HP 2011 Annual Report Download - page 67

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
R&D, the effect of which was partially offset by the capitalization of certain software development
costs.
HP Software net revenue increased 2.8% (0.6% when adjusted for currency) in fiscal 2010 mainly
due to growth in support and license renewals. In fiscal 2010 net revenue from both support and
licenses increased by 4%, while net revenue from services decreased by 4%.
HP Software earnings from operations as a percentage of net revenue increased by 1.2 percentage
points in fiscal 2010. The operating margin improvement in fiscal 2010 was due primarily to an increase
in gross margin and a decrease in operating expenses as a percentage of net revenue. The increase in
gross margin in fiscal 2010 was primarily a result of a higher license and support mix, the effect of
which was partially offset by a reduced services gross margin rate. The decrease in operating expenses
as a percentage of net revenue in fiscal 2010 was due primarily to lower field selling, administrative and
acquisition integration costs.
HP Financial Services
For the fiscal years ended October 31
2011 2010 2009
In millions
Net revenue .......................................... $3,596 $3,047 $2,673
Earnings from operations ................................. $ 348 $ 281 $ 206
Earnings from operations as a % of net revenue ................ 9.7% 9.2% 7.7%
HPFS net revenue increased by 18.0% in fiscal 2011. The net revenue increase was due primarily
to portfolio growth as a result of higher customer demand, a higher operating lease mix due to higher
service-led financing volume, higher end-of-lease revenue from residual expirations in line with
portfolio growth, and higher early buyout revenue and favorable currency movements.
HPFS earnings from operations as a percentage of net revenue increased by 0.5 percentage points
in fiscal 2011 due primarily to a decrease in operating expenses as a percentage of revenue, the effect
of which was partially offset by a decrease in gross margin. The decrease in operating expenses was due
primarily to continued improvement in cost efficiencies. The decrease in gross margin was the result of
lower portfolio margins from a higher mix of operating leases, the effect of which was partially offset
by lower bad debt expense as a percentage of revenue and higher margins on lease extensions and
buyouts.
HPFS net revenue increased by 14.0% in fiscal 2010. The net revenue increase was due to
portfolio growth as a result of higher customer demand, a higher operating lease mix due to higher
service-led financing volume, higher end-of-lease rental, buyout and remarketing activity, and favorable
currency movements.
HPFS earnings from operations as a percentage of net revenue increased by 1.5 percentage points
in fiscal 2010 due primarily to an increase in gross margin and a decrease in operating expenses as a
percentage of revenue. The increase in gross margin was the result of higher portfolio margins due to
favorable financing conditions and higher remarketing margins, the effect of which was partially offset
by higher bad debt and lower buyout margins. The decrease in operating expenses as a percentage of
revenue was driven primarily by improved cost efficiencies.
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