HP 2006 Annual Report Download - page 59

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
contracts and license fees and, to a lesser extent, acquisitions. OpenCall net revenue growth was the
result of an increase in licenses.
The operating margin improvement of 11.9 percentage points for fiscal 2005, as compared to fiscal
2004, was the result primarily of an increase in gross margin and a decrease in operating expense as a
percentage of net revenue. The gross margin improvement was due to higher margin rates in our core
businesses and a favorable product mix due to more OpenView license revenue. The decrease in
operating expense as a percentage of net revenue was due to slower growth in operating expense
attributable to cost management efforts, related principally to decreased research and development
costs and slower growth in marketing costs as a percentage of revenue, despite the employee bonus
recorded during the second half of fiscal 2005 and acquisition integration costs.
Personal Systems Group
For the fiscal years ended October 31
2006 2005 2004
In millions
Net revenue ........................................... $29,166 $26,741 $24,622
Earnings from operations ................................. $ 1,152 $ 657 $ 205
Earnings from operations as a % of net revenue ................ 3.9% 2.5% 0.8%
The components of weighted average net revenue growth, by business unit, were as follows for the
following fiscal years ended October 31:
2006 2005
Percentage points
Notebook PCs ..................................................... 8.4 5.4
Desktop PCs ...................................................... 0.8 1.5
Workstations ...................................................... 0.6 0.8
Handhelds ........................................................ (0.8) (0.2)
Other ........................................................... 0.1 1.1
Total PSG ........................................................ 9.1 8.6
PSG net revenue increased 9% in fiscal 2006 from fiscal 2005. On a constant currency basis, PSG’s
net revenue increased 10% in fiscal 2006. The unfavorable currency impact was due primarily to the
movement of the dollar against the euro and the yen. In fiscal 2006, net revenue increased across all
regions and each business unit with the exception of handhelds, due primarily to an overall volume
increase of 15%. The volume increase in fiscal 2006 was the result of strong growth in the consumer
and commercial markets, with significant improvement in emerging markets. Net revenue for notebook
PCs increased 23% while net revenue for desktop PCs increased slightly in fiscal 2006 from the prior
year. Net revenue for consumer clients and commercial clients increased 19% and 4%, respectively,
from the prior year. The revenue increases in consumer and commercial clients were partially offset by
a decrease in handhelds revenue due to a decline in the Personal Digital Assistant (‘‘PDA’’) product
market coupled with our product transition to converged devices.
The PSG volume increase in fiscal 2006 was moderated by a decline of 6% in consumer client
ASPs and 7% in commercial client ASPs. The ASP declines were due to pricing decisions resulting
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