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Segment Information

9 Months Ended

Jul. 31, 2011

Note 16: Segment Information

Description of Segments

HP is a leading global provider of products, technologies, software, solutions and services to individual consumers, small- and medium-sized businesses ("SMBs"), and large enterprises, including customers in the government, health and education sectors. HP's offerings span multi-vendor customer services, including infrastructure technology and business process outsourcing, technology support and maintenance, application development and support services, and consulting and integration services; enterprise information technology ("IT") infrastructure, including enterprise server and storage technology, networking products and solutions, information management software and software that optimizes business technology investments; personal computing and other access devices; and imaging and printing-related products and services.

HP and its operations are organized into seven business segments for financial reporting purposes: Services, ESSN, HP Software, PSG, IPG, HP Financial Services ("HPFS"), and Corporate Investments. HP's organizational structure is based on a number of factors that management uses to evaluate, view and run its business operations, which include, but are not limited to, customer base, homogeneity of products and technology. The business segments are based on this organizational structure and information reviewed by HP's management to evaluate the business segment results.

HP has reclassified segment operating results for fiscal 2010 to conform to certain fiscal 2011 organizational realignments. None of the changes impacts HP's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share. Future changes to this organizational structure may result in changes to the business segments disclosed.

A description of the types of products and services provided by each business segment follows:

•

Services provides consulting, outsourcing and technology services across infrastructure, applications and business process domains. Services is divided into four main business units: Infrastructure Technology Outsourcing, Applications Services, Business Process Outsourcing and Technology Services. Infrastructure Technology Outsourcing delivers comprehensive services that encompass the data center; networking; security, compliance, and business continuity; workplace (desktop); and enterprise service management. Applications Services helps clients revitalize and manage their applications assets through flexible, project-based consulting services and longer-term outsourcing contracts. These full life cycle services encompass application development, testing, modernization, system integration, maintenance and management. Business Process Outsourcing's solutions include a broad array of enterprise shared services, customer relationship management services, financial process management services, and administrative services. Technology Services includes consulting and support services. Consulting includes strategic IT advisory services, cloud consulting services, energy efficiency services, converged infrastructure services, networking services, data center transformation services and critical facilities services. Support services include mission critical services, technical and deployment services, support services for servers, storage, networks and imaging and printing, and warranty support across HP's product lines.

•

Enterprise Servers, Storage and Networking provides server, storage and network infrastructure products. The various server offerings range from entry-level servers to high-end scalable servers, including Superdome servers. Industry Standard Servers include primarily entry-level and mid-range ProLiant servers, which run primarily Windows, Linux and Novell operating systems and leverage Intel Corporation ("Intel") and Advanced Micro Devices ("AMD") processors. The business spans a range of product lines, including pedestal-tower servers, density-optimized rack servers and HP's BladeSystem family of server blades. Business Critical Systems include HP Integrity servers based on the Intel Itanium-based processor that run HP-UX, Microsoft Windows and OpenVMS operating systems, as well as fault-tolerant HP Integrity NonStop solutions. Business Critical Systems' portfolio of server solutions includes Scale-up x86 ProLiant Servers, the BladeSystem architecture-based Integrity blade servers and the Superdome 2 server solution. HP's StorageWorks offerings include entry-level, mid-range and high-end arrays, storage area networks ("SANs"), network attached storage ("NAS"), storage management software, and virtualization technologies, as well as StoreOnce data deduplication solutions, tape drives, tape libraries and optical archival storage. HP's networking offerings include the network infrastructure product portfolios sold under the ProCurve, 3Com, H3C and Tipping Point brands.

•

HP Software provides enterprise IT management software, information management solutions, and security intelligence/risk management solutions. Solutions are delivered in the form of traditional software licenses or as software as a service. Augmented by support and professional services, HP Software solutions allow large IT organizations to manage infrastructure, operations, application life cycles, application quality and security, IT services, and business processes. In addition, the solutions help businesses proactively safeguard digital assets, comply with corporate and regulatory policies, and control internal and external security risks.

•

Personal Systems Group provides commercial PCs, consumer PCs, workstations, calculators and other related accessories, software and services for the commercial and consumer markets. Commercial PCs are optimized for commercial uses, including enterprise and SMB customers, and for connectivity and manageability in networked environments. Commercial PCs include the Compaq Pro, Compaq Elite, HP Pro and HP Elite lines of business desktops and the HP ProBook and HP EliteBook lines of notebooks, as well as the All-in-One Touchsmart and Omni PCs, HP Mini-Note PC, HP Blade PCs, Retail POS Systems, HP Thin Clients, and the HP Slate Tablet. Consumer PCs are targeted at the home user and include the HP Pavilion and Compaq Presario series of multi-media consumer desktops and notebooks, as well as the HP Pavilion Elite desktops, HP Envy Premium notebooks, HP Pavilion G Series notebooks, Touchsmart PCs, All-in-One PC, HP and Compaq Mini notebooks, and the Media Smart Home Server. HP's Z series desktop workstations and HP Elitebook Mobile Workstations provide advanced graphics, computing, and large modeling capabilities, certified with applications in a wide range of industries and running both Windows and Linux operating systems.

