HP 2010 Annual Report Download - page 62

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
ESS net revenue decreased 20.8% (16.0% when adjusted for currency) in fiscal 2009. The revenue
decline was due primarily to the economic slowdown and overall weak demand environment. ISS net
revenue declined 20% in fiscal 2009 due to declines in unit volume. ISS average unit prices declined in
fiscal 2009 while improving in the second half of fiscal 2009 as a result of a new product ramp up. Total
ESS blades revenue declined by 2% in fiscal 2009. BCS net revenue decreased 27% in fiscal 2009
driven by a decline in Integrity server revenue due to weaker market conditions and by the planned
phase-out of the PA-RISC and Alpha Server product lines. Storage net revenue declined 17% in fiscal
2009 due to a decline in disk and tape products as a result of a weaker demand environment, the
effects of which were partially offset by revenue resulting from the acquisition of Lefthand Networks,
which was completed in the first quarter of fiscal 2009.
In fiscal 2009, ESS earnings from operations as a percentage of net revenue decreased by
3.4 percentage points, due primarily to a decline in gross margin. Gross margin in fiscal 2009 decreased
due primarily to competitive pricing across each of the segment business units and product mix shifts.
Operating expense as a percentage of net revenue in fiscal 2009 was generally consistent with the fiscal
2008.
HP Software
For the fiscal years ended October 31
2010 2009 2008
In millions
Net revenue .......................................... $3,586 $3,572 $4,220
Earnings from operations ................................ $ 759 $ 684 $ 499
Earnings from operations as a % of net revenue ................ 21.2% 19.1% 11.8%
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
Business technology optimization ...................................... 1.5 (9.7)
Other software .................................................... (1.1) (5.7)
Total HP Software ................................................. 0.4 (15.4)
HP Software net revenue increased 0.4% (decreased 1.8% when adjusted for currency) in fiscal
2010, due to growth in business technology optimization (‘‘BTO’’), information management and
business intelligence, the effect of which was offset by weakness in sales of communication and media
solutions. In fiscal 2010, support and license revenue increased while services revenue declined. Net
revenue from business technology optimization increased 2% in fiscal 2010, due to growth in support
and license renewals. Net revenue from our other software businesses decreased 3% in fiscal 2010, due
to a decline in revenue from sales of communication and media solutions resulting from market
conditions in the Asia Pacific region and EMEA (Europe, Middle East and Africa). The revenue
increase in information management was due primarily to increases in license and support revenue. The
revenue increase in business intelligence solutions was primarily a result of increases in support and
services.
HP Software earnings from operations as a percentage of net revenue increased by 2.1 percentage
points in fiscal 2010. The operating margin improvement in fiscal 2010 was due primarily to an increase
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