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Hewlett-Packard Company

Hewlett-Packard Company

3000 Hanover Street
Palo Alto, California 94304
U.S.A.
Telephone: (650) 857-1501
Toll Free: (800) 752-0900
Fax: (650) 857-7299
Web site: http://www.hp.com

Public Company
Incorporated: 1947
Employees: 86,200 (2001)
Sales: $45.2 billion (2001)
Stock Exchanges: New York Pacific Frankfurt London Paris Tokyo Zurich
Ticker Symbols: HWP (2001); HPQ (2002)
NAIC: 334111 Electronic Computer Manufacturing; 334112 Computer Storage Device Manufacturing; 334119 Other Computer Peripheral Equipment Manufacturing; 333313 Office Machinery Manufacturing; 334413 Semiconductors & Related Device Manufacturing; 334613 Magnetic & Optical Recording Media Manufacturing; 334519 Other Measuring & Controlling Device Manufacturing; 334510 Electromedical & Electrotherapeutic Apparatus Manufacturing; 511210 Software Publishers; 541512 Computer Systems Design Services; 811212 Computer & Office Machine Repair & Maintenance

Since merging in 2002, Hewlett-Packard (HP) and Compaq have created the new HP (Hewlett-Packard Company), serving more than one billion customers in more than 160 countries on five continents. The new HP is a market leader in all the essential components of business infrastructureservers, storage, management software, imaging and printing, personal computers, and personal access devices. The new HP is the leading consumer technology company in the world, offering a range of technology toolsfrom digital cameras to PCs to handheld devices.

HP Began As Maker of Test and Measurement Products

Hewlett-Packard had its beginnings with Stanford University graduates, William Hewlett and David Packard, who were encouraged by Professor Frederick Terman to start their own business. With only $538 and workspace in a garage behind Packards rented house in Palo Alto, California, the two men began working on a resistance-capacity audio oscillator, a machine used for testing sound equipment. After assembling several modelsbaking paint for the instrument panel in Packards oventhey won their first big order, for eight oscillators, from Walt Disney Studios, which used them to develop and test a new sound system for the animated film Fantasia.

On January 1, 1939, Hewlett and Packard formalized their venture as a partnership, tossing a coin to decide the order of their names. Hewlett won. In 1940, with a product line of eight items, the two men moved their company and its three employees to a building in downtown Palo Alto.

During World War II, Terman, who was then in charge of antiradar projects at Harvard, contracted his former students to manufacture microwave signal generators for his research. When the war ended, HP took full advantage of the growth in the electronics sector, particularly in the defense and industrial areas. The founders also defined their respective roles in the company: Hewlett would lead technological development, and Packard would be in charge of management. Hewlett-Packard Company was incorporated in 1947, and by 1950 had 70 products, 143 employees, and revenues of $2 million.

HP introduced a revolutionary high-speed frequency counter, the HP524A, in 1951. This device, which reduced the time required to measure radio frequencies from ten minutes to about two seconds, was used by radio stations to maintain accurate broadcast frequencies, particularly on the newly established FM band.

The company maintained stable and impressive growth through the end of the decade. In November 1957, Hewlett-Packard offered shares to the public for the first time and moved into a larger complex in the Stanford Research Park.

In 1958, with revenues of $30 million, HP made its first corporate acquisition: the F.L. Moseley Company of Pasadena, California, a manufacturer of graphic recorders. The companys expansion continued in 1959, with the establishment of a marketing office in Geneva, and a manufacturing facility in Boeblingen, West Germany. After adding another factory in Loveland, Colorado, in 1960, Hewlett-Packard purchased the Sanborn Company, a medical instruments manufacturer based in Waltham, Massachusetts, in 1961.

The company gained wider public recognition when it was listed on the Pacific and New York stock exchanges in 1961 and in the Fortune 500 a year later. In 1964, Hewlett-Packard developed a cesium-beam flying clock, accurate to within one-millionth of a second. Company engineers embarked on a 35-day, 35,000-mile world tour to coordinate standard times.

In 1963, Hewlett-Packard expanded its presence in Japan through a joint venture with the Yokogawa Electric Works; and in 1965 it acquired the F & M Scientific Corporation, an analytical-instruments manufacturer, based in Avondale, Pennsylvania. In 1966, the company opened its central research laboratory, which became one of the worlds leading electronic research centers.

HP Moves into Calculators and Computers in the Late 1960s and 1970s

Although primarily a manufacturer of instruments for analysis and measurement, Hewlett-Packard developed a computer in 1966, specifically for its own production control, the HP-2116A, and had no plans to enter the computer market. Two years later, however, HP introduced the HP-9100A, the first desktop calculator capable of performing scientific functions. In 1969, David Packard was appointed deputy secretary of defense in President Richard Nixons administration, and returned to HP as a director in 1972.

A handheld scientific calculator, the HP-35, was partially designed by Bill Hewlett in 1972. It was known as the electronic slide rule. When Texas Instruments entered the market in 1973, Hewlett-Packards device, which retailed at $395, was forced into the high end of the market.

Signaling a change in company strategy, in 1972, Hewlett-Packard made its first decisive move into business computing, a field dominated by IBM and Digital Equipment Corporation, with the HP3000 minicomputer. In spring 1974, despite record earnings and escalating growth, the company refocused on product leadership, and established a new, highly decentralized structure, allowing each of the companys divisions conduct its own research and development.

In 1977, Bill Hewlett relinquished the presidency and later his role as chief executive to John Young, a career HP man determined to make the company successful in the computer market. Although he was chosen by Hewlett and Packard, Young was virtually unknown to the companys customers and 37,000 employees.

HP Introduces Personal Computers and Printers in the 1980s

Hewlett-Packard introduced its first personal computer, the HP-85, in 1980, to a cool reception. Its move into information processing, however, proved successful and the company quickly established itself as a leading computer vendor. A six-year program began to develop architecture and software that would be compatible with existing programs. In the meantime, HP introduced a number of other products, including the HP9000 technical workstation (1982), the HP150 touchscreen PC, the HP ThinkJet inkjet printer (1984), and the HP LaserJet printera phenomenally successful product that came to dominate the printer market soon after its 1984 debut.

Compaq Beginnings: Making IBM Clones

When International Business Machines Corporation (IBM) introduced its first personal computer (PC) in 1982, Compaq was among dozens of other companies, including HP, entering the market with IBM clonescomputers that looked and performed like IBM PCs, but were often less expensive. Compaq set itself apart from other clone manufacturers by producing IBM-compatible PCs that were faster, superior in quality, and offered additional user features. Its unique management team was made up of seasoned professionals from Texas Instruments (TI) and IBM. Compaqs staff also had the technical and business grounding to establish new industry standards on its ownwithout following IBM.

Compaq had come to be in the summer of 1981, when Joseph R. Rod Canion, James M. Harris, and William H. Murto, three senior managers from TI, decided to start their own company, but had not decided on a product. The entrepreneurs eventually decided to build a portable PC that met industry standards set by IBM. With only $1,000 each to invest, Canion, Harris, and Murto approached Ben Rosen, president of Sevin-Rosen Partners, a high-technology venture capital firm in Houston. Rosen, who became Compaqs chairman, offered an initial investment of $2.5 million.

Company Perspectives:

The new HP is a leading technology solutions provider for consumers and businesses with market leadership in fault-tolerant servers, UNIX servers, Linux servers, Windows servers, storage solutions, management software, imaging and printing and PCs. Furthermore, 65,000 professionals worldwide lead our IT services team. Our $4 billion annual R&D investment fuels the invention of products, solutions and new technologies, so that we can better serve customers and enter new markets. We invent, engineer and deliver technology solutions that drive business value, create social value and improve the lives of our customers.

When Compaq arrived on the scene, venture capitalists were beginning to force many entrepreneurs to turn over control of their companies to more experienced management professionals. As Rosenwho had lost a $400,000 investment in another PC start-upexplained in Management Today in 1985, In the early days, it was an area for flamboyant people who transformed their personalities into companies. Now the business requires a very different kind of manager. It has become a very unforgiving industry.

Key Dates:

1939:
William Hewlett and David Packard enter into a partnership; Hewlett-Packard (HP) is born.
1940:
HP operations begin in Palo Alto, California.
1947:
HP is incorporated.
1951:
HP introduces the HP524A high-speed counter.
1957:
HP shares are offered to the public.
1958:
HP acquires F.L. Moseley Company, manufacturer of graphic recorders.
1959:
HP establishes a marketing office in Geneva and a manufacturing facility in Boeblingen, West Germany.
1960:
HP opens factory in Loveland, Colorado.
1961:
HP purchases the Sanborn Company, a medical instruments manufacturer and is listed on the New York Stock Exchange.
1966:
HP develops its first computer.
1969:
David Packard is appointed deputy secretary of defense under U.S. President Nixon.
1972:
HP introduces a handheld scientific calculator, the HP-35; HP introduces the HP3000 microcomputer.
1977:
Bill Hewlett relinquishes his role as president of HP to John Young.
1980:
HP introduces its first personal computer, the HP-85.
1982:
Compaq Computer Corporation is founded.
1983:
Compaq initial public offering raises $67 million; securities are traded on NASDAQ.
1984:
HPs LaserJet printer makes its debut; Compaq computers are introduced in Europe; Compaq introduces the first Compaq desktop, the Compaq Deskpro.
1985:
Compaq securities begin trading on the New York Stock Exchange.
1986:
Compaq ships its 500,000th personal computer and completes construction of Compaq Main Campus in Houston.
1987:
Compaq manufactures its one-millionth personal computer and opens manufacturing facility in Scotland.
1988:
HPs stock begins trading on the Tokyo stock exchange.
1989:
HP purchases Apollo Computer; Compaq purchases Wang facility in Stirling, Scotland; Compaq introduces Compaq Systempro and the first Compaq notebook PC, the Compaq LTE.
1990:
Compaq establishes East European sales organization and opens office in Berlin.
1991:
HP introduces the 95LX palmtop personal computer; Eckhard Pfeiffer is named CEO of Compaq; Compaq announces its first billion-dollar quarter; Compaq enters the Japanese marketplace and introduces its first modular PC, the Compaq Deskpro/M family.
1992:
Lewis E. Platt replaces Young as head of HP; Compaq introduces its first printer product, the Compaq Pagemarq; Compaq computer training center is established in China.
1993:
Packard retires and Platt is named chairman, president and CEO of HP; Compaq introduces Compaq DirectPlus and delivers first Pentium processor-based products; Compaqs PC Division is split into Desktop and Notebook PC divisions; Presario family is launched; Compaqs printer business is discontinued.
1994:
Compaq surpasses IBM as the number one seller of PCs worldwide; Compaq introduces first sub-notebook, Compaq Aero; Compaq opens a manufacturing facility in Brazil.
1995:
HP launches the Pavilion line of home computers. Compaq is awarded Europes largest-ever PC contract with British Telecom; HP opens manufacturing facility in China; HP acquires Thomas-Conrad and NetWorth.
1996:
HP co-founder, David Packard dies on March 26, 1996; Compaq introduces its handheld PC, the PC companion, and its Armada family of value-priced, flexible notebooks.
1997:
HP acquires Verifone, Inc., maker of in-store terminals for verifying credit card transactions; Compaq announces the new Presario 2000 series and introduces the TFT 500, flat-panel monitor; Compaq acquires Microcom and Tandem Computer Inc.
1998:
Forbes magazine names Compaq its 1997 Company of the Year; the U.S. Environmental Protection Agency names Compaq the Green Lights Corporate Partner of the Year; Compaq is also awarded Novells Service Excellence Award; Compaq acquires Digital Equipment Corporation.
1999:
HP president Platt retires and Lucent-executive Carly Fiorina is appointed president and CEO.
2000:
Compaq acquires assets of Inacom and creates Custom Edge, Inc.; Compaq announces 10-year corporate alliance with The Walt Disney Company; Compaq unveils iPAQ Pocket PC.
2001:
HP co-founder Bill Hewlett dies on January 12, 2001; HP acquires application server specialist Bluestone Software; Compaq creates the AltaVista Company and acquires Shopping.com; Michael D. Capellas is appointed president and chief executive officer of Compaq; Compaq and Yahoo! announce a comprehensive global technology and marketing alliance; Compaq unveils Evo notebooks and workstations; Hewlett-Packard and Compaq announce their planned merger.
2002:
HP and Compaq merge on May 3, 2002; HPQ is unveiled as new stock ticker for combined company.

