HP 2010 Annual Report Download - page 60

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Services
For fiscal years ended October 31
2010 2009 2008
In millions
Net revenue ........................................ $34,935 $34,693 $20,977
Earnings from operations .............................. $ 5,609 $ 5,044 $ 2,518
Earnings from operations as a % of net revenue ............. 16.1% 14.5% 12.0%
The components of the weighted net revenue change by business unit were as follows for the
following fiscal years ended October 31:
2010 2009
Percentage Points
Infrastructure technology outsourcing .................................... 1.2 37.1
Other ........................................................... 0.1 0.9
Technology services ................................................. (0.1) (1.4)
Application services ................................................ (0.2) 18.0
Business process outsourcing .......................................... (0.3) 10.8
Total Services ..................................................... 0.7 65.4
Services net revenue increased 0.7% (decreased 1.7% when adjusted for currency) in fiscal 2010.
Net revenue in infrastructure technology outsourcing increased by 2.6% in fiscal 2010. The revenue
increase was due to favorable currency impact and growth in data center services and networking
services. Net revenue in technology services declined by 0.4% in fiscal 2010. The revenue decline was
due primarily to lower contract revenue tied to reduced levels of enterprise hardware sales in the
prior-year period and market conditions in the current-year period, the effect of which was partially
offset by a favorable currency impact. Net revenue in application services decreased by 1.1% in fiscal
2010. The revenue decrease was driven primarily by market conditions and existing contract
completion, the effect of which was partially offset by new business and a favorable currency impact.
Net revenue in business process outsourcing decreased by 3.5% in fiscal 2010. The revenue decrease
was due primarily to a divestiture completed at the end of the third quarter of fiscal 2010 and
economic conditions in certain industries with key clients, the effect of which was partially offset by a
favorable currency impact.
Services earnings from operations as a percentage of net revenue increased by 1.6 percentage
points in fiscal 2010. Operating margin increased primarily due to continued focus on operating
improvements and cost initiatives that favorably impacted the cost structure of our enterprise services
business, delivery efficiencies and cost controls in our technology services business, as well as
EDS-related acquisition synergies.
Services net revenue increased 65.4% (71.6% when adjusted for currency) in fiscal 2009. The
increase in revenues is due primarily to the acquisition of EDS on August 26, 2008. 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
52