HP 2010 Annual Report Download - page 57

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Services gross margin increased in fiscal 2009 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.
ESS gross margin decreased in fiscal 2009 due primarily to competitive pricing across each of the
segment business units and product mix shifts.
HP Software gross margin increased in fiscal 2009 primarily as a result of favorable support and
services revenue mix and improved services margins, the effect of which was partially offset by an
unfavorable license revenue mix.
PSG gross margin declined in fiscal 2009, resulting from average selling prices (‘‘ASPs’’) declining
at a faster pace than component costs combined with a mix shift towards lower-end products, the
effects of which were partially offset by lower warranty and supply chain costs and improvements in the
option attach rate.
IPG gross margin improved in fiscal 2009 primarily as a result of an increase in the supplies mix
and supplies pricing, the effect of which was partially offset by hardware margin declines.
HPFS gross margin declined in fiscal 2009 primarily as a result of unfavorable currency impacts,
lower margins relating to end-of-lease activities, higher bad debt expenses and lower margins for
remarketing and buyout activities, the effect of which was partially offset by higher portfolio margins.
Corporate Investments gross margin declined in fiscal 2009 primarily as a result of a unit volume
decline in the sale of network infrastructure products and competitive pricing pressures.
Operating Expenses
Research and Development
Total research and development (‘‘R&D’’) expense increased in fiscal 2010 due primarily to
additional expenses from acquired companies. In fiscal 2010, R&D expense as a percentage of net
revenue increased for Corporate Investments, HP Software and Services, decreased for ESS, PSG, and
IPG and was flat for HPFS.
Total R&D expense decreased in fiscal 2009 due primarily to favorable currency impacts related to
the movement of the dollar against the euro, as well as effective cost controls, the effect of which was
partially offset by additional expenses related primarily to Services. In fiscal 2009, R&D expense as a
percentage of net revenue decreased for ESS, PSG, and IPG, and increased for HP Software, Services
and Corporate Investments.
Selling, General and Administrative
Selling, general and administrative (‘‘SG&A’’) expense increased in fiscal 2010 due primarily to
higher field selling and marketing costs as a result of our investments in sales resources to grow
revenue. In fiscal 2010, SG&A expense as a percentage of net revenue increased for Corporate
Investments and IPG, and decreased for ESS, HP Software, PSG, HPFS and Services even as we
invested in incremental sales resources across the segments.
Total SG&A expense decreased in fiscal 2009 due primarily to favorable currency impacts related
to the movement of the dollar against the euro, lower compensation expense as well as effective cost
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