HP 2012 Annual Report Download - page 67

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Printing net revenue decreased 6.5% (decreased 6.3% when adjusted for currency) in fiscal 2012,
driven by broad-based consumer demand weakness in all regions. Printer unit volume declined 15%,
while average revenue per unit increased by 8%. Net revenue for Supplies decreased 6% in fiscal 2012
driven by demand declines in all regions, the effects of which were partially offset by growth in large
format printing supplies. Net revenue for Consumer Hardware decreased 14% in fiscal 2012, due
primarily to a decline in consumer demand. Inkjet unit volume reductions of 18% were partially offset
by a higher mix of high value inkjet units reflecting an increase in average revenue per unit of 6%. Net
revenue for Commercial Hardware decreased 5% in fiscal 2012. The net revenue decline was driven by
volume declines of 8%, due primarily to a weak worldwide demand environment impacting our
LaserJet printer business. These negative impacts were offset by higher average revenue per unit of 2%
and net revenue growth in both large format printers and our managed print services business.
Printing earnings from operations as a percentage of net revenue decreased by 0.4 percentage
points in fiscal 2012. Gross margin declined in fiscal 2012 due to an unfavorable currency impact driven
by the strength of the Japanese yen and from lower ink supplies volumes as a result of demand
declines in all regions. These effects were partially offset by our focus on higher-end inkjet printers
combined with a higher mix of supplies. Operating expenses as a percentage of net revenue increased
due to the decline in revenue and investments in research and development, the effects of which were
partially offset by declines in marketing and administrative expenses.
Printing net revenue remained flat (decreased 1.0% when adjusted for currency) in fiscal 2011. Net
revenue for Commercial Hardware increased 3% in fiscal 2011 due primarily to double-digit net
revenue growth in the graphics business, coupled with strong performance in transactional laser
products in emerging geographies. These effects were partially offset by supply chain constraints in
LaserJet printers as a result of the earthquake and tsunami in Japan. Net revenue for Supplies
decreased 1% in fiscal 2011, driven by slower demand, particularly in Europe. These effects were
partially offset by growth in large format printing supplies. Net revenue for Consumer Hardware
decreased 4% in fiscal 2011, driven primarily by overall reductions in consumer electronics spending
and competitive pricing pressures reflected in a mix shift towards lower-priced products and a decline
in the average revenue per unit of 6%.
Printing earnings from operations as a percentage of net revenue decreased by 1.6 percentage
points in fiscal 2011, due primarily to a decline in gross margin, the effect of which was partially offset
by lower operating expenses as a percentage of net revenue. The gross margin decline in fiscal 2011
was due primarily to increased logistics costs and supply chain constraints in LaserJet printers as a
result of the Japan earthquake and tsunami, an unfavorable currency impact driven primarily by the
strength of the yen, a continued mix shift in Consumer Hardware and Commercial Hardware to lower
price point products coupled with a lower mix of supplies. These effects were partially offset by
reductions in Printing’s cost structure as a result of continued efforts to optimize our supply chain. The
decrease in operating expenses as a percentage of net revenue in fiscal 2011 was due primarily to
reduced marketing and administrative expenses, the effect of which was partially offset by higher field
selling cost expenses.
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