•

Imaging and Printing Group provides consumer and commercial printer hardware, supplies, media and scanning devices. IPG is also focused on imaging solutions in the commercial markets. These solutions range from managed print services and capturing high-value pages in areas such as industrial applications, outdoor signage, and the graphic arts business. Inkjet and Web Solutions delivers HP's consumer and SMB inkjet solutions (hardware, supplies, media, web-connected hardware and services) and develops HP's retail publishing and web businesses. It includes single function and all-in-one inkjet printers targeted toward consumers and SMBs, as well as retail publishing solutions, Snapfish, and ePrintCenter. LaserJet and Enterprise Solutions deliver products, services and solutions to the medium-business and enterprise segments, including LaserJet printers and supplies, multi-function devices, scanners, web-connected hardware and services and enterprise software solutions such as Exstream Software and Web Jetadmin. Managed enterprise solutions include managed print services products and solutions delivered to enterprise customers partnering with third-party software providers to offer workflow solutions in the enterprise environment. Graphics solutions include large format printing (Designjet and Scitex), large format supplies, WebPress supplies, Indigo printing, specialty printing systems and inkjet high-speed production solutions. The graphic solutions business targets Print Service Providers, architects, engineers, designers and industrial solution providers. Printer supplies include LaserJet toner and inkjet printer cartridges and other printing-related media.

•

HP Financial Services supports and enhances HP's global product and services solutions, providing a broad range of value-added financial life cycle management services. HPFS enables HP's worldwide customers to acquire complete IT solutions, including hardware, software and services. HPFS offers leasing, financing, utility programs, and asset recovery services, as well as financial asset management services, for large global and enterprise customers. HPFS also provides an array of specialized financial services to SMBs and educational and governmental entities. HPFS offers innovative, customized and flexible alternatives to balance unique customer cash flow, technology obsolescence and capacity needs.

•

Corporate Investments includes business intelligence solutions, HP Labs, mobile devices associated with the Palm acquisition, and certain business incubation projects. Business intelligence solutions enable businesses to standardize on consistent data management schemes, connect and share data across the enterprise and apply analytics. The segment also includes smartphone and tablet devices running on the WebOS operating system targeted at consumer and commercial segments. This segment also derives revenue from licensing specific HP technology to third parties.

Segment Data

HP derives the results of the business segments directly from its internal management reporting system. The accounting policies HP uses to derive business segment results are substantially the same as those the consolidated company uses. Management measures the performance of each business segment based on several metrics, including earnings from operations. Management uses these results, in part, to evaluate the performance of, and to assign resources to, each of the business segments. HP does not allocate to its business segments certain operating expenses, which it manages separately at the corporate level. These unallocated costs include primarily restructuring charges and any associated adjustments related to restructuring actions, amortization of purchased intangible assets, stock-based compensation expense related to HP-granted employee stock options, PRUs, restricted stock awards and the employee stock purchase plan, certain acquisition-related charges and charges for purchased in-process research and development, as well as certain corporate governance costs.

Selected operating results information for each business segment was as follows:

	Three months ended July 31

	Net Revenue				Earnings (Loss) from Operations
	2011		2010⁽¹⁾		2011			2010⁽¹⁾
	In millions
Services	$	9,089	$	8,772	$	1,225		$	1,381
Enterprise Servers, Storage and Networking⁽²⁾		5,396		5,021		699			706
HP Software⁽³⁾		780		650		151			182
Personal Systems Group		9,592		9,918		567			469
Imaging and Printing Group		6,087		6,167		892			1,040
HP Financial Services		932		764		88			72
Corporate Investments⁽⁴⁾		266		85		(332	)		(88	)

Segment total	$	32,142	$	31,377	$	3,290		$	3,762

	Nine months ended July 31

	Net Revenue				Earnings (Loss) from Operations
	2011		2010⁽¹⁾		2011			2010⁽¹⁾
	In millions
Services	$	26,673	$	26,404	$	3,961		$	4,161
Enterprise Servers, Storage and Networking⁽²⁾		16,586		14,468		2,293			1,937
HP Software⁽³⁾		2,241		1,966		428			521
Personal Systems Group		29,456		30,458		1,772			1,464
Imaging and Printing Group		19,462		18,769		3,165			3,192
HP Financial Services		2,644		2,238		250			208
Corporate Investments⁽⁴⁾		416		211		(713	)		(209	)

Segment total	$	97,478	$	94,514	$	11,156		$	11,274

⁽¹⁾: Certain fiscal 2011 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. The reclassifications resulted in the transfer of revenue and operating profit among ESSN, HP Software and Corporate Investments. Reclassifications between segments included the transfer of the networking business from Corporate Investments to ESSN, the transfer of the communications and media solutions business from HP Software to Services, and the transfer of the business intelligence business from HP Software to Corporate Investments. There was no impact on the previously reported financial results for PSG, HPFS or IPG.
⁽²⁾: Includes the results of 3Com and 3PAR Inc. ("3PAR") from the dates of acquisition in April 2010 and September 2010, respectively.
⁽³⁾: Includes the results of ArcSight, Inc. ("ArcSight") from the date of acquisition in October 2010.
⁽⁴⁾: Includes the results of Palm from the date of acquisition in July 2010.

