HP 2009 Annual Report Download - page 64

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Historical Results
For fiscal years ended October 31
2009 2008(1) 2007(1)
In millions In millions In millions
Net revenue ....................................... $34,693 $20,977 $15,329
Earnings from operations ............................. $ 5,044 $ 2,518 $ 1,782
Earnings from operations as a % of net revenue ............ 14.5% 12.0% 11.6%
(1) Reflects certain reclassifications made to historical results to conform to the current year
presentation as noted in Note 1 to the Consolidated Financial Statements in Item 8.
The components of the weighted net revenue growth as compared to the prior-year periods by
business unit were as follows for the following fiscal years ended October 31:
2009 2008
Percentage Points
Infrastructure technology outsourcing ................................. 39.9 18.7
Application services ............................................. 17.3 8.5
Business process outsourcing ....................................... 10.6 4.0
Technology services .............................................. (2.4) 5.6
Total Services .................................................. 65.4% 36.8%
Services net revenue increased 65.4% (71.6% when adjusted for currency) for fiscal 2009, as
compared to fiscal 2008. The increase in revenues is due primarily to the acquisition of EDS on
August 26, 2008. Services net revenue for fiscal 2009 includes revenue from infrastructure technology
outsourcing, technology services, application services and business process outsourcing, which accounted
for approximately 46%, 28%, 17% and 9% of revenues, respectively. Net revenue in infrastructure
technology outsourcing, application services and business process outsourcing increased due to the EDS
acquisition. The net revenue increase in infrastructure technology outsourcing, application services, and
business process outsourcing was partially offset by unfavorable currency impacts and a decline in
spending from existing customers not being offset with new growth due to slowing demand in the
current economic environment. Application services and business process outsourcing were impacted to
a greater degree than infrastructure technology outsourcing. Net revenue in technology services
declined due primarily to unfavorable currency impacts and weak economic conditions, the effect of
which was partially offset by growth in extended warranty.
Services earnings from operations as a percentage of net revenue increased by 2.5 percentage
points for fiscal 2009, as compared to fiscal 2008. The operating margin increased due primarily to a
decrease in operating expenses as a percentage of revenue. There was also an increase in gross margin
for fiscal 2009. Operating expense declined as a result of a continued focus on cost structure
improvements from overall cost controls. The gross margin in our Services segment increased for fiscal
2009 from fiscal 2008 due primarily to the continued focus on cost structure improvements, including
delivery efficiencies and cost controls in our technology services business, and EDS-related acquisition
synergies. This was partially offset by the mix effect from the acquisition of the EDS business, which
has lower gross margins.
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