In 1983, Compaqs consensus management approach, which allowed every division of the company a say in product development, proved valuable. Canion, Compaqs chief executive officer, strongly supported the idea of producing a briefcase-size, or laptop, computer. The marketing research director, however, concluded that the market for such a computer did not exist. Canion relented, and Compaq waited while other companies, including Gavilan Computer Corporation and Data General Corporation, attempted to market such a product and failed.

Meanwhile, Compaq shipped its first two products, the Compaq Portable and the Compaq Plus, and set the standard for portablealthough larger than a briefcasefull-function PCs. In 1983, Compaq shipped more than 53,000 portable PCs throughout the United States and Canada; increased their workforce from 100 to 600; and increased production from 200 machines in January to 9,000 in December. The company recorded $111.2 million in revenues, the most successful first year of sales for a U.S. company.

A key factor in Compaqs growth was a strong cooperative relationship with its dealers. With nearly 90 PCs on the market aimed at business professionals, shelf space was very competitive. Compaq did not have a direct sales force of its own, and, thus, did not compete with its authorized dealers. This arrangement gave dealers more incentive to carry Compaq computers. Compaq also motivated its authorized dealers through what was called Salespaq, through which Compaq paid a percentage of the dealers cost of advertising, sales training, or incentives.

Compaqs ability to develop, produce, and market new products in a very short time period was another key ingredient in its success. Once a product was approved, Compaq undertook all aspects of its development simultaneously; factories were built, marketing and distribution arrangements were made, and engineers refined the product design. The product cycle in the PC industry was typically 12 to 18 months; Compaq delivered in six to nine months. This fast turnaround in product development enabled Compaq to introduce the latest technology before its competitors. In 1984, for example, IBM announced a new version of its PC that experts felt would set back other PC manufacturers. Compaq pulled its resources from every branch of the company, and within six months introduced and shipped its DESKPRO line of desktop PCs. Fifteen months later IBM shipped its portable PC, which was two pounds heavier and offered fewer features than Compaqs portable model. From the first quarter of 1983 to the last quarter of 1984, Compaqs production increased from 2,200 computers to 48,000. Despite the 1984 industry shakeout, Compaq reported an increase in sales to over $500 million. In March 1985, Rosens original investment of $2.5 million increased in value to $30 million.

Compaq in the Late 1980s: New Products and Markets

Expediency in product development also led to a turning point in Compaqs history. In 1985, Intel, a leading manufacturer of microprocessors, wanted to market its powerful new microprocessor, the 80386, as soon as possible. Intel felt confident that a Compaq product based on the new microprocessor would see a quick entry into the market. Their collaboration resulted in Compaqs 1987 introduction of the DESKPRO 386. Based on Intels new chip, this new PC performed over three times faster than IBMs fastest PC, and nearly twice as fast as Compaqs closest competitor. It took IBM nine months to introduce a comparable machine using Intels 80386. By then, Compaq was developing a portable version of its new PC.

In 1986, Compaq became the first company to achieve Fortune 500 status in fewer than four years. From 1986 through 1989, Compaqs revenues increased fivefold to $3 billion, while other PC manufacturersincluding Apple Computer and Sun Microsystemshad setbacks. Much of this growth was due to Compaqs successful marketing efforts in Europe. Led by Eck-hard Pfeiffer, former head of TFs European consumer electronics operation, Compaq began its European campaign in 1984, before most other U.S. vendors. In 1989, Compaq became the number two supplier of business PCs to the European market, achieving $1.3 billion in international sales. With the PC market in Europe growing about 33 percent faster than the U.S. market, Compaq had an edge on other PC manufacturers.

Meanwhile, in 1986, HP introduced its new family of Spectrum computer systems, developed at a cost of $250 million. The project was based on a concept called RISC (Reduced-Instruction-Set Computing), which enabled programs to run at double or triple conventional speed by eliminating many routine instructions. In spite of critics claims that the stripped-down instruction set made the program less flexible and over-specialized, other computer companies soon began developing their own RISC chips.

While market projections for Spectrum were good, and the system itself was state of the art, HP initially failed to capitalize on its technology because of the companys strategy of focusing on markets rather than product lines. Sales efforts, however, were soon redoubled on every level. The company even began joint marketing with telecommunications and peripherals companies previously regarded as competitors.

John Youngs leadership of Hewlett-Packard was highly regarded. The Precision Architecture line gained wider acceptance after a problematic introduction, and came to be seen as a bold gamble. By 1988, Young had restored the companys momentum, with net earnings rising 27 percent during that year. Directors Hewlett and Packard were no longer involved in the day-to-day running of the business, and, in 1987, Walter B. Hewlett and David Woodley Packard, the sons of the founders, were elected to the board. In 1988, the companys stock began trading on the Tokyo stock exchangeits first listing outside the United States. The following year, HP gained listings on four European exchanges: London, Zurich, Paris, and Frankfurt.

In April 1989, Hewlett-Packard paid $500 million for Apollo Computer, a pioneer in the design, manufacture, and sale of engineering workstations. Integrating the two companies and eliminating unnecessary engineers and salespeople proved more time-consuming than anticipated, and as sales dropped, Hewlett-Packard slipped back to second position in late 1989. The company faced a further setback when Motorola Inc. delayed introduction of the advanced microprocessor chip it had promised HP for a new line of workstations.

In November 1989, Compaq introduced the Compaq SYSTEMPRO personal computer and the Compaq DESKPRO 486, utilizing technology known as Extended Industry Standard Architecture (EISA), a hardware design that Compaq developed to challenge IBMs MicroChannel hardware design for its PS/2 PCs. These technologies increased the speed of PCs, enabling them to perform such complex operations as networking and multitasking. An added advantage of EISA was its ability to attract customers accustomed to using more powerful minicomputers and mainframe computers. By incorporating EISA into its new products, Compaq began to set industry standards. While IBM was producing computers based on the MicroChannel technology, many other manufacturers were using EISA technology. Initial sales of the SYSTEMPRO were slow but, as CEO Canion told a Business Week correspondent, We realized we were opening up a whole new market. We knew it would take some time.

Company sales for Compaq for 1990 reached $3.6 billion, with net income of $455 million, record figures for the eighth consecutive year. During that year, Compaq opened new subsidiaries in Austria, Finland, and Hong Kong, and authorizing dealers in the former East Germany, Hungary, Yugoslavia, Argentina, Mexico, and Trinidad. International sales accounted for over half of Compaqs total revenue in 1990, eclipsing North American sales for the first time. Nine new products were introduced during that year, including updated versions of the DESKPRO 386 desktop PC and a high-performance notebook PC, the Compaq LTE 386s/20. By the end of 1990, Compaq had 3,872 authorized dealers throughout the world, over 2,000 of them in North America.

Following a trend that developed in the information processing industry in the late 1980s and early 1990s, HP forged alliances with a number of companies that had previously been competitors. These included Hitachi, a microchip company; Canon, which provided the engines for HPs best-selling laser printer line; and 3Com, with which HP had a marketing and research agreement. Purchases during this period included Eon Systems, a manufacturer of equipment that monitored computer networks; and Hilco Technologies, a maker of factory software in which HP obtained a 25 percent stake.

Early 1990s Difficulties Led to Restructuring at HP

In spite of the new focus on workstation technology and cooperative trade agreements, HP began 1990 with sagging profits and a lackluster consumer response to its new product line. In 1990, earnings fell 11 percent to $739 million, down from $829 million in 1989. David Packard, the retired co-founder of the company, returned to his office to take a more active role in running the business.

John Young, president and CEO, undertook a thorough restructuring of Hewlett-Packard. By eliminating excess layers of management and dividing computer products into two main groups: those sold directly to big customers (workstations and minicomputers) and those sold through discount dealers (printers and PCs). In a move away from the consensus style of management, he set up a virtually autonomous design group within the computer division, and put it in charge of developing a new workstation based on the RISC technology that Digital had helped pioneer. The results were impressive. After only a year of development, the Series 700 workstations were introduced in 1991 to universally favorable reviews. The machines were considered several years ahead of their time, a crucial advantage in an industry where the constant development of new technologies makes products obsolete almost as soon as they reach the market.

HPs 95LX palmtop personal computer, also introduced in 1991, established an important new market in information devices. The 95LX, which retailed for $699, contained built-in Lotus 1-2-3 spreadsheet software, and immediately became a hot seller.

The resurgence of the company was not achieved without a price. HP cut 3,000 positions in 1990 and a further 2,000 positions in 1991. While executives agreed that downsizing was a necessary evil, the staff reductions, together with a more aggressive advertising stance, changed the companys image. When John Young announced his retirement in July 1992, he presided over a dynamic, if less paternalistic, company. His successor, Lewis E. Platt, an executive vice-president and head of the companys computer systems organization, took over in November 1992. Following Packards retirement as chairman in 1993, Platt was named chairman, president, and CEO of HP.

1991 also Brings a Slump to Compaq

For reasons ranging from economic recession and price competition to problems with the flow of distribution, Compaqs sales and earnings fell in 1991 for the first time in the companys history. The DESKPRO 386 PC series continued to be a bestseller, with desktop PCs accounting for close to three-fourths of Compaqs total revenue. In September 1991, a new line of Compaq computers was introduced with Intelligent Modularity. This system, the DESKPRO/M, enabled users to more readily upgrade key components as their needs and the available technology changed, by organizing components into five easy-to-access modules: memory, input/output, EISA/ISA expansion cards, processor, and video graphics controller.

Compaq was forced to alter its established distribution strategy somewhat in 1991; eight of the companys ten most important dealer chains had merged into four. This led Compaq to gradually start authorizing computer consultants and discount chains to sell its products. Direct sales techniques of its own, such as a toll-free hotline, were stepped up as well.

In late 1991, a dramatic management shake-up took place. Following a gloomy board meeting at which a $70 million third-quarter loss was announced, company founder and CEO Canion was forced to resign. Pfeiffer, who had been promoted to executive vice-president and chief operating officer, replaced Canion. A major reorganization of the corporate structure ensued. The company was realigned into desktop and systems divisions. As part of a 1,440-person staff reduction program, about 12 percent of the companys entire work force was laid off. In addition, five high-ranking executives left the organization, including senior vice-president of engineering James C. Harris, the last remaining company founder.

In June 1992, Compaq introduced 16 new products, including the companys first low-cost desktop PCs (COMPAQ Pro-Linea), low-cost notebook PCs (Contura), and upgradeable desktop PCs with advanced graphics and audio capabilities. The same month, Compaq announced the initiation of a new Peripherals Division, a worldwide arm whose mission would be to develop printers and printer-related items. The divisions initial line of products, including the August 1992 debut of the Compaq Pagem printer, launched Compaq into the rapidly growing market for network printers. The printer line was a failure, however, and was abandoned in 1993.

