our go-to-market
execution. The macroeconomic weakness we have experienced has moderated in some geographic
regions but remains an overall challenge. A discussion of some of these challenges at the segment level
is set forth below.
• In Personal Systems, we have been negatively impacted by the market shift towards tablet
products within mobility products, which has reduced the demand for PCs, particularly consumer
notebooks. If benefits from our new product investments in this area do not materialize, we will
continue to be negatively impacted by this trend. However, the pace of the market decline is
slowing with signs of stabilization and HP is gaining market share. In Personal Systems, we are
maintaining our strategic focus on profitable growth through improved market segmentation with
respect to multi-OS, multi-architecture, geography, customer segments and other key attributes.
In fiscal 2014, Personal Systems experienced revenue growth in commercial PCs with growth
across all product categories, particularly notebooks, along with growth in consumer notebooks.
The increase in demand was due in part to customers migrating from the Windows XP operating
system, benefits from the delayed installed base refresh cycle and new product introductions.
• In Printing, we are experiencing the impact of the growth in mobility and demand challenges in
consumer and commercial markets, as well as an overall competitive pricing environment. To be
successful in addressing these challenges, we need to continue to execute on our key initiatives
of focusing on products targeted at high usage categories, developing emerging market
opportunities and introducing new revenue delivery models to consumer customers. In fiscal
2014, Printing experienced a revenue decline and an increase in operating profit as we continued
our print strategies, with a focus on driving high value printer unit placements. In the consumer
market, our Ink in the Office products are driving unit volume due to demand for our OfficeJet
Pro product lines, particularly our OfficeJet Pro X printers which leverage our Page-Wide Array
technology. The Ink in the Office initiative targets shifting ink into SMBs more profitably. In the
commercial market, our focus is on placing higher value printer units which also offer a positive
annuity of toner. We are accomplishing this in two growth areas, in multi-function printers with
recently introduced products that are increasing demand and in managed print services, which
presents a strong after-market supplies opportunity. We plan to continue this focus on
replenishing the installed base with value-added units, and expanding our innovative ink and
laser programs.
• In EG, we are experiencing revenue challenges due to multiple market trends, including the
increasing demand for hyperscale computing infrastructure products, the transition to cloud
computing and a highly competitive pricing environment. In addition, demand for our Business
Critical Systems (‘‘BCS’’) products continues to weaken along with the overall market for UNIX
products and the effect of lower BCS revenue is impacting Technology Services (‘‘TS’’). To be
successful in overcoming these challenges, we must address business model shifts and
go-to-market execution challenges, and continue to pursue new product innovation in areas such
as cloud and data center computing, software-defined networking, storage, blade servers and
wireless networking. In fiscal 2014, EG experienced a decline in revenue and operating profit
due to the previously mentioned challenging market environment, in particular weak market
demand in BCS and market shifts impacting Storage. Elsewhere in EG, we experienced areas of
45