HP 2008 Annual Report Download - page 63

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
HP Services
For the fiscal years ended October 31
2008 2007 2006
In millions
Net revenue ....................................... $22,397 $16,570 $15,578
Earnings from operations ............................. $ 2,491 $ 1,787 $ 1,498
Earnings from operations as a % of net revenue ............ 11.1% 10.8% 9.6%
The components of weighted-average net revenue growth as compared to prior-year periods by
business unit were as follows for the following fiscal years ended October 31:
2008 2007
Percentage points
EDS(1) .......................................................... 23.3 N/A
Technology services ................................................ 5.3 1.9
Outsourcing services ................................................ 4.6 2.8
Consulting and integration ........................................... 2.0 1.7
Total HPS ....................................................... 35.2 6.4
(1) Represents the business operations acquired through our acquisition of EDS.
HPS net revenue increased 35.2% over the prior year (29.1% when adjusted for currency),
primarily due to the acquisition of EDS on August 26, 2008. The consolidated statements of earnings
include the results of EDS since the date of acquisition. EDS net revenue includes revenue from
infrastructure outsourcing services, applications services and business process outsourcing services,
which accounted for approximately 56%, 30% and 14% of revenues, respectively. HPS net revenue,
excluding EDS, increased 11.9% over the prior year (5.8% when adjusted for currency). Net revenue in
technology services increased 10% in fiscal 2008 from the prior year due primarily to growth in
IT solution support services, extended warranty revenue and favorable currency impacts, the impact of
which was partially offset by competitive pricing pressures. Net revenue in outsourcing services
increased 16% in fiscal 2008 due primarily to existing account growth, favorable currency impacts and
new business, which were partially offset by installed base revenue erosion and pricing pressures. Net
revenue in consulting and integration increased 11% in fiscal 2008 from the prior year due mainly to
favorable currency impacts, base business growth and additional revenue from recent acquisitions.
HPS earnings from operations as a percentage of net revenue in fiscal 2008 increased
0.3 percentage points. The operating margin increase was the result of a decrease in operating expenses
as a percentage of net revenue, which was partially offset by a decrease in gross margin. In fiscal 2008,
continued efficiency improvements in our operating expense structure contributed to the decline in
operating expenses as a percentage of net revenue compared to the prior year. Technology services
operating margin in fiscal 2008 continued to benefit from improved delivery efficiencies and cost
controls, the impact of which was partially offset by the ongoing portfolio mix shift from higher-margin
proprietary support to lower-margin areas such as IT solution services. Outsourcing services operating
margin increased in fiscal 2008 due primarily to increased volume, cost controls and favorable currency
impacts, the effect of which was partially offset by installed base contract erosion and pricing pressures.
Consulting and integration operating margin increased in fiscal 2008 due mainly to favorable currency
impacts and business growth.
57