2006 HP Annual Report Dear Fellow Stockholders
Total Page：16
File Type：pdf, Size：1020Kb
2006 HP Annual Report [Cover depicts a solid green background with a thin white horizontal stretch bar wrapping around the cover. The HP logo sits in the lower right-hand corner. 2006 HP Annual Report sits within the white bar.] Dear Fellow Stockholders, HP made solid progress this past year toward our goal of becoming the world’s leading IT company. We want to create the best technology on the planet — and be the best at selling, servicing and supporting that technology. To get there, we are focusing our portfolio of products and services on simplifying our customers’ experiences with technology and helping them do what they want to do, wherever they are. For example, in our enterprise business, we are working on helping our customers run their businesses with automated, super-efficient data centers. In our imaging and printing business, we are helping customers more rapidly achieve the benefits of printing from a digital source in areas such as commercial printing and retail photo printing. And in our personal systems business, we are working to empower customers with simple, always-connected, mobile computing experiences at work, at home or on the go. While we worked toward these strategic goals, we also improved the health of our financials. Our revenue increased 6 percent in fiscal year 2006 to $91.7 billion. Non-GAAP EPS increased 47 percent to $2.38¹, and GAAP diluted EPS increased 166 percent to $2.18. And we generated record cash flow from operations of $11.4 billion. We also achieved the most balanced profit mix by business group that HP has seen in years. Yet, we still have a lot more work ahead. We are a company that is transforming — not one that has transformed. We have to make it easier for customers to do business with HP. We have to capture more growth opportunities, improve our capital allocation, become more efficient and continue to execute consistently. As we work through this process, we will continue to build on our rich legacy of responsible conduct wherever we do business. We will adhere to our core values and operate every day with uncompromising integrity. Operating Framework Last year, we introduced an operating framework for managing the company and guiding our strategic decisions. It is based on the disciplined management of three interrelated business levers: targeted growth, operational efficiency and capital strategy. We took several steps forward this year in each of these areas, but also see room for more improvement. Targeted Growth We have put a lot of effort into analyzing our future growth opportunities by customer segment, by business group and by geography. One way for us to capitalize on these opportunities is to improve our go-to-market effectiveness. For years, the company has operated under the philosophy that if we build great technology, customers will seek it out. While that has served us well, we are confident we can improve our growth prospects if we become as good at selling our technology as we are at inventing it. We have comprehensively analyzed our sales force to ensure we have enough account managers with the right skills, placed on the right accounts and in the right regions, and aligned with the right growth opportunities. We think this will improve sales results and lower field selling costs. Our channel partners are another area where HP can improve go-to-market effectiveness. Last year, we rolled out several new programs to increase clarity and accountability in how we serve customers. We added new incentive plans to drive more profitable growth for both HP and our partners — encouraging greater attach rates and sales of bundled HP solutions. However, we still have work to do to make sure these programs achieve their intended outcomes. We are investing in training our sales force and our channel partners to become better strategic partners to our customers — so they can have the same high-quality experience around the globe whether they work with HP or with our partners. Earning customer loyalty and respect through better experiences is critical to improving our growth potential. Finally, to drive growth and achieve a higher return on investment, we need to better align marketing with sales — targeting investments where we want to generate more demand and interacting with customers where they spend more of their time, such as on the Internet. Operational Efficiency As we pursue more growth, we will simultaneously improve our efficiency to increase our speed and effectiveness in the marketplace. Last year, we streamlined our company’s structure, reduced organizational matrices and removed approximately three layers of management. We folded our Global Operations function into our business groups to increase accountability, efficiency and speed, and we lowered costs by substantially completing our restructuring program. The full cost benefit of these efforts will be seen in fiscal year 2007. Moving forward, we see many more opportunities to lower costs. We view our total cost envelope as revenue minus operating profit. In this context, we think the $85.1 billion in fiscal year 2006 costs includes a number of areas to optimize — from real estate to procurement to IT to supply chain, to name just a few. We know a lot more today than we did last year. In real estate alone, we now know costs by employee, business group, country, region and site. We are applying this level of analysis to virtually all areas of the company, scrutinizing how every expense supports our strategy. Capital Strategy As we lower costs, we free up capital to invest in growth. We plan to use these resources to grow market share, increase margins and invest in long-term competitiveness. One example of where we are investing financial capital is in our IT operations. We expect this to result in four business benefits. First, we will lower our costs while increasing capability. Second, we will get better information for running our business and serving customers. Third, we will lower our business risk by having better control of our infrastructure. And fourth, we will do it all with HP technology. We will make our own IT organization the world’s best showcase of HP technology, turning what we are doing for ourselves into a comprehensive offering for customers. Another place we are investing in for growth is our employees. HP is made up of great people who do great work every day. To improve our talent advantage, we will offer programs that give them opportunities to grow and increase their ability to compete. We will provide incentives and rewards to employees who focus on the customer, deliver on their objectives and help HP win. At the end of the day, HP’s success is a direct function of our employees’ success. Business Group Strategies Having a portfolio of three globally scaled businesses creates additional leverage points in several areas across the company, including research and development, sales, marketing and operations. Each of HP’s business groups has a strategy for driving market leadership, and all take advantage of these leverage points in the execution of their strategies. Imaging and Printing Our imaging and printing business is focused on driving the transformation of a mostly analog printing world to one that is all digital. Simply put, the opportunity is to expand our leadership in printers to leadership in printing. For example, as the Internet continues to foster the sharing and printing of digital images, our online photo service, Snapfish by HP, positions us well to lead this new printing ecosystem — powered entirely by HP infrastructure — from our commercial printers and enterprise infrastructure to our retail kiosks and partnerships. Last year, we acquired the assets of Scitex Vision, a leader in industrial ultra-wide-format digital printing. As we integrate Scitex’s capabilities with the high-end digital commercial printing capabilities of HP’s Indigo business unit, we expect HP to become the dominant player in both of these rapidly growing digital printing markets. We also introduced Edgeline printing, one result of a multi-year, $1.6 billion R&D investment in HP inkjet technology. Edgeline printing broadens our position in the enterprise and graphic arts printing markets, offering customers the high quality and low total cost of ownership of ink with the speed of laser printing. Additionally, as enterprise printing is increasingly moving under the control of chief information officers, we began hiring an enterprise printing sales force to better address expanded printing opportunities, such as outdoor signage, industrial printing, digital publishing and vertical printing applications, and to sell print management solutions more effectively. We intend to grow our market share in these areas. Personal Systems Our personal systems group is focused on driving highly personalized, always-connected, mobile computing experiences across our customer segments. People around the world are increasingly using smart mobile devices to communicate and access their personal and professional digital content. Our strategy with mobile devices, such as notebooks and handhelds, is to engineer complexity away from the user and move more intelligence into the back- end network, where we deliver solutions to our service provider customers. As homes become Internet-enabled and wireless, we see great potential in connecting our range of products (for example, TVs, printers, PCs, storage, servers and networking) to create a new, managed home experience. This will help our customers more easily access and manage their personal, professional and entertainment content throughout their homes. And our recent acquisition of VoodooPC extends our presence in the home to a young, fast-growing gaming market with an advanced, highly personalized, “gamer-centric” product portfolio. Technology Solutions Our enterprise business is focused on helping customers run their businesses on an automated, 24×7, “lights-out” IT infrastructure.