The reconciliation of segment operating results information to HP consolidated totals was as follows:

	Three months ended July 31						Nine months ended July 31

	2011			2010			2011			2010
	In millions
Net revenue:
Segment total	$	32,142		$	31,377		$	97,478		$	94,514
Elimination of inter-segment net revenue and other		(953	)		(648	)		(2,355	)		(1,759	)

Total HP consolidated net revenue	$	31,189		$	30,729		$	95,123		$	92,755

Earnings before taxes:
Total segment earnings from operations	$	3,290		$	3,762		$	11,156		$	11,274
Corporate and unallocated costs and eliminations		(114	)		(175	)		(118	)		(375	)
Unallocated costs related to stock-based compensation expense		(130	)		(156	)		(426	)		(504	)
Amortization of purchased intangible assets		(358	)		(383	)		(1,196	)		(1,060	)
Restructuring charges		(150	)		(598	)		(466	)		(909	)
Acquisition-related charges		(18	)		(127	)		(68	)		(242	)
Interest and other, net		(121	)		(134	)		(294	)		(424	)

Total HP consolidated earnings before taxes	$	2,399		$	2,189		$	8,588		$	7,760

In connection with certain fiscal 2011 organizational realignments, HP reclassified total assets of its networking business from Corporate Investments to ESSN and total assets of the communications and media solutions business from HP Software to Services. There have been no other material changes to the total assets of HP's segments since October 31, 2010.

Net revenue by segment and business unit

			Three months ended July 31						Nine months ended July 31

			2011			2010⁽¹⁾			2011			2010⁽¹⁾
			In millions
Net revenue:
		Infrastructure Technology Outsourcing	$	3,884		$	3,692		$	11,303		$	11,091
		Technology Services		2,754			2,611			8,069			7,894
		Application Services		1,698			1,664			5,054			5,029
		Business Process Outsourcing		658			727			1,989			2,177
		Other		95			78			258			213

	Services			9,089			8,772			26,673			26,404

		Industry Standard Servers		3,302			3,042			10,137			9,044
		Storage⁽²⁾		976			904			2,968			2,741
		HP Networking⁽³⁾		659			572			1,921			1,086
		Business Critical Systems		459			503			1,560			1,597

	Enterprise Servers, Storage and Networking			5,396			5,021			16,586			14,468

	HP Software⁽⁴⁾			780			650			2,241			1,966

		Notebooks		5,082			5,314			15,929			16,979
		Desktops		3,777			3,941			11,314			11,591
		Workstations		547			459			1,623			1,257
		Other⁽⁵⁾		186			204			590			631

Personal Systems Group				9,592			9,918			29,456			30,458

		Supplies		4,143			4,130			13,113			12,542
		Commercial Hardware		1,292			1,389			4,194			4,028
		Consumer Hardware		652			648			2,155			2,199

Imaging and Printing Group				6,087			6,167			19,462			18,769

HP Financial Services				932			764			2,644			2,238
Corporate Investments⁽⁶⁾				266			85			416			211

		Total segments		32,142			31,377			97,478			94,514

Eliminations of inter-segment net revenue and other				(953	)		(648	)		(2,355	)		(1,759	)

		Total HP consolidated net revenue	$	31,189		$	30,729		$	95,123		$	92,755

⁽¹⁾: Certain fiscal 2011 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. The reclassifications resulted in the transfer of revenue among ESSN, Services, HP Software and Corporate Investments. Reclassifications between segments included the transfer of the networking business from Corporate Investments to ESSN, the transfer of the communications and media solutions business from HP Software to Services, and the transfer of the business intelligence business from HP Software to Corporate Investments. Revenue was also transferred among the business units within Services and within PSG. In addition, net revenue reported for the Infrastructure Technology Outsourcing business unit and eliminations of inter-segment net revenue have both been reduced to reflect a change in our inter-segment reporting model. There was no impact on the previously reported financial results for HPFS and IPG or for the business units within IPG.
⁽²⁾: Includes the results of 3PAR from the date of acquisition in September 2010.
⁽³⁾: The networking business was added to ESSN in fiscal 2011. Also includes the results of 3Com from the date of acquisition in April 2010.
⁽⁴⁾: The Business Technology Optimization and Other Software business units were consolidated into a single business unit within the HP Software segment in fiscal 2011. Also includes the results of ArcSight from the date of acquisition in October 2010.
⁽⁵⁾: The Handhelds business unit, which includes devices that run on Windows Mobile software, was realigned into the Other business unit within PSG in fiscal 2011.
⁽⁶⁾: Includes the results of Palm from the date of acquisition in July 2010.