HP 2011 Annual Report Download - page 63

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
2011 2010 2009
In millions
Net revenue ........................................... $35,954 $35,529 $35,380
Earnings from operations ................................. $ 5,149 $ 5,661 $ 5,102
Earnings from operations as a % of net revenue ................ 14.3% 15.9% 14.4%
The components of the weighted net revenue change by Services business unit were as follows for
the following fiscal years ended October 31:
2011 2010
Percentage Points
Infrastructure Technology Outsourcing ................................... 0.7 1.1
Technology Services ................................................. 0.7 (0.1)
Application Services ................................................. 0.2 (0.4)
Business Process Outsourcing .......................................... (0.6) (0.3)
Other ........................................................... 0.2 0.1
Total Services ..................................................... 1.2 0.4
Services net revenue increased 1.2% (decreased 1.3% when adjusted for currency) in fiscal 2011
due to revenue increases in Infrastructure Technology Outsourcing and Technology Services.
Infrastructure Technology Outsourcing net revenue increased by 2% in fiscal 2011. An increase in
product-related revenue and a favorable currency impact were partially offset by a shortfall in
short-term project contracts with existing clients. Technology Services net revenue increased by 2% in
fiscal 2011, due primarily to growth in our consulting business and a favorable currency impact, the
effect of which was partially offset by reduced sales of third-party hardware. Application Services net
revenue increased by 1% in fiscal 2011. The increase was driven by a favorable currency impact, the
effect of which was partially offset by declines in short-term project work and weakness in public sector
spending. Business Process Outsourcing net revenue decreased by 7% in fiscal 2011 due primarily to
the ExcellerateHRO divestiture completed at the end of the third quarter of fiscal 2010.
Services earnings from operations as a percentage of net revenue decreased by 1.6 percentage
points in fiscal 2011. Operating margin decreased due primarily to lower than expected revenue, rate
concessions arising from recent contract renewals, a lower than expected resource utilization rate and a
higher mix of lower-margin Infrastructure Technology Outsourcing revenue. The decrease in operating
margin was partially offset by a reduction in bad debt expense and a continued focus on operating
improvements and cost initiatives that favorably impacted the cost structure of both our enterprise
services and technology services businesses.
Services net revenue increased 0.4% (decreased 2.0% when adjusted for currency) in fiscal 2010.
Net revenue in Infrastructure Technology Outsourcing increased by 3% 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 was flat in fiscal 2010, 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 2% in fiscal 2010. The revenue decrease was
driven primarily by market conditions and existing contract completion, the effect of which was partially
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