Compaqs Presario Leads a Consumer Push in the Mid-1990s

Under the leadership of Eckhardt, Compaq began a major push into the consumer and home office markets with an effort centered around the Presario line of home computers launched in August 1993. The companys hottest new PC, the Presario line, included models selling for less than $1,500. Compaq sold more than 100,000 Presarios in the first 60 days after introduction, with sales fueled by a $12 million television advertising blitz, the companys first such campaign in three years. In 1993 alone, Compaq sold $500 million worth of Presarios. By 1994, the company managed not only to fend off its low-price competitors, it also surpassed IBM as the number one seller of PCs worldwide.

Not content with its PC dominance, Compaq in the mid-1990s aimed to capture a much wider market. Following the introduction of the Proliant server PCs as its entry into the market for servers (powerful computers used for corporate networks and Internet web sites), the company went after the corporate mainframe and minicomputer market with the launch of the Armada mainframe-class server, the top-of-the-line model which sold for upwards of $100,000. On the lower-end server front, in 1994 Compaq launched the ProSignia VS server, which cost only about five to ten percent more than a desktop PC.

Also in 1994, Compaq revamped its logistics system in order to begin building its PCs to order from a huge stockpile of parts. With a build-to-order system, Compaq would realize significant inventory and manufacturing cost savings.

Other Compaq initiatives of this period included moves into high-speed networking equipment and Internet services/products, as well as the October 1996 launch of a successful line of engineering workstations. Compaq realized astounding growth: revenues increased from $5.79 billion in 1992 to $20.01 billion in 1996; and net income, which had peaked in 1990 at $577 million, registered at $988 million in 1994, $893 million in 1995, and $1.32 billion in 1996. With a wider range of products, Compaq generated about 15 percent of its revenues from the consumer PC market, 48 percent from corporate desktop PCs, and 35 percent from servers and workstations in 1997.

HP Aggressively Expands in PCs in the Mid-1990s

When Platt took over as CEO of Hewlett-Packard in 1992, its share of the personal computer market was a mere one percent. Moreover, PCs accounted for only 5.7 percent of the companys overall revenues of $16.4 billion. By 1995, HP was the fastest-growing maker of PCs in the world, having initially targeted corporate customers. In August 1995, HP went after the home PC market with the launch of the Pavilion line. Throughout this revitalization of the companys PC lines, HP adopted a much more aggressive pricing policy. Its market share soared, with the company leaping to third place in mid-1997, edging out Dell Computer and trailing only Compaq Computer Corporation and IBM. By 1998, Hewlett-Packard derived 19.1 percent of its total revenues of $47.06 billion from the sale of personal computers.

HPs pursuit of personal computer prominence was problematic given that sectors relatively low margins, but Platt felt the company had to be a major player in PCs in order to remain one of the top computer companies in the world. Although Platt did not want HP to be just a peripherals company, the firm continued to churn out successful products in that area: the HP Color LaserJet printer and the HP OfficeJet multifunction machine (a combined printer, fax machine, and copier), both introduced in 1994; and the HP OmniGo 100 handheld organizer, which debuted in 1995. With the Internet and electronic commerce burgeoning, HP in mid-1997 paid nearly $1.2 billion to acquire VeriFone, Inc., a maker of in-store terminals used to verify credit card transactions. HP hoped to combine a personal computer or other electronic device with a VeriFone-derived card reader and appropriate software to create a system with additional payment options for electronic commerce purchases. Also in 1997, HP was added to the companies that comprise the prestigious Dow Jones Industrial Average. Meantime, co-founder David Packard died on March 26, 1996.

HPs revenues had been growing at an annual 20-percent-plus clip from 1993 through 1996, but, in 1997, these increases began to shrink. Sales increased from $38.42 billion in 1996 to $42.9 billion in 1997, or 11.6 percent, then to 47.06 billion in 1998, an increase of 9.7 percent. Net income fell from $3.12 billion in 1997 to $2.95 billion in 1998. Among the reasons for the decline were the Asian economic crisis; HPs slow response to opportunities presented by the explosion of the Internet; and falling prices for personal computers and computer peripherals. In addition, HPs printer lines, especially in the inkjet area, were being buffeted by competition from new, low-cost rivals and declining margins in the PC and printer areas were dragging down the profitability of HP as a whole.

Compaq Acquisitions in the Late 1990s

In February 1997, Compaq released a $999 PC, the Presario 2000, in another aggressive, low-price move aimed at attracting the 60 percent of U.S. households without a PC. Later in 1997 the company acquired, through a stock-for-stock transaction valued at about $4 billion, Tandem Computers Incorporated, a leader in fail-safe high-end servers with annual sales of $2 billion and a sales force 4,000 strong. Compaq also spent $280 million for Microcom, Inc., a provider of devices for remote access to networks.

Moreover, Compaq had its eye on an even bigger deal. In June 1998 the company completed its $9.1 billion acquisition of Digital Equipment Corporation, the number four computer maker in the United States. Digital, which became a subsidiary of Compaq, was a leading maker of high-end workstations and servers, giving Compaq an even greater presence in those markets. Digital also brought to Compaq a 22,000-person service operation for large companiescomputer services having been one of Compaqs weakest areas. The deal increased Compaqs annual revenues to more than $37 billion and vaulted the company into the number two position among all the computer firms in the world (behind only $78.5 million-in-revenues IBM), it also positioned Compaq as one of the world leaders in just about every computer sector. The company was number one worldwide in desktop computers, number three in portable computers, number three in workstations, number one in both PC servers (costing less than $25,000) and entry servers (less than $100,000), and number six in midrange servers ($100,000 to $1 million). In computer services, Compaq was suddenly number three, behind IBM and EDS.

Compaq took a $3.6 billion charge against earnings in 1998 related to the acquisition of Digital and announced plans to cut 15,000 Digital jobs and 2,000 at Compaq. Areas of overlap began to be addressed, such as the folding of Digitals PC production into that of Compaq and the scaling back of Compaqs network equipment unit. However, it would take some time before the full impact of this combinationat the time the largest merger in the relatively short history of computerscould be assessed.

Compaqs transformation from a PC company to a global ITand Internetleader accelerated during 1998, based on the vision of President Pfeiffer, At Compaq, we envision a world where virtually all information is online and people can communicate, conduct commerce and securely access the information they need from anywhere at any time. Through the acquisition of Digital, Compaq acquired AltaVista, the worlds fastest Internet search and navigation guide, and the following year created a separate company, The AltaVista Company, to extend Compaqs Internet leadership position. Compaq also announced that year the formation of Compaq.com, a business division to drive Internet sales of Compaq products and services, and the acquisition of online retailer Shopping.com.

Compaq President Pfeiffer Resigns; Michael D. Capellas Takes Charge

In the wake of disappointing earnings and shareholder suits, President Pfeiffer resigned and was replaced as President and CEO by Michael D. Capellas, who had joined the company in 1998. Capellas issued more layoffs and organized the company around three global businesses groups-Enterprise Solutions and Services, Commercial Personal Computing, and Consumer. A restructuring plan was implemented to drive down costs and operating expenses. During the second half of the year, Compaq returned to profitability, reduced operating expenses and began to focus on increasing growth and stockholder value. Strategic alliances with Microsoft and Oracle were re-energized and a strategic partnership was formed with CMGI, by which CMGI would acquire control of Compaqs Alta Vista business and its related properties (Shopping.com and Zip2). Innovative products and services were introduced, including the Aero 8000, the worlds most secure, mobile and easy-to-use Handheld PC Professional device; and the light-weight portable projector, MP1600.

Capellas saw Compaq guided by a single, focused vision: Everything to the Internet. At the end of 1999, Compaq joined forces with Cable & Wireless to deliver global e-business solutions; in 2000 acquired PC reseller Inacom; and created Custom Edge, Inc., a direct sales unit. In April, a 10-year corporate alliance was announced with The Walt Disney Company. In technology, the iPAQ Pocket PC was introduced and earned the first ZDNet tech Trendsetter Award.

By mid-year, the Compaq started showing significant progress and by the end of the year, revenue was up 10 percent, gross margin was up almost one percentage point, operating expenses were down, operating profit was up more than threefold, and earnings per share more than tripled from 1999. Capellas credited the success to Compaqs enterprise business, particularly the high-end storage and server businesses. Compaq was the number one provider of Web servers, number one in the highest measure of system availability and number one in high-performance technical computing.

1999 HP Plans to Spin Off Noncomputing Lines

In late 1998, HP launched a comprehensive review of its operations and announced in early 1999 its intention to spin off into a separate firm, Agilent Technologies, its noncomputing segments: test and measurement products and service, medical electronic products and service, electronic components, and chemical analysis and service. These segments generated about $7.6 billion in revenues during 1998, or 16 percent of the total. Hewlett-Packard hoped this major divestmentwhich included the companys original lines of businesswould sharpen the firms competitive instincts, energize its workforce, and enable it to become a more aggressive player in the increasingly important sphere of the Internet. The company also announced that upon completion of the spinoff, Platt would step down as chairman and CEO.

In July 1999, HP named the 20-year veteran of AT&T and Lucent Technologies, Carleton (Carly) S. Fiorina as President and CEO. Fiorina was responsible for HPs reinvention as a company that makes the Internet work for businesses and consumers. According to Fiorina, the reinvention of the company resulted from the goal to restructure and revitalize ourselves to recapture the spirit of invention that is our birthright and apply it to meeting customer needs. Under her leadership, HP returned to its roots of innovation and inventiveness and focused on delivering the best total customer experience.

HP revealed a new strategy designed for the Internet, based on Web services to people and businesses through the use of information appliances over infrastructure solutions. HP positioned itself to deliver Web services, intelligent devices and servers and infrastructure of servers and software. By the end of the year, HP had introduced a new brand campaign focusing on the companys history of invention and innovation and introducing a new company logo. Under Fiorinas direction, HP also realigned its businesses into two customer-facing organizations and three product-generation organizations.

In 2000, HP introduced the high-end Superdome server line and announced that it would acquire Bluestone Software, resulting in the further expansion of its Internet software portfolio. A new business initiative, HP e-Inclusion, was introduced. This program addressed the digital divide by fostering sustainable, profitable businesses in developing countries.

Two new software families were introduced in early 2001HP Netaction Software Suite and HP Open View Software Suitethus, uniting its software offerings into a comprehensive platform for developing, implementing and maintaining Internet-based services. A new business organization, HP Services, was announced in March, with responsibilities in consulting, outsourcing, support, education and solutions deployment.

In 2001, Compaq continued to shift its emphasis from hardware to services, comprising 24 percent of Compaqs revenue in 2001. The Global Services unit of the company continued to be the companys strongest segment. Compaqs Alpha microprocessor operations were sold to Intel and a comprehensive global technology and marketing alliance was announced with Yahoo!. Computing on Demand was introduced which would allow customers to purchase a variety of computing resources.

Acquisitions and a Merger of Worldwide Importance

In September HP acquired StorageApps, manufacturer of storage virtualization appliances, and Indigo, a leading commercial and industrial printing systems company. Perhaps the biggest news to the industry occurred on September 3, 2001, when HP and Compaq Computer Corporation announced a definitive agreement to merge, creating a new $87 billion global technology leader.

On May 3, 2002, Hewlett-Packard officially closed its $19 billion acquisition of Compaq Computer Corporation. Compaq investors received 0.6325 shares of Hewlett-Packard for every Compaq share they owned, and Compaq stock ceased being traded. HPQ became the new stock ticker for the combined company. Ms. Fiorina retained her position as Chairman and CEO of the new HP. Former Compaq president and merger coauthor, Michael Capellas, became president of the new HP, with responsibilities for the new companys global business groups, worldwide sales, supply chain management and e-commerce operations. According to Chairman Fiorina, We merged Compaq and HP to create a stronger company to serve our customersa company with a richer portfolio of products and solutions and a deeper services team. The new HP was officially launched on May 7, 2002, with an ad titled We Are Ready.

