2010 HP ANNUAL REPORT A LETTER FROM THE CEO Léo Apotheker President AND Chief Executive Officer I want all of you to know how honored For the year, we delivered: DEAR FELLOW I am to lead this great company and • Net revenue of $126 billion, up how excited I am about the opportunities STOCKHOLDERS, 10 percent year-over-year that lie ahead. HP is the world’s largest information technology company, which is • GAAP operating profit of $11.5 billion, impressive. However, even more impressive up 13 percent year-over-year is what that scale means—the innovation • GAAP diluted earnings per share of we can drive into the marketplace, the $3.69, up 18 percent year-over-year breadth and depth of our portfolio, the expanse of our global reach, the talent • Non-GAAP operating profit of $14.4 and dedication of our more than 300,000 billion, up 14 percent year-over-year* people, the solutions we can bring to our • Non-GAAP diluted earnings per share of customers, the value we can create for our $4.58, up 19 percent year-over-year* stockholders, and the impact we can have on the world. A POWERFUL PERFORMANCE In fiscal 2010, as HP navigated a fragile ACROSS BUSINESSES AND economic recovery, all of these advantages GEOGRAPHIES were clearly evident. HP rebounded HP once again demonstrated the power powerfully from the recessionary conditions of our diversification by performing across of the prior year and reported growth in economic cycles. You will remember that each reported business segment and in during the worst of the 2009 recession, it each of our three geographic regions. Our was the strength of our resilient businesses people remained focused on delivering such as supplies and services that helped for our customers and executing for our preserve revenue and earnings. In fiscal stockholders. 2010, we benefited from a technology refresh in commercial enterprises, and it was our product businesses that drove growth and margin expansion. HP ANNUAL REPORT | 2010 A LETTER FROM THE CEO HP’s Enterprise Business grew 7 percent For the full year, we grew units by 13 year-over-year, led by 21 percent growth percent, growing LaserJet by 20 percent in Enterprise Storage and Servers. and Inkjet by 11 percent. Strong customer Industry Standard Servers, Blade Servers, response to our new line of innovative and BladeSystem Matrix products web-connected printers helped us grow continue to lead their categories with revenues and maintain attractive margins. exceptional growth. In networking, we Our growth initiatives in commercial gained momentum throughout the year, print, graphics, and retail publishing also culminating in 227 percent year-over-year continued to gain solid traction with major growth in the fourth quarter, aided by the new customer engagements and thousands acquisition of 3Com Corporation and more of high-profile retail publishing solution than 50 percent growth in our ProCurve placements. Billions of pages a year are networking products. Services and moving from analog to digital, and we are Software held steady, growing roughly exceptionally well-positioned with leading at market. As HP moves increasingly to intellectual property to capture these high- deliver more solutions, we expect to scale value pages. our services and software businesses From a regional perspective, we saw a more rapidly. broad-based global recovery with growth POWERFUL TRENDS AND In the Personal Systems Group, we of 11 percent in the Americas; 7 percent A WAVE OF INNOVATION demonstrated the strength of our balanced in Europe, the Middle East, and Africa; ARE RAPIDLY CHANGING portfolio with growth in both commercial and 16 percent in Asia Pacific and Japan. and consumer sectors. Overall, revenues Going forward, we are focused on moving THE TECHNOLOGY grew 15 percent year-over-year and beyond being a multinational company to LANDSCAPE. AT HP, operating margins increased. In a very being a truly global one with both deep WE ARE INVESTING TO competitive environment, we did a good local expertise and a comprehensive world job of maintaining our No. 1 position in view that brings the full value of HP to all LEAD THE EVOLUTION worldwide market share, as well as healthy customers. OF THE INDUSTRY, AND average selling prices. We continue to WE CONTINUED TO differentiate through strong design and an INVESTING TO LEAD THE BUILD OUR PORTFOLIO outstanding customer experience across EVOLUTION OF THE INDUSTRY a full line of offerings that range from THROUGHOUT THE YEAR. Powerful trends and a wave of innovation high-end gaming PCs to sleek, powerful are rapidly changing the technology notebooks to fashion-inspired netbooks landscape. At HP, we are investing to and innovative smartphones. lead the evolution of the industry, and we In the Imaging and Printing Group, a continued to build our portfolio throughout similar pattern emerged with growth in the year. In fact, HP had the largest and commercial and consumer sectors. For the best product releases in its history in year, IPG grew 7 percent over fiscal 2009 fiscal 2010, from the data center to the levels, while still