HP 2014 Annual Report Download - page 54

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
growth in Industry Standard Servers (‘‘ISS’’), Networking and TS, due in part to product
innovation and new product introductions in cloud and data center computing. These products
build on our existing capabilities in cloud, security, big data and converged infrastructure and
include CloudSystem 8, HP Helion, HP Apollo and support solutions such as Proactive data
center and flexible capacity services.
• In ES, we are facing execution challenges, including managing the revenue runoff from several
large contracts, pressured public sector spending, a competitive pricing environment and market
pressures from a mixed economic recovery in Europe, the Middle East and Africa (‘‘EMEA’’).
To be successful in addressing these challenges, we must execute on the ES multi-year
turnaround plan, which includes a cost reduction initiative to align our costs to our revenue
trajectory, a focus on new logo wins and Strategic Enterprise Services (‘‘SES’’) and initiatives to
improve execution in sales performance and accountability, contracting practices and pricing. In
fiscal 2014 these factors continued to impact both ES revenue and operating profit.
• In Software, we are facing challenges, including the market shift to software-as-a-service
(‘‘SaaS’’) and go-to-market execution challenges. To be successful in addressing these challenges,
we must improve our go-to-market execution with multiple product delivery models which better
address customer needs and achieve broader integration across our overall product portfolio as
we work to capitalize on important market opportunities in cloud, big data and security. In fiscal
2014 these factors continued to impact Software revenue and operating profit.
To address these challenges, we continue to pursue innovation with a view towards developing new
products and services aligned with market demand, industry trends and the needs of our customers and
partners. In addition, we need to continue to improve our operations, with a particular focus on
enhancing our end-to-end processes and efficiencies. We also need to continue to optimize our sales
coverage models, align our sales incentives with our strategic goals, improve channel execution,
strengthen our capabilities in our areas of strategic focus, and develop and capitalize on market
opportunities.
For a further discussion of trends, uncertainties and other factors that could impact our operating
results, see the section entitled ‘‘Risk Factors’’ in Item 1A, which is incorporated herein by reference.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
General
The Consolidated Financial Statements of HP are prepared in accordance with United States
(‘‘U.S.’’) generally accepted accounting principles (‘‘GAAP’’), which require management to make
estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenue
and expenses, and the disclosure of contingent liabilities. Management bases its estimates on historical
experience and on various other assumptions that it believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying amount of assets and
liabilities that are not readily apparent from other sources. Management has discussed the
development, selection and disclosure of these estimates with the Audit Committee of HP’s Board of
Directors. Management believes that the accounting estimates employed and the resulting amounts are
reasonable; however, actual results may differ from these estimates. Making estimates and judgments
about future events is inherently unpredictable and is subject to significant uncertainties, some of which
are beyond our control. Should any of these estimates and assumptions change or prove to have been
incorrect, it could have a material impact on our results of operations, financial position and cash flows.
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