Principal Subsidiaries

HEWLETT-PACKARD: Hewlett-Packard Puerto Rico; Hewlett-Packard World Trade, Inc.; Heartstream, Inc.; Microsensor Technology, Inc.; VeriFone, Inc.; Hewlett-Packard Asia Pacific Ltd. (Hong Kong); Hewlett-Packard Caribe Ltd. (Cayman Islands); HP Computadores (Brazil); Hewlett-Packard Computer Products (Shanghai) Co., Ltd. (China); Hewlett-Packard de Mexico S.A. de C. V.; Hewlett-Packard Espanola, S.A. (Spain); Hewlett-Packard Europe B.V. (The Netherlands); Hewlett-Packard France; Hewlett-Packard GmbH (Germany); Hewlett-Packard Holding GmbH (Germany); Hewlett-Packard (India) Software Operation Pte. Ltd.; Hewlett-Packard Italiana S.p.A. (Italy); Hewlett-Packard Japan, Ltd.; Hewlett-Packard Korea Ltd.; Hewlett-Packard Ltd. (U. K.); Hewlett-Packard (Malaysia) Sdn. Bhd.; Hewlett-Packard Malaysia Technology Sdn. Bhd.; Hewlett-Packard (Manufacturing) Ltd. (Ireland); Hewlett-Packard Medical Products (Qingdao) Ltd. (China); Hewlett-Packard Microwave Products (M) Sdn. Bhd. (Malaysia); Hewlett-Packard Penang Sdn. Bhd. (Malaysia); Hewlett-Packard S.A. (Switzerland); Hewlett-Packard Shanghai Analytical Products Co., Ltd. (China); Hewlett-Packard Singapore Pte. Ltd.; Hewlett-Packard Singapore Vision Operation Pte. Ltd.; BT&D Technologies Ltd. (U. K.); CoCreate Software GmbH (Germany); Shanghai Hewlett-Packard Company (China); Technologies et Participations S.A. (France). COMPAQ: Digital Equipment Corporation; Microcom, Inc.; Tandem Computers Incorporated; Compaq Computer Australia Pty. Limited; Compaq Computer GesmbH (Austria); Compaq Computer N.V./S.A. (Belgium); Compaq Canada Inc.; Compaq Computer A/S (Denmark); Compaq Computer OY (Finland); Compaq Computer S.A.R.L. (France); Compaq Computer GmbH (Germany); Compaq Computer Hong Kong Limited; Compaq Computer S.p.A. (Italy); Compaq K.K. (Japan); Compaq Computer B.V. (Netherlands); Compaq Computer New Zealand Limited; Compaq Computer Norway A.S.; Compaq Computer Asia Pte. Ltd. (Singapore); Compaq Computer S.A. (Spain); Compaq Computer AB (Sweden); Compaq Computer AG (Switzerland); Compaq Computer Taiwan Limited; Compaq Computer Limited (U. K.).

Principal Operating Units

Chemical Analysis Group; Components Group; Consumer Products Group; Enterprise Computing Solutions Organization; HP Labs; Information Storage Group; LaserJet Solutions Group; Medical Products Group; Personal Systems Group; Test and Measurement Organization.

Principal Competitors

Canon; Dell Computer; IBM; Apple Computer; eMachines; Gateway; NCR; NEC; Siemens; Sony; Sun Microsystems.

Further Reading

Arnst, Catherine, Now, HP Stands for Hot Products, Business Week, June 14, 1993, p. 36.

Arnst, Catherine, et. al, Compaq: How It Made Its Impressive Move Out of the Doldrums, Business Week, November 2, 1992, pp. 146+ .

Bank, David, and Leslie Cauley, Microsoft, Compaq Make Net-Access Bet, Wall Street Journal, June 16, 1998, pp. A3, A8.

Buell, Barbara, Hewlett-Packard Rethinks Itself, Business Week, April 1, 1991.

Burrows, Peter, Compaq Stretches for the Crown, Business Week, July 11, 1994, pp. 140-42.

, Lew Platts Fix-It Plan for Hewlett-Packard, Business Week, July 13, 1998, pp. 128-31.

, The Printer King Invades Home PCs, Business Week, August 21, 1995, pp. 74-75.

, Where Compaqs Kingdom Is Weak, Business Week, May 8, 1995, pp. 98, 102.

Clark, Don, and George Anders, After Split, Outsider May Be Hired As Next CEO, Breaking Tradition, Wall Street Journal, March 3, 1999, pp. A3 + .

Compaq Computer Corporation, Hoovers Handbook of American Business 2002, Austin: Hoovers, Inc., 2001, pp. 398-399.

Compaqs Compact, Management Today, May 1985.

Connor, Deni and Denise Dubie, HP Shores Up Storage, Management Wares, Network World, Nov 5, 2001, p. 10+.

Depke, Deidre A., A Comeback at Compaq?, Business Week, September 23, 1991.

Gannes, Stuart, Americas Fastest-Growing Companies, Fortune, May 23, 1988.

Heller, Robert, The Compaq Comeback, Management Today, December 1994, pp. 66-70.

Goldgaber, Arthur, The Teflon Tech Company: How Long Will Wall Street Give Hewlett-Packard the Benefit of the Doubt?, Financial World, July/August 1997, pp. 90-93.

Hamilton, David P., and Scott Thurm, H-P to Spin Off Its Measurement Operations: Sharper Focus on Computing Will Emerge, Wall Street Journal, March 3, 1999, pp. A3 +.

Hewlett-Packard, Hoovers Handbook of American Business 2002, Austin: Hoovers, Inc., 2001, pp. 712-713.

Hof, Robert, Hewlett-Packard Digs Deep for a Digital Future, Business Week, October 18, 1993, pp. 72-75.

, Suddenly Hewlett-Packard Is Doing Everything Right, Business Week, March 23, 1992.

Hof, Robert, and Peter Burrows, Hewlett-Packard Heads for the Home, Business Week, May 8, 1995, p. 102.

HP Closes Compaq Merger, HP.com, posted May 3, 2002, http://www.hp.com.

HP Fact Sheet, Palo Alto, Calif.: Hewlett-Packard Company, 1998.

Hutheesing, Nikhil, HPs Giant ATM, Forbes, February 9, 1998, pp. 96 + .

HP to Change NYSE Trading Symbol from HWP to HPQ, HP.com, posted May 2, 2002, http://ww.thenew.hp.com.

Kirkpatrick, David, Fast Times at Compaq, Fortune, April 1, 1996, pp. 120 +.

, The Revolution at Compaq Computer, Fortune, December 14, 1992, pp. 80+.

Klein, Alec, As Cheap Printers Score, H-P Plays Catch-Up, Wall Street Journal, April 21, 1999, pp. Bl +.

Kotkin, Joel, The Hottest Entrepreneur in America Is the Smart Team at Compaq Computer, Inc., February 1986.

Linden, Dana Wechsler, and Bruce Upbin, Top Corporate Performance of 1995: Boy Scouts on a Rampage, Forbes, January 1, 1996, pp. 66 + .

Loeb, Marshall, Leadership Lostand Regained, Fortune, April 17, 1995, pp. 217 +.

Losee, Stephanie, How Compaq Keeps the Magic Going, Fortune, February 21, 1994, pp. 90 + .

Me Williams, Gary, Compaq at the Crossroads, Business Week, July 22, 1996, pp. 70-72.

, Compaq-Digital: Let the Slimming Begin, Business Week, June 22, 1998, p. 44.

, Compaq: Theres No End to Its Drive, Business Week, February 17, 1997, pp. 72, 74.

, Mimicking Dell, Compaq to Sell Its PCs Directly, Wall Street Journal, November 11, 1998, pp. Bl, B4.

Me Williams, Gary, et. al, Power Play: How the Compaq-Digital Deal Will Reshape the Entire World of Computers, Business Week, February 9, 1998, pp. 90-94, 96-97.

Nee, Eric, Compaq Computer Corp., Forbes, January 12, 1998, pp. 90 + .

, Defending the Desktop, Forbes, December 28, 1998, p. 53.

, Lew Platt: Why I Dismembered HP, Fortune, March 29, 1999, p. 167.

, What Have You Invented for Me Lately?, Forbes, July 28, 1997, pp. 76 + .

Packard, David, The HP Way: How Bill Hewlett and I Built Our Company, edited by David Kirby with Karen Lewis, New York: HarperBusiness, 1995.

Palmer, Jay, Still Shining: Growth in PC Demand Abroad, Networking Make Compaqs Prospects Bright, Barrons, December 11, 1995, pp. 15-16.

Pitta, Julie, Identity Crisis, Forbes, May 25, 1992.

, It Had to Be Done and We Did It, Forbes, April 26, 1993, pp. 148-52.

Ramstad, Evan, Compaqs CEO Takes Tricky Curves at High Speed, Wall Street Journal, January 5, 1998, p. B4.

Ramstad, Evan, and Jon G. Auerbach, Compaq Buys Digital, an Unthinkable Event Just a Few Years Ago, Wall Street Journal, January 27, 1998, pp. Al, A14.

Stross, Randall E., Whats a High-Class Company Like Hewlett-Packard Doing in a Lowbrow Business Like PCs?, Fortune, September 29, 1997, pp. 129 + .

Uttal, Bro, Compaq Bids for PC Leadership, Fortune, September 29, 1986.

Ward, Judy, The Endless Wave: Eckhard Pfeiffer Has Turned Compaq AroundOnly to Face New Competition, Financial World, July 4, 1995, pp. 32-35.

Webber, Alan M., Consensus, Continuity, and Commonsense: An Interview with Compaqs Rod Canion, Harvard Business Review, July/August 1990.

Whiting, Rick, Compaq Stays the Course, Electronic Business, October 20, 1989.

Wiegner, Kathleen K., Good-Bye to the HP Way?, Forbes, November 26, 1990.

Zell, Deone, Changing by Design: Organizational Innovation at Hewlett-Packard, Ithaca, NY: ILR Press, 1997.

Zipper, Stuart, CompaqLife After Canon?, Electronic News, November 4, 1991.

John Simley (Hewlett-Packard);

Lynn Hall and Robert R. Jacobson (Compaq)

updates: David E. Salamie; Carol D. Beavers

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Hewlett-Packard Company

Hewlett-Packard Company

3000 Hanover Street
Palo Alto, California 94304
U.S.A.
(650) 857-1501
(800) 752-0900
Fax: (650) 857-7299
Web site: http://www.hp.com

Public Company
Incorporated
: 1947
Employees : 124,600
Sales : $47.06 billion (1998)
Stock Exchanges : New York Pacific Frankfurt London Paris Tokyo Zürich
Ticker Symbol : HWP
NAIC : 334111 Electronic Computer Manufacturing; 334112 Computer Storage Device Manufacturing; 334119 Other Computer Peripheral Equipment Manufacturing; 333313 Office Machinery Manufacturing; 334413 Semiconductors & Related Device Manufacturing; 334613 Magnetic & Optical Recording Media Manufacturing; 334519 Other Measuring & Controlling Device Manufacturing; 334510 Electromedical & Electrotherapeutic Apparatus Manufacturing; 811212 Computer & Office Machine Repair & Maintenance

Hewlett-Packard Company (HP) is the second largest computer company in the world, behind only International Business Machines Corporation (IBM). Its offerings in the computer area include hardware ranging from palmtops through personal computers to supercomputers, software, networking products, printers, scanners, and support and maintenance services. In 1998 HP derived 84 percent of its revenues from its computer sector. The remainder came from test and measurement products and service, medical electronic products and service, electronic components, and chemical analysis and service. In March 1999 the company announced that it would spin off these operations as an independent company by mid-2000 in order to sharpen its focus on its computer operations.