delivering more than cloud and from PCs to printers. With 17 percent operating profit. At the end Superdome 2, we added a powerful new of fiscal 2009, we committed to placing solution for business-critical systems. more units and regaining share in 2010. HP ANNUAL REPORT | 2010 A LETTER FROM THE CEO BladeSystem Matrix and Virtual Connect FISCAL 2011 PRIORITIES significantly advance our strategy for As we look to fiscal 2011, HP will continue converged and cloud-based infrastructures. to move aggressively to drive growth, Our ProLiant G7 servers deliver vastly expand margins, and deliver unparalleled improved performance, a much lower cost value to our customers and stockholders. of ownership, and a return on investment measured in months. CloudStart helps We expect to grow by investing in clients quickly and easily realize the portfolio enhancements and acquisitions, benefits of cloud computing. StoreOnce by covering more of the market with provides deduplication technology that our sales force and channel partners, comes straight out of HP Labs. In PCs and by expanding that coverage more and printers, TouchSmart and ePrint are aggressively into high-growth emerging redefining how we interact with technology economies. Additionally, we plan increased and how we share the experiences of our investments in innovation. Over the last life and work. few years, we have rationalized our research and development spend, reduced We are also continuing to build our inefficiency, and focused more acutely on portfolio through acquisitions, and the practical applications, while at the same marketplace offered several strategic time delivering industry-leading products opportunities in fiscal 2010. With the and technologies. Looking ahead, we will acquisition of Palm, Inc., we added the continue to speed the innovation cycle and most modern operating system in the deliver new technologies to market at scale market, positioning HP to drive innovation with impact. into the fast-growing area of connected mobility. In an increasingly mobile and Our focus on margin expansion will also cloud-based environment, security and continue in the year ahead. We do this storage solutions are critical for our by increasing gross margins through a customers. We are building out a security more profitable business mix and through offering, helped by the recent acquisitions efficiencies. In a company of HP’s size, of ArcSight, Inc.; Fortify Software Inc.; and there are always opportunities to achieve 3Com’s TippingPoint business. In addition, a higher level of efficiency, and major our recent acquisition of 3PAR Inc. initiatives in our supply chain operations, provided essential storage technology for real estate portfolio, and service delivery high-end and cloud environments. At the model are expected to have a positive foundation of the data center, enterprises impact on our operating leverage in are embracing converged infrastructure that fiscal 2011. is flexible, scalable, and shareable. With We expect HP to continue moving up our acquisition of 3Com, we filled out our the technology stack into higher margin networking portfolio to deliver unmatched categories. By further developing our capacity, efficiency, and value. With HP, intellectual property portfolio, we plan to customers can realize tomorrow’s next- differentiate HP and leverage the enormous generation converged infrastructure today. power, scale, and breadth of our market- leading products across the data center, printing, PCs, and mobile devices. This is the key to making HP the leading provider of strategic solutions that address our customers’ biggest challenges. HP ANNUAL REPORT | 2010 A LETTER FROM THE CEO AN EXTRAORDINARY At HP, our mission is to innovate at every OPPORTUNITY AHEAD touchpoint of information—from creation to capture, from management to delivery, Since joining HP, I have been impressed and all the collaboration that goes on in with our financial strength, the breadth between. We create the solutions that and quality of our portfolio, and the transform data into value, bytes into commitment and talent of our people. These experiences, and noise into knowledge. are significant competitive advantages that We drive that innovation at an unmatched position us to lead the industry and win in scale to advance human progress. the marketplace. However, for all we have accomplished, I believe that our greatest A woman in Ghana can have a face- opportunities lie ahead. to-face conversation with her daughter in France or authenticate her mother’s In the 21st century, information is the medication with a simple text message world’s most valuable resource. At sent to the cloud. A fast-growing bank in the heart of this evolution, information India can delight customers with anytime, technology has expanded from a tool for anywhere services. Or a start-up new productivity into tools for communication media company in Canada can redefine and collaboration, and today, information journalism with on-demand, professional- technology is rapidly becoming the fabric quality publishing.