HP 2014 Annual Report Download - page 71

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
LaserJet and graphics printers driven by a competitive pricing environment. Net revenue for Consumer
Hardware decreased 4% driven by a 1% decline in printer unit volume and a 1% decline in ARU,
along with a decline in other peripheral printing solutions. The unit volume decline in Consumer
Hardware was due to lower sales of home printers, the effects of which were partially offset by growth
in SMB printers. The ARU decline in Consumer Hardware was due primarily to increased discounting
for SMB printers due to a competitive pricing environment, the effects of which were partially offset by
a favorable mix of high value home printers.
Printing earnings from operations as a percentage of net revenue increased by 1.7 percentage
points for fiscal 2014 as an increase in gross margin more than offset an increase in operating expenses
as a percentage of net revenue. The gross margin increase was due to favorable currency impacts
primarily driven by the Japanese Yen, continued cost structure improvements and a favorable mix from
a higher proportion of graphics and ink supplies, the effects of which were partially offset by a
competitive pricing environment. Operating expenses as a percentage of net revenue increased due
primarily to higher R&D expenses as a result of our investments in enterprise products and 3-D
printing, the effects of which were partially offset by reduced marketing expenses.
Fiscal 2013 compared with Fiscal 2012
Printing net revenue decreased 2.6% (decreased 1% on a constant currency basis) in fiscal 2013.
The decrease was driven by unfavorable currency impacts, particularly weakness in the euro, and
declines in supplies and commercial printers. Net revenue for Supplies decreased 3% due to
unfavorable currency impacts and lower volumes of toner and ink supplies. These effects were partially
offset by growth in large format printing supplies. Printer unit volumes declined by 3% while ARU
increased by 1%. Printer unit volumes decreased largely due to declines in low-end consumer printers
as we continued our focus on higher-value Ink in the Office and Ink Advantage products. The increase
in ARU was driven by a mix shift to high-value consumer printers, the effect of which was partially
offset by higher discounting in commercial printers. Net revenue for Commercial Hardware decreased
3%, which was driven by a 6% decline in ARU that was partially offset by a volume increase of 2%.
The decline in Commercial Hardware net revenue was partially offset by net revenue growth in the
graphics services and managed print services businesses. Net revenue for Consumer Hardware
remained flat due to a 7% increase in ARU, the effect of which was offset by a 5% reduction in
volume. Unit volume and ARU increased within high-value consumer printers as a result of our
continued focus on those more profitable printers.
Printing earnings from operations as a percentage of net revenue increased by 1.8 percentage
points in fiscal 2013 due to an increase in gross margin combined with lower operating expenses as a
percentage of net revenue. The gross margin increase was due to improvement in toner gross margins
resulting from lower discounting, higher ARU in consumer printers, and lower cost of sales in toner
and commercial printers due to a favorable currency impact from the Japanese Yen. These positive
effects were partially offset by an unfavorable mix of lower-margin consumer printers. Operating
expenses as a percentage of net revenue decreased due to lower administrative, R&D and field selling
costs as a result of benefits from our ongoing restructuring efforts. These effects were partially offset by
higher marketing expenses to support new product introductions.
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