Began As Maker of Test and Measurement Products

William Hewlett and David Packard, graduates of Stanford Universitys electrical engineering program, were encouraged by Professor Frederick Terman to start their own business in California. The two men worked in the garage behind Packards rented house in Palo Alto, California. Starting with only $538, the men began work on a resistance-capacity audio oscillator, a machine used for testing sound equipment. After assembling several modelsbaking paint for the instrument panel in Packards oventhey won their first big order, for eight oscillators, from Walt Disney Studios, which used them to develop and test a new sound system for the animated film Fantasia.

On January 1, 1939, Hewlett and Packard formalized their venture as a partnership, tossing a coin to decide the order of their names. Hewlett won. In 1940, with a product line of eight items, the two men moved their company and its three employees to a building in downtown Palo Alto.

During World War II, Terman, who was then in charge of antiradar projects at Harvard, contracted his former students to manufacture microwave signal generators for his research. When the war ended, HP took full advantage of the growth in the electronics sector, particularly in the defense and industrial areas. The founders also decided at that time what their respective roles would be in the company: Hewlett would lead technological development, and Packard would be in charge of management. Hewlett-Packard Company was incorporated in 1947. By 1950 the company had 70 products, 143 employees, and revenues of $2 million.

HP introduced a revolutionary high-speed frequency counter, the HP524A, in 1951. This device, which reduced the time required to measure radio frequencies from ten minutes to about two seconds, was used by radio stations to maintain accurate broadcast frequencies, particularly on the newly established FM band.

The company maintained stable and impressive growth through the end of the decade. In November 1957 Hewlett-Packard offered shares to the public for the first time. It also moved into a larger complex in the Stanford Research Park.

In 1958, with revenues of $30 million, HP made its first corporate acquisition: the F.L. Moseley Company of Pasadena, California, a manufacturer of graphic recorders. The companys expansion continued in 1959 with the establishment of a marketing office in Geneva, and a manufacturing facility in Boeblingen, West Germany. After adding another factory in Loveland, Colorado, in 1960, Hewlett-Packard purchased the Sanborn Company, a medical instruments manufacturer based in Waltham, Massachusetts, in 1961.

The company gained wider public recognition when it was Usted on the Pacific and New York stock exchanges in 1961 and in the Fortune 500 a year later. In 1964 Hewlett-Packard developed a cesium-beam flying clock, accurate to within one-millionth of a second. Company engineers embarked on a 35-day, 35,000-mile world tour to coordinate standard times.

In 1963 Hewlett-Packard expanded its presence in Japan through a joint venture with the Yokogawa Electric Works, and in 1965 it acquired the F & M Scientific Corporation, an analytical-instruments manufacturer, based in Avondale, Pennsylvania. In 1966 the company opened its central research laboratory, which became one of the worlds leading electronic research centers.

Moved into Calculators and Computers in the Late 1960s and 1970s

Though primarily a manufacturer of instruments for analysis and measurement, Hewlett-Packard developed a computer in 1966. The HP-2116A was developed specifically for HPs own production control; the company had no plans to enter the computer market. Two years later, however, HP introduced the HP-9100A, the first desktop calculator capable of performing scientific functions. In 1969 David Packard was appointed deputy secretary of defense in President Richard Nixons administration. Packard returned to his company as a director in 1972.

During this time, HP developed a handheld scientific calculator called the HP-35, known as the electronic slide rule. Designed partially by Bill Hewlett, it was introduced in 1972. When Texas Instruments entered the market in 1973, Hewlett-Packards device, which retailed at $395, was forced into the high end of the market.

Hewlett-Packard made its first decisive move into business computing, a field dominated by IBM and Digital Equipment Corporation, with the HP3000 minicomputer, introduced in 1972. This signalled a major change in company strategy. In the spring of 1974 Hewlett and Packard decided, despite record earnings, that the company was growing too fast. Refocusing on product leadership, the founders established a new, highly decentralized structure, letting each of the companys divisions conduct its own research and development.

In 1977 Bill Hewlett relinquished the presidency to John Young, a career HP man determined to make the company successful in the computer market. Although he was chosen by Hewlett and Packard, Young was virtually unknown to the companys customers and 37,000 employees. Nonetheless, he replaced Hewlett as chief executive officer a year later.

Introduced Personal Computers and Printers in the 1980s

Hewlett-Packard introduced its first personal computer, the HP-85, in 1980. The markets initial reaction was cool, causing Young and other managers to investigate new, IBM-compatible designs, which were introduced in the mid-1980s. HPs broad move into information processing proved successful; the company quickly established itself as a leading computer vendor. Like other vendors, however, HP had designed each of its major computer lines for a specific use, making each model incompatible with the others. This resulted in redundant research and development and product support costs, and limited expansion capabilities for customers. In response to these problems, HP began a six-year program to develop architecture and software that would be compatible with existing programs. In the meantime, HP introduced a number of other products, including the HP9000 technical workstation (1982), the HP150 touchscreen PC, the HP ThinkJet inkjet printer (1984), and the HP LaserJet printera phenomenally successful product which came to dominate the printer market soon after its 1984 debut.

In 1986 the company introduced its new family of Spectrum computer systems, developed at a cost of $250 million. The project was based on a concept called RISCReduced-Instruction-Set Computing. RISC enabled programs to run at double or triple conventional speed by eliminating many routine instructions. In spite of criticss claims that the stripped-down instruction set made the program less flexible and overspecialized, other computer companies soon began developing their own RISC chips.

While market projections for Spectrum were good, and the system itself was state of the art, HP initially failed to capitalize on its technology because of the companys strategy of focusing on markets rather than product lines. Sales efforts, however, were soon redoubled on every level. The company even began joint marketing with telecommunications and peripherals companies previously regarded as competitors.

Company Perspectives

Our basic business purpose is to create information products that accelerate the advancement of knowledge and improve the effectiveness of people and organizations.

John Youngs leadership of Hewlett-Packard was highly regarded. The Precision Architecture line gained wider acceptance after a problematic introduction, and came to be seen as a bold gamble. By 1988 Young had restored the companys momentum, with net earnings rising 27 percent during that year. Directors Hewlett and Packard were no longer involved in the day-to-day running of the business, and in 1987 Walter B. Hewlett and David Woodley Packard, the sons of the founders, were elected to the board. In 1988 the companys stock began trading on the Tokyo stock exchangeits first listing outside the United Statesthen the following year gained listings on four European exchanges: London, Zürich, Paris, and Frankfurt.

In April 1989 Hewlett-Packard paid $500 million for Apollo Computer, a pioneer in the design, manufacture, and sale of engineering workstations. Integrating the two companies and eliminating unnecessary engineers and salespeople proved more time-consuming than anticipated, and as sales dropped, Hewlett-Packard slipped back to second position in late 1989. The company faced a further setback when Motorola Inc. delayed introduction of the advanced microprocessor chip it had promised HP for a new line of workstations.

Following a trend that developed in the information processing industry in the late 1980s and early 1990s, HP forged alliances with a number of companies that had previously been competitors. These included Hitachi, a microchip company; Canon, which provided the engines for HPs bestselling laser printer line; and 3Com, with which HP had a marketing and research agreement. Purchases during this period included Eon Systems, a manufacturer of equipment that monitored computer networks; and Hilco Technologies, a maker of factory software in which HP obtained a 25 percent stake.

Early 1990s Difficulties Led to Restructuring

In spite of the new focus on workstation technology and cooperative trade agreements, HP began 1990 with sagging profits and a lackluster consumer response to its new product line. Like many of its larger competitors, it had fallen victim to an unwieldy bureaucracy that discouraged entrepreneurial decision-making on the part of group managers. In 1990 earnings fell 11 percent to $739 million, down from $829 million in 1989. David Packard, the retired cofounder of the company, returned to his office to take a more active role in running the business.

John Young, president and CEO, responded to the crisis by undertaking a thorough restructuring of Hewlett-Packard. He eliminated excess layers of management and divided computer products into two main groups: those sold directly to big customers (workstations and minicomputers) and those sold through discount dealers (printers and PCs). In a deliberate move away from the consensus style of management, he set up a virtually autonomous design group within the computer division, and put it in charge of developing a new workstation based on the RISC technology that Digital had helped pioneer. The results were impressive. After only a year of development, the Series 700 workstations were introduced in 1991 to universally favorable reviews. The machines were considered several years ahead of their time, a crucial advantage in an industry where the constant development of new technologies makes products obsolete almost as soon as they reach the market.

HPs 95LX palmtop personal computer, also introduced in 1991, established an important new market in information devices. The 95LX, which retailed for $699, contained built-in Lotus 1-2-3 spreadsheet software, and immediately became a hot seller. Realizing its potential as the wave of the future, Hewlett-Packard quickly began to look for alternative markets for the palmtop, including navigation software and real estate applications.

The resurgence of the company was not achieved without a price. Reluctantly violating its no-layoff policy, HP cut 3,000 positions in 1990 and a further 2,000 positions in 1991. While executives agree that downsizing was a necessary evil, the staff reductions, together with a more aggressive advertising stance, changed the companys image. When John Young announced his retirement in July 1992, he presided over a dynamic, if less paternalistic, company. His successor, Lewis E. Platt, an executive vice-president and head of the companys computer systems organization, took over in November 1992. Following Packards retirement as chairman in 1993, Piatt was named chairman, president, and CEO of HP.

Aggressively Expanded in PCs in the Mid-1990s

When Piatt took over as CEO in 1992, Hewlett-Packards share of the personal computer market was a mere one percent. Moreover, PCs accounted for only 5.7 percent of the companys overall revenues of $16.4 billion. By 1995 HP was the fastest-growing maker of PCs in the world, having initially targeted corporate customers. In August 1995 HP went after the home PC market with the launch of the Pavilion line. Throughout this revitalization of the companys PC lines, HP adopted a much more aggressive pricing policy. It had traditionally charged a premium price for its personal computers, but began pricing them no higher than five percent above the lowest-priced comparable models on the market. Its market share consequently soared, with the company leaping all the way to third place in mid-1997, edging out Dell Computer and trailing only Compaq Computer Corporation and IBM. By 1998 Hewlett-Packard derived 19.1 percent of its total revenues of $47.06 billion from the sale of personal computers.

Hewlett-Packards pursuit of personal computer prominence was problematic given that sectors relatively low margins, but Piatt felt the company had to be a major player in PCs in order to remain one of the top computer companies in the world. Although Piatt did not want HP to be just a peripherals company, the firm continued to churn out successful products in that area: the HP Color LaserJet printer and the HP OfficeJet multifunction machine (a combined printer, fax machine, and copier), both introduced in 1994; and the HP OmniGo 100 handheld organizer, which debuted in 1995. With the Internet and electronic commerce burgeoning, HP in mid-1997 paid nearly $1.2 billion to acquire VeriFone, Inc., a maker of in-store terminals used to verify credit card transactions. HP hoped to combine a personal computer or other electronic device with a VeriFone-derived card reader and appropriate software to create a system providing consumers with additional payment options for their electronic commerce purchases. Also in 1997 HP was added to the companies that comprise the prestigious Dow Jones Industrial Average. Meantime, cofounder David Packard died on March 26, 1996.

Hewlett-Packards revenues had been growing at an annual 20-percent-plus clip from 1993 through 1996, but in 1997 these increases began to shrink. Sales increased from $38.42 billion in 1996 to $42.9 billion in 1997, or 11.6 percent, then to 47.06 billion in 1998, an increase of 9.7 percent. Net income fell from $3.12 billion in 1997 to $2.95 billion in 1998. Among the reasons for these declining fortunes was the Asian economic crisis, which began in July 1997; HPs slow response to the opportunities presented by the explosion of the Internet; and falling prices for personal computers and computer peripherals. In addition, HPs printer lines, especially in the inkjet area, were being buffeted by competition from new, low-cost rivals and declining margins in the PC and printer areas were dragging down the profitability of HP as a whole.

