HP 2012 Annual Report Download - page 48

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
manner of their choosing, be it in-house, outsourced as a service via the Internet, or via a hybrid
environment. Our portfolio of management software completes the package by allowing our customers
to manage their IT operations in an efficient and cost-effective manner. In addition, we are working to
optimize our supply chain by eliminating complexity, reducing fixed costs, and leveraging our scale to
ensure the availability of components at favorable prices even during shortages. We are also expanding
our use of industry standard components in our enterprise products to further leverage our scale.
Addressing the Challenges Facing Our Business
Our business has experienced a multi-quarter decline in revenue and operating margins. This
decline in financial performance reflects a series of challenges facing our business. Many of those
challenges relate to structural and execution issues, including the following: we need to align our costs
with our revenue trajectory; we need to address our underinvestment in R&D and in our internal IT
systems in recent years, which has made us less competitive, effective and efficient; we need to
implement the data gathering and reporting tools and systems needed to track and report on all key
business performance metrics so as to most effectively manage a company of our size, scale and
diversity; and we need to rebuild our business relationships with our channel partners. We are also
facing dynamic market trends, such as the growth of mobility, the increasing demand for hyperscale
computing infrastructure, the shift to software-as-a-service and the transition towards cloud computing,
and we need to develop products and services that position us to win in a very competitive
marketplace. Furthermore, we face a series of significant macroeconomic challenges, including broad-
based weakness in consumer spending, weak demand in the SMB and enterprise sectors in Europe, and
declining growth in some emerging markets, particularly China.
We are addressing these challenges through consistency of leadership, focus, execution and, most
importantly, superior products, services and solutions. During fiscal 2012, we implemented some
leadership and organizational changes, including consolidating our personal computer and printing
businesses under the same senior executive leadership, merging our global accounts sales organization
into ESSN, and centralizing all of our marketing and communications activities. We also began
implementing cost-reduction initiatives, including a company-wide restructuring plan we expect to be
implemented through the end of fiscal 2014. In addition, we began making significant changes to our
sales force to improve our go-to-market selling activities and reduce cost, and we renewed our focus on
developing new products, services and solutions. We also began working to optimize our supply chain,
reduce the number of stock keeping units (SKUs) and platforms, refine our real estate strategy,
improve our business processes and implement consistent pricing and promotions. During fiscal 2013,
we will be focused on working through the anticipated disruptions expected to accompany the changes
made in fiscal 2012 and continuing to implement our cost-reduction and operational initiatives.
Investing in our Business
The cost-reduction and operational efficiency initiatives discussed above are also intended to
facilitate increased investment in our business. These efforts will include optimizing our supply chain,
reducing the number of stock keeping units (SKUs) and platforms, continuing to refine our real estate
strategy, simplifying our go-to-market, improving business processes and implementing consistent
pricing and promotions. We expect to invest savings from these efforts across our businesses, including
investing to respond to market trends and customer expectations, strengthen our position in our core
markets, accelerate growth in adjacent markets, and drive leadership in the three strategic areas of
cloud computing, security and information management. Over time, we expect these investments to
allow us to expand in higher margin and higher growth industry segments and further strengthen our
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