HP 2008 Annual Report Download - page 66

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
and support, which typically have a higher gross margin than the other offerings in the segment, and to
a lesser degree by more effective management of the support costs for BTO and Other software.
Operating expense as a percentage of net revenue in fiscal 2007 decreased due primarily to cost
controls and synergy savings from the Mercury acquisition.
Personal Systems Group
For the fiscal years ended October 31
2008 2007 2006
In millions
Net revenue .......................................... $42,295 $36,409 $29,166
Earnings from operations ................................ $ 2,375 $ 1,939 $ 1,152
Earnings from operations as a % of net revenue ............... 5.6% 5.3% 3.9%
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
Notebook PCs ..................................................... 13.8 19.3
Desktop PCs ...................................................... 2.0 4.3
Workstations ...................................................... 0.5 1.2
Handhelds ....................................................... (0.5) (0.4)
Other ........................................................... 0.4 0.4
Total PSG ........................................................ 16.2 24.8
PSG net revenue increased 16.2% (10.8% when adjusted for currency) in fiscal 2008 from fiscal
2007. Unit volumes increased by 22% in fiscal 2008 as compared to fiscal 2007. The unit volume
increase was the result of strong growth in notebooks, with continued strength in emerging markets. In
fiscal 2008, net revenue for notebook PCs increased 28% while net revenue for desktop PCs increased
5% from the prior-year period. In fiscal 2008, net revenue for consumer clients increased 19%, while
net revenue for commercial clients increased 15% from the prior-year period. The net revenue increase
in Other PSG in fiscal 2008 was related primarily to increased sales of third-party branded options and
extended warranties. The revenue increase was partially offset by a decline in handhelds revenue driven
by product transition within converged devices. In fiscal 2008, the positive revenue impact from the
PSG unit volume increase compared to fiscal 2007 was also moderated by a 7% decline in commercial
client ASPs and a 4% decline in consumer client ASPs. ASPs declined from the prior year as a result
of price erosion related to component cost reductions and a competitive pricing environment, the effect
of which was partially offset by an increased notebook mix and improved attach rates for monitors and
other options.
PSG earnings from operations as a percentage of net revenue increased by 0.3 percentage points in
fiscal 2008 from fiscal 2007 as a result of a decrease in operating expenses as a percentage of net
revenue combined with a flat gross margin. Gross margin performance was a result of declining ASPs
offset by an increase in the attach rate of higher-margin options. The operating expense decline as a
percentage of net revenue in fiscal 2008 was the result primarily of the increased net revenue and
continued efforts to improve our cost structure through efficiency measures.
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