1999 Plan to Spinoff Noncomputing Lines

In late 1998 the company launched a comprehensive review of its operations. It announced in March 1999 that as a result of this review it intended to spin off into a separate firm its non-computing segments: test and measurement products and service, medical electronic products and service, electronic components, and chemical analysis and service. These segments generated about $7.6 billion in revenues during 1998, or 16 percent of the total. Hewlett-Packard hoped this major divestmentwhich included the companys original lines of businesswould sharpen the firms competitive instincts, energize its workforce, and enable it to become a more aggressive player in the increasingly important sphere of the Internet. The company also announced that upon completion of the spinoff by mid-2000, Piatt would step down as chairman and CEO. A search committee was formed by the company board to find a successor; this person might be an outsider, which would be a company first. In any event, it was clear that the turn of the millennium marked the end of an era, and the beginning of a new one, for Hewlett-Packard.

Principal Subsidiaries

Hewlett-Packard Puerto Rico; Hewlett-Packard World Trade, Inc.; Heartstream, Inc.; Microsensor Technology, Inc.; Ver-iFone, Inc.; Hewlett-Packard Asia Pacific Ltd. (Hong Kong); Hewlett-Packard Caribe Ltd. (Cayman Islands); HP Computadores (Brazil); Hewlett-Packard Computer Products (Shanghai) Co., Ltd. (China); Hewlett-Packard de Mexico S.A. de C.V.; Hewlett-Packard Espanola, S.A. (Spain); Hewlett-Packard Europe B.V. (the Netherlands); Hewlett-Packard France; Hewlett-Packard GmbH (Germany); Hewlett-Packard Holding GmbH (Germany); Hewlett-Packard (India) Software Operation Pte. Ltd.; Hewlett-Packard Italiana S.p.A. (Italy); Hewlett-Packard Japan, Ltd.; Hewlett-Packard Korea Ltd.; Hewlett-Packard Ltd. (U.K.); Hewlett-Packard (Malaysia) Sdn. Bhd.; Hewlett-Packard Malaysia Technology Sdn. Bhd.; Hewlett-Packard (Manufacturing) Ltd. (Ireland); Hewlett-Packard Medical Products (Qingdao) Ltd. (China); Hewlett-Packard Microwave Products (M) Sdn. Bhd. (Malaysia); Hewlett-Packard Penang Sdn. Bhd. (Malaysia); Hewlett-Packard S.A. (Switzerland); Hewlett-Packard Shanghai Analytical Products Co., Ltd. (China); Hewlett-Packard Singapore Pte. Ltd.; Hewlett-Packard Singapore Vision Operation Pte. Ltd.; BT&D Technologies Ltd. (U.K.); CoCreate Software GmbH (Germany); Shanghai Hewlett-Packard Company (China); Technologies et Participations S.A. (France).

Principal Operating Units

Chemical Analysis Group; Components Group; Consumer Products Group; Enterprise Computing Solutions Organization; HP Labs; Information Storage Group; LaserJet Solutions Group; Medical Products Group; Personal Systems Group; Test and Measurement Organization.

Further Reading

Arnst, Catherine, Now, HP Stands for Hot Products, Business Week, June 14, 1993, p. 36.

Buell, Barbara, Hewlett-Packard Rethinks Itself, Business Week, April 1, 1991.

Burrows, Peter, Lew Platts Fix-It Plan for Hewlett-Packard, Business Week, July 13, 1998, pp. 128-31.

_____, The Printer King Invades Home PCs, Business Week, August 21, 1995, pp. 74-75.

Clark, Don, and George Anders, After Split, Outsider May Be Hired As Next CEO, Breaking Tradition, Wall Street Journal, March 3, 1999, pp. A3+.

Goldgaber, Arthur, The Teflon Tech Company: How Long Will Wall Street Give Hewlett-Packard the Benefit of the Doubt?, Financial World, July/August 1997, pp. 90-93.

Hamilton, David P., and Scott Thurm, H-P to Spin Off Its Measurement Operations: Sharper Focus on Computing Will Emerge, Wall Street Journal, March 3, 1999, pp. A3+.

Hof, Robert, Hewlett-Packard Digs Deep for a Digital Future, Business Week, October 18, 1993, pp. 72-75.

_____, Suddenly Hewlett-Packard Is Doing Everything Right, Business Week, March 23, 1992.

Hof, Robert, and Peter Burrows, Hewlett-Packard Heads for the Home, Business Week, May 8, 1995, p. 102.

HP Fact Sheet, Palo Alto, Calif.: Hewlett-Packard Company, 1998.

Hutheesing, Nikhil, HPs Giant ATM, Forbes, February 9,1998, pp. 96+.

Klein, Alec, As Cheap Printers Score, H-P Plays Catch-Up, Wall Street Journal, April 21, 1999, pp. Bl+.

Linden, Dana Wechsler, and Bruce Upbin, Top Corporate Performance of 1995: Boy Scouts on a Rampage, Forbes, January 1, 1996, pp. 66+.

Nee, Eric, Defending the Desktop, Forbes, December 28, 1998, p. 53.

_____, Lew Platt: Why I Dismembered HP, Fortune, March 29, 1999, p. 167.

_____, What Have You Invented for Me Lately?, Forbes, July 28, 1997, pp. 76+.

Packard, David, The HP Way: How Bill Hewlett and I Built Our Company, edited by David Kirby with Karen Lewis, New York: HarperBusiness, 1995, 212 p.

Pitta, Julie, It Had to Be Done and We Did It, Forbes, April 26, 1993, pp. 148-52.

Stross, Randall E., Whats a High-Class Company Like Hewlett-Packard Doing in a Lowbrow Business Like PCs?, Fortune, September 29, 1997, pp. 129+.

Wiegner, Kathleen K., Good-Bye to the HP Way?, Forbes, November 26, 1990.

Zell, Deone, Changing by Design: Organizational Innovation at Hewlett-Packard, Ithaca, N.Y.: ILR Press, 1997, 180 p.

John Simley

updated by David E. Salamie

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Hewlett-Packard Company

Hewlett-Packard Company

3000 Hanover Street
Palo Alto, California 94304
U.S.A.
(415) 857-1501
Fax: (415) 857-5518

Public Company
Incorporated:
1947
Employees: 90,000
Sales: $14.5 billion
Stock Exchanges: New York London Paris Tokyo Pacific Zürich Geneva Basel Lausanne Frankfurt Stuttgart

Hewlett-Packard Company (HP) produces electronic products and systems for computation and measurement. Selling nearly all of its products to businesses, research institutes, and educational and health-care institutions, HP is one of the largest exporters in the United States. Its products measure power, radiation, and radio frequencies; count trace particles in air and water; and analyze breakdowns in computers and other electrical systems.

William Hewlett and David Packard, graduates of Stanford Universitys electrical engineering program, were encouraged by Professor Frederick Terman to start their own business in California. The two men worked in the garage behind Packards rented house in Palo Alto, California. Starting with only $538, the men began work on a resistance-capacity audio oscillator, a machine used for testing sound equipment. After assembling several modelsbaking paint for the instrument panel in Packards oventhey won their first big order, for eight oscillators, from Walt Disney Studios, which used them to develop and test a new sound system for the animated film Fantasia.

On January 1, 1939, Hewlett and Packard formalized their venture as a partnership, tossing a coin to decide the order of their names. Hewlett won. In 1940, with a product line of eight items, the two men moved their company and its three employees to a building in downtown Palo Alto.

During World War II, Terman, who was then in charge of anti-radar projects at Harvard, contracted his former students to manufacture microwave signal generators for his research. When the war ended, HP took full advantage of the growth in the electronics sector, particularly in the defense and industrial areas. The founders also decided at that time what their respective roles would be in the company: Hewlett would lead technological development, and Packard would be in charge of management. Hewlett-Packard was incorporated in 1947. By 1950 the company had 70 products, 143 employees, and revenues of $2 million.

HP introduced a revolutionary high-speed frequency counter, the HP524A, in 1951. This device, which reduced the time required to measure radio frequencies from ten minutes to about 2 seconds, was used by radio stations to maintain accurate broadcast frequencies, particularly on the newly established FM band.

The company maintained stable and impressive growth through the end of the decade. In November 1957, Hewlett-Packard offered shares to the public for the first time. It also moved into a larger complex in the Stanford Research Park.

In 1958, with revenues of $30 million, HP made its first corporate acquisition: the F. L. Moseley Company of Pasadena, California, a manufacturer of graphic recorders. The companys expansion continued in 1959 with the establishment of a marketing office in Geneva, and a manufacturing facility in Boeblingen, West Germany. After adding another factory in Loveland, Colorado, in 1960, Hewlett-Packard purchased the Sanborn Company, a medical instruments manufacturer based in Waltham, Massachusetts, in 1961.

The company gained wider public recognition when it was listed on the Pacific and New York stock exchanges in 1961 and in the Fortune 500 a year later. In 1964 Hewlett-Packard developed a cesium-beam flying clock, accurate to within one-millionth of a second. Company engineers embarked on a 35-day, 35,000-mile world tour to coordinate standard times.

In 1963 Hewlett-Packard expanded its presence in Japan through a joint venture with the Yokogawa Electric Works, and in 1965 it acquired the F & M Scientific Corporation, an analytical-instruments manufacturer, based in Avondale, Pennsylvania. In 1966 the company opened its central research laboratory, one of the worlds leading electronic research centers.

Though primarily a manufacturer of instruments for analysis and measurement, Hewlett-Packard developed a computer in 1966. The HP-2116A was developed specifically for HPs own production control; the company had no plans to enter the computer market. Two years later, however, HP introduced the HP-9100A, the first desktop calculator capable of performing scientific functions. In 1969 David Packard was appointed deputy secretary of defense in President Richard Nixons administration. Packard returned to his company as a director in 1972.

During this time, HP developed a handheld scientific calculator called the HP-35, known as the electronic slide rule. Designed partially by Bill Hewlett, it was introduced in 1972. When Texas Instruments entered the market in 1973, Hewlett-Packards device, which retailed at $395, was forced into the high end of the market.

Hewlett-Packard made its first decisive move into business computing, a field dominated by IBM and Digital Equipment Corporation, with the HP3000. This signalled a major change in company strategy. In the spring of 1974 Hewlett and Packard decided, despite record earnings, that the company was growing too fast. Refocusing on product leadership, the founders established a new, highly decentralized structure, letting each of the companys divisions conduct its own research and development.

In 1977 Bill Hewlett relinquished the presidency to John Young, a career HP man determined to make the company successful in the computer market. Although he was chosen by Hewlett and Packard, Young was virtually unknown to the companys customers and 37,000 employees. Nonetheless, he replaced Hewlett as chief executive officer a year later.

Hewlett-Packard introduced its first personal computer, the HP-85, in 1980. The markets initial reaction was cool, causing Young and other managers to investigate new, IBM-compatible designs, which were introduced in the mid-1980s. HPs broad move into information processing proved successful; the company quickly established itself as a leading computer vendor. Like other vendors, however, HP had designed each of its major computer lines for a specific use, making each model incompatible with the others. This resulted in redundant research and development and product support costs, and limited expansion capabilities for customers. In response to these problems, HP began a six-year program to develop architecture and software that would be compatible with existing programs. In the meantime, HP introduced a number of other products, including the HP9000 technical workstation, the HP150 touchscreen PC, the HP ThinkJet printer, and the HP LaserJet printer-a phenomenally successful product which soon came to dominate the printer market.

In 1986 the company introduced its new family of Spectrum computer systems, developed at a cost of $250 million. The project was based on a concept called RISCReduced-Instruction-Set Computing. RISC enables programs to run at double or triple conventional speed by eliminating many routine instructions. In spite of critics claims that the stripped-down instruction set makes the program less flexible and over-specialized, other computer companies soon began developing their own RISC chips.

While market projections for Spectrum were good, and the system itself was state of the art, HP initially failed to capitalize on its technology because of the companys strategy of focusing on markets rather than product lines. Sales efforts, however, were soon redoubled on every level. The company even began joint marketing with telecommunications and peripherals companies previously regarded as competitors.

John Youngs leadership of Hewlett-Packard was highly regarded. The Precision Architecture line gained wider acceptance after a problematic introduction, and came to be seen as a bold gamble. By 1988 Young had restored the companys momentum, with net earnings rising 27 percent during that year. Directors Hewlett and Packard were no longer involved in the day-to-day running of the business, and in 1987 Walter B. Hewlett and David Woodley Packard, the sons of the founders, were elected to the board.

In April 1989 Hewlett-Packard paid $500 million for Apollo Computer, a pioneer in the design, manufacture, and sale of engineering workstations. Integrating the two companies and eliminating unnecessary engineers and salespeople proved more time-consuming than anticipated, and as sales dropped, Hewlett-Packard slipped back to second position in late 1989. The company faced a further setback when Motorola Inc. delayed introduction of the advanced microprocessor chip it had promised HP for a new line of workstations.

Following a trend that developed in the information processing industry in the late 1980s and early 1990s, HP forged alliances with a number of companies that had previously been competitors. These included Hitachi, a microchip company; Canon, which provided the engines for HPs best-selling laser printer line; and 3Com, with which HP had a marketing and research agreement. Purchases during this period included Eon Systems, a manufacturer of equipment that monitors computer networks; and Hilco Technologies, a maker of factory software in which HP obtained a 25 percent stake.

In spite of the new focus on workstation technology and cooperative trade agreements, HP began 1990 with sagging profits and a lackluster consumer response to its new product line. Like many of its larger competitors, it had fallen victim to an unwieldy bureaucracy that discouraged entrepreneurial decision-making on the part of group managers. In 1990 earnings fell 11 percent to $739 million, down from $829 million in 1989. David Packard, the retired co-founder of the company, returned to his office to take a more active role in running the business.

John Young, president and chief executive officer, responded to the crisis by undertaking a thorough restructuring of Hewlett-Packard. He eliminated excess layers of management and divided computer products into two main groups: those sold directly to big customers (workstations and minicomputers) and those sold through discount dealers (printers and PCs). In a deliberate move away from the consensus style of management, he set up a virtually autonomous design group within the computer division, and put it in charge of developing a new workstation based on the RISC technology which Digital had helped pioneer. The results were impressive. After only a year of development, the Series 700 workstations were introduced to universally favorable reviews. The machines were considered several years ahead of their time, a crucial advantage in an industry where the constant development of new technologies makes products obsolete almost as soon as they go on the market.

HPs 95LX palmtop personal computer, also introduced in 1991, established an important new market in information devices. The 95LX, which retailed for $699, contained built-in Lotus 1-2-3 spreadsheet software, and immediately became a hot seller. Realizing its potential as the wave of the future, Hewlett-Packard quickly began to look for alternative markets for the palmtop, including navigation software and real estate applications.

The resurgence of the company was not achieved without a price. Reluctantly violating its no-layoff policy, HP cut 3,000 positions in 1990 and a further 2,000 positions in 1991. While executives agree that downsizing was a necessary evil, the staff reductions, together with a more aggressive advertising stance, have changed the companys image. When John Young announced his retirement in July 1992, he presided over a dynamic, if less paternalistic, company. His successor, Lewis E. Platt, an executive vice president and head of the companys computer systems organization, was slated to take over in November 1992.

Hewlett-Packard has gone a long way toward addressing the problems that caused revenues to decline and share prices to fall in 1990. The companys future success depends on its ability to keep costs down while continuing to promote an imaginative, competitively priced range of products. It must also continue its difficult transition from bureaucratic industry giant to responsive pace-setter without losing the support of its key executives.

Principal Subsidiaries

Hewlett-Packard Inter-America; Hewlett-Packard Delaware, Inc.; Hewlett-Packard Pipeline Company; Hewlett-Packard Puerto Rico; Hewlett-Packard Hellas; Hewlett-Packard Finance Company; Hewlett-Packard Atlantic, Inc.; Hewlett-Packard World Trade, Inc.; Fleet Systems, Inc.; Hewlett-Packard Delaware Holding, Inc.; Hewlett-Packard Delaware Investment, Inc.; Hewlett-Packard European Distribution Operations Netherlands, Inc.; EON Systems, Inc.; Apollo Computer, Inc.; Hewlett-Packard Laboratories Japan, Inc.; Hewlett-Packard Delaware Funding, Inc.; Hewlett-Packard (Canada) Ltd.; Grupo Hewlett-Packard S.A. de C.V. (Mexico); Hewlett-Packard S.A. (Switzerland); Hewlett-Packard Australia Ltd.; Hewlett-Packard Sales (Malaysia) Sdn. Bhd.; Yokogawa Hewlett-Packard Ltd. (Japan); Hewlett-Packard Hong Kong Limited; Hewlett-Packard GmbH (Germany); HewlettPackard Penang Sdn. Bhd. (Malaysia); Hewlett-Packard Asia Pacific Limited (Hong Kong); Hewlett-Packard France; Hewlett-Packard Ireland Ltd.; Hewlett-Packard Singapore (Sales) Pte. Ltd.; Hewlett-Packard Taiwan; China Hewlett-Packard Ltd.; Samsung Hewlett-Packard Ltd. (Korea); Hewlett-Packard FPG (Taiwan); Hewlett-Packard Italiana S.p.A. (Italy); The Tall Tree Insurance Company; Applied Optoelectronic Technology Corporation; Hewlett-Packard Delaware Capital, Inc.; Avantek, Inc.; Apollo World Trade, Inc.; Hewlett-Packard Export Trade Co.; Avantek Digital Radio, Inc.; Avantek International.

Further Reading

Highlights of Hewlett-Packard Company History, Hewlett-Packard Corporate Typescript, 1988; Hewlett-Packard: In Brief, Palo Alto, California, Hewlett-Packard Company, [n.d.]; Wiegner, Kathleen K., Good-bye to the HP Way?, Forbes, November 26, 1990; Buell, Barbara, Hewlett-Packard Rethinks Itself, Business Week, April 1, 1991; Hof, Robert D., Suddenly Hewlett-Packard Is Doing Everything Right, Business Week, March 23, 1992.

John Simley

update by Moya Verzhbinsky

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Hewlett-Packard Company

Hewlett-Packard
Company

3000 Hanover Street
Palo Alto, CA 94304-1185

(650) 857-1501
www.hp.com

Some of America's greatest cultural heroes are its basement inventors and self-made business owners. These people prove the claim that a good idea and hard work can lead to success. David Packard (1912-1996) and William "Bill" Hewlett (1913-2001) made their first product in a small garage. From there, they went on to build the world's second-largest computer manufacturing company.

For decades, Hewlett-Packard (HP) was also known for its loose management style, called "the HP Way." Packard and Hewlett never put themselves above their employees and gave them the freedom to try new ideas. In return, HP workers responded with commitment and loyalty. Those bonds, however, were tested in 2001, after Hewlett-Packard announced its merger with rival computer maker Compaq.

Building a Business

William Hewlett and David Packard met in 1930 as freshmen at Stanford University, in Palo Alto, California. They shared an interest in the outdoors and electrical engineering. By their senior year, they were planning to form a radio company, an idea encouraged by Fred Terman, one of their professors. The business venture, however, was delayed for several years, as Hewlett earned a master's degree and Packard worked for General Electric, Inc. (GE; see entry) in New York. Finally, in the fall of 1938, Packard returned to California for graduate studies at Stanford, and he and Hewlett went to work.

Their first workshop was a one-car garage behind the two-family house they shared in Palo Alto. Their assets included a used drill press and a little more than $500. They made several electronic products, including an automatic toilet-bowl flusher for public restrooms. Writing in American Heritage, historian Frederick E. Allen quoted Hewlett as saying, "In the beginning, we did anything to bring in a nickel."

By November, the partners had built an audio oscillator, a device that creates high-frequency sounds. Their oscillator was cheaper and better than others on the market. They called their product the Model 200A, because, as Packard explains in his 1995 book, The HP Way, "We thought the name would make us look like we'd been around for a while." The partner's first major order came from the Walt Disney Company (see entry), which bought eight of the oscillators for $71.50 apiece. Since they were truly in business, Hewlett and Packard flipped a coin to see whose last name would go first in their new company's name.

Hewlett-Packard at a Glance

  • Employees: 150,000
  • CEO: Carleton Fiorina
  • Subsidiaries: BT&D Technologies Ltd.; CoCreate Software GmbH; HP Computadores; Heartstream, Inc.; Microsensor Technology, Inc.; Technologies et Participations S.A.
  • Major Competitors: International Business Machines (IBM); Dell Computer Corporation; Sun Microsystems, Inc.; Hitachi, Ltd.; Apple Computer, Inc.; Gateway, Inc.; Ingram Micro, Inc.
  • Notable Products: LaserJet printer; Deskjet printer; Officejet printer/scanner/copier; Vectra desktop PC; Pavilion desktop PC; Pavilion portable PC; Omnibook portable PC; Jornada personal digital assistant (PDA)

Growth during War and Peace

After the United States entered World War II (1939-45) in 1941, HP's business grew. Hewlett served in the army, so Packard ran the company, which began building a variety of electronic measuring and testing equipment for the U.S. government. By the end of the war, HP's annual sales reached $1 million, and the company had a new manufacturing plant and more than two hundred workers. HP introduced profit-sharing and a health insurance planbenefits largely unheard of at the time. In profit-sharing each worker is given a bonus based on a company's sales.

A post-war downturn forced HP to fire some plant workers, but it hired more engineers, and in 1947 it formed a legal corporation. Within several years, the company was back up to two hundred employees and making a wide range of testing devices. By the end of the 1950s, HP had more than 350 products and was expanding into Europe.

Timeline

1939:
David Packard and William Hewlett form Hewlett-Packard (HP) to sell the audio oscillator they invented.
1957:
HP sells stock and drafts the company goals that form the heart of "The HP Way." 1966: HP Laboratories opens.
1968:
An electronic desktop calculator is introduced.
1972:
The first HP pocket calculator appears.
1984:
HP introduces two new computer printers, the LaserJet and the DeskJet.
1991:
HP sells a palmtop personal computer that weighs less than one pound.
1999:
HP forms Agilent to develop and sell its testing and measuring.
2002:
The purchase of Compaq Computer Corporation makes HP the second-largest computer manufacturer in the world.

The "HP Way" was also firmly in place. Hewlett and Packard believed in "management by walking around"they spent much of their time talking to the engineers and other employees instead of tying themselves to a desk. At a 1957 management meeting, the company came up with six goals, later expanded to seven. As Packard wrote in The HP Way, the goals included giving employees "the opportunity to share in the company's success" and "striv[ing] for continual improvement in the quality, usefulness, and value of the products and services we offer customers."

That same year, 1957, Hewlett-Packard sold its first shares to the public. This means that shares, or small portions, of the company were available for sale on the New York Stock Exchange. The company also opened the first of six new buildings near Stanford University. In 1958, HP recorded sales of $30 million and had more than seventeen hundred workers.

Calculating New Profits

During the 1960s, Hewlett-Packard grew by purchasing several smaller electronics firms and expanding beyond measurement and testing devices. HP introduced its first computer, the Model 2116, in 1966. It also did important work on light-emitting diodes (LED's), the small electronic lights now common on computers and other products. The company's most significant new item, however, was the world's first programmable scientific desktop calculator. Prior to this, calculators were noisy, mechanical machines that used gears. The HP Model 9100 was electronic, more like a computer than a calculator.

After the success of the 9100, Hewlett challenged his employees to build a calculator small enough to fit into a shirt pocket. The HP staff responded with the HP 35, which was an immediate hit with scientists and engineers. HP was the pioneer in powerful, handheld calculators, and it remained strong in the testing and measurement market. By 1980, annual sales were $3 billion, and the company had fifty-seven thousand employees.

In 1989, the garage where David Packard and William Hewlett began their business was named a California State Historical Landmark. The site was honored as the birthplace of "Silicon Valley," the state's center for high-tech manufacturing.

Despite its size, HP kept a loose management structure. Each division in the company did its own research and development and manufactured its own products. As a division grew, it was split into smaller divisions. HP's increased movement into computers, however, presented the company with new structural and marketing challenges.

Printer Powerhouse

Although Hewlett-Packard had been making computers since the mid1960s, it was not a major presence in the industry. HP began to address that in 1980, when it introduced its first personal computer (PC). It also produced larger, more powerful computers, some costing up to $25,000. The various HP models, however, were not compatible with each other. In addition, the company faced tough competition from International Business Machines (IBM), which had started selling personal computers in 1981. By the end of 1983, HP had less than five percent of the PC market. Still, the company knew its potential growth was tied to these smaller computers.

Although highly respected in technical circles, HP and its products were not well known by the average U.S. consumer. The company began a new advertising campaign to boost its image. HP also placed its different PC operations in one new group. Finally, in 1984, it introduced several new products. One was a portable computer that could work with IBM's popular PCs. Older HP models could not run IBM software. More significant were two new printers designed for any computer: the ThinkJet and the LaserJet.

The ThinkJet, an ink-jet printer, offered better print quality than other inexpensive printers on the market. The LaserJet came out of a partnership with Canon, a Japanese manufacturer of cameras and copiers. Priced at almost $3,500, the LaserJet was a high-quality business printer. In a 1984 interview with Forbes, Cyril Yansouni, the head of HP's new PC group, explained the printer's importance to the company: "If the LaserJet gets us into the executive office, they'll remember us the next time we come around with computers."

In 1966, Hewlett-Packard opened HP Labs, a new research facility. Today the company has seven research sites around the world, working on such products as computer storage systems, Internet technologies, and printers.

Over time, HP introduced new models of both printers, and prices fell while quality remained high. HP set the standard for computer printers and dominated the market. The sales of replacement ink and toner cartridges also helped boost profits. Over time, the company improved its PCs and slowly took over a larger part of that market.

Years of Change in the
Computer Industry

By 1990, Hewlett-Packard's annual sales were more than $13 billion, but its profits were falling slightly. The company purchased Apollo Computer in 1989, and mixing its products and staff with HP's proved difficult. Thousands of jobs went unfilled after workers retired or left the company. To counter the slowing growth, the company began selling a new "palmtop' computer, the size of a pocket calculator with as much processing power as a PC. In 1992, it introduced a new color ink-jet printer, reinforcing its dominance in the printer market.

High-tech industries saw explosive growth during the 1990s, and HP benefited from this boom. Sales grew as much as $7 billion in one year. The company launched a new line of personal computers and continued to sell more sophisticated machines to businesses and researchers. By 1997, HP was the world's second-largest computer manufacturer with sales reaching $35.4 billion out of total company sales of $42.9 billion.

Despite its success with computers, HP faced tough competition and profits fell in 1998. The next year, it decided to concentrate on computers and related products. HP formed a new company, Agilent, to build and sell its testing and measuring devices. HP also made news in 1999 when it hired Carleton "Carly" Fiorina as chief executive officer (CEO). She was HP's first leader to come from outside the company.

Faced with slumping sales, Fiorina planned to increase HP's development of new products and combine its dozens of divisions into just three. A relationship with microchip maker Intel led to the Itanium, a new kind of chip for computers.

In 1976, Hewlett-Packard lost the opportunity to become a leader in the PC market when it decided not to develop a new personal computer built by one of its employees, Steve Wozniak. Wozniak left HP and co-founded Apple Computer, Inc. (see entry), the company credited with selling the first successful personal computer.

Fiorina's boldest move came in September 2001, when HP launched a takeover of rival Compaq Computer Corporation. Hewlett-Packard's decision to buy Compaq led to a long and public battle between Walter B. Hewlett (son of William Hewlett) and Fiorina. At first, Hewlett joined other board members in supporting the purchase, but by November 2001, he had announced his intention to vote against it. He controlled about 5 percent of HP's stock, owned by the Hewlett family and a foundation set up by his father, who had died earlier in the year.

As Hewlett spoke out against the deal, other shareholders and some employees questioned the move. Compaq's stock value fell during 2001, and some opponents claimed HP was paying too much for its rival. By December, Hewlett said that shareholders controlling almost 20 percent of HP's stock were against the deal, and he asked the company's board to withdraw its offer. The battle went public as Hewlett launched a Web site, www.votenohpcompaq.com, and took out newspaper ads opposing the deal.

HP fired back with its own Web site and newspaper ads, sometimes accusing Hewlett of lying. The company argued that its founders would have supported the purchase. By the end of February 2002, HP said it had enough votes to secure the deal. The deal was finally approved, and by May Fiorina was announcing leadership changes and new product strategy. With the merger, the new HP almost matches industry leader IBM in size and revenue. The new HP claims about 20 percent of the worldwide PC market and remains committed to introducing new products.

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Hewlett-Packard Company

Hewlett-Packard Company

3000 Hanover Street
Palo Alto, California 94304
U.S.A.
(415) 857-1501
Fax: (415) 857-5518

Public Company
Incorporated: 1947
Employees: 95,000
Sales: $11.90 billion
Stock Exchanges: New York London Paris Tokyo Frankfurt Stuttgart Zurich Basel Geneva Lausanne Pacific

Hewlett-Packard Company produces electronic products and systems for computation and measurement. Hewlett-Packard (HP) sells nearly all of its products to businesses, research institutes, and educational and health-care institutions, and is one of the United Statess 15 largest exporters. Its products can measure power, radiation, and radio frequencies; can count trace particles in air and water; and can analyze breakdowns in computers and other electrical systems.

Hewlett-Packard was founded in 1938 by William Hewlett and David Packard, both recent graduates of Stanford Universitys electrical engineering program. Encouraged by Professor Frederick Terman, who urged graduates to start their own businesses in California, the two men rented a cottage behind Packards house in Palo Alto, California, and, with $538, began part-time work on a resistance-capacity audio oscillator, for testing sound equipment, that Hewlett had developed for his masters thesis. After assembling several modelsbaking paint onto the instrument panel in Packards kitchen oventhey won their first big order, for eight oscillators, from Walt Disney Studios, which used them to develop and test a new sound system for Fantasia.

On January 1, 1939, Hewlett and Packard formalized their venture as a partnership, tossing a coin to decide the order of their namesHewlett won. In 1940, with a product line of eight items, the two men moved their company and its three employees to a building in downtown Palo Alto.

During World War II Terman, who was then in charge of antiradar projects at Harvard, contracted his former students to manufacture microwave signal generators for his research. When the war ended, HP took full advantage of the growth in the electronics sector, particularly for defense and industrial projects. Also at this time the founders decided upon their roles in the company: Hewlett led technological development, and Packard took charge of managing the business. Hewlett-Packard was incorporated in 1947. By 1950 the company had 70 products, 143 employees, and revenues of $2 million.

HP introduced a revolutionary high-speed frequency counter, the HP-524A, in 1951. This device, which reduced the time required to measure radio frequencies from ten minutes to about two seconds, was used by radio stations to maintain accurate broadcast frequencies, particularly on the then-new FM band.

The company maintained stable and impressive growth through the end of the decade. In November 1957 Hewlett-Packard offered shares to the public for the first time. It also moved into a larger complex in the Stanford Research Park.

In 1958, with revenues of $51 million, HP made its first corporate acquisition: the F.L. Moseley Company of Pasadena, California, a manufacturer of graphic recorders. The companys expansion continued, internationally, in 1959 with the establishment of a marketing office in Geneva, and a manufacturing facility in Boeblingen, West Germany. After adding another factory in Loveland, Colorado, in 1960, Hewlett-Packard purchased the Sanborn Company, a medical-instruments manufacturer based in Waltham, Massachusetts.

The company gained wider public recognition when it was listed on the Pacific and New York stock exchanges in 1961, and then made the Fortune 500 a year later. In 1964 Hewlett-Packard developed a cesium-beam flying clock, accurate to within one-millionth of a second. To promote the device, called HP-5060A, company engineers embarked on a 35-day, 35,000-mile world tour to coordinate standard times.

In 1963 Hewlett-Packard expanded its presence in Japan through the creation of a joint venture with Yokogawa Electric Works, and in 1965 it acquired the F & M Scientific Corporation, another analytical-instruments manufacturer, based in Avondale, Pennsylvania. Also that year, the company opened its central research laboratory, one of the worlds leading electronic research centers.

Though primarily a manufacturer of instruments for analysis and measurement, Hewlett-Packard developed a computer in 1966. The HP-2116A was developed specifically for HPs own production control; the company had no plans to enter the computer market. Two years later, however, HP introduced the HP-9100A, the first desktop calculator capable of performing scientific functions. In 1969 David Packard was appointed deputy secretary of defense in President Richard Nixons administration. In 1971 Packard left the government and returned to his company as a director.

HP, meanwhile, developed a hand-held scientific calculator called the HP-35. The device, known as the electronic slide rule, was designed partially by Bill Hewlett. It was introduced in 1972 and soon made up 13% of the companys sales. When Texas Instruments entered the market in 1973, Hewlett-Packards device, which retailed at $395, was forced into the high end of the market.

Hewlett-Packard made its first decisive move into business computing with the HP-3000. This signaled a major change in company strategy: diversification into computers, a field dominated by IBM and Digital. In the spring of 1974 Hewlett and Packard decided that the company was growing too fast; the company was falling behind, despite record earnings. The founders refocused on product leadership. They established a new, highly decentralized research-and-development structure, letting each of the companys 23 divisions conduct its own research and development.

Bill Hewlett relinquished the presidency in 1977 to John Young, a career HP man determined to make the company successful in the computer market. Although he was chosen by Hewlett and Packard, Young was virtually unknown to the companys customers and 37,000 employees. Nonetheless, a year later he replaced Hewlett as CEO, also.

Hewlett-Packard introduced its first personal computer, the HP-85, in 1980. The markets initial reaction was cool, leading Young and other managers to investigate new, IBM-compatible designs, which were introduced in the mid-1980s. HPs broad move into computers proved to be a good one, as the company quickly established itself as a leading computer vendor. Like other vendors, however, HP had designed each of its major computer lines for a specific use, making each model incompatible with the others. This resulted in redundant research and development and product-support costs and limited expansion possibilities for customers. In response to these problems, HP began a six-year program to develop architecture and software that would be compatible with existing programs, for all its subsequent computers. In the meantime, HP introduced a number of other products, including the HP-9000 technical workstation, the HP-150 touchscreen PC, the ThinkJet printer, and the LaserJet printerthe single most successful product in Hewlett-Packards history.

In 1986 the company introduced its new family of Spectrum computer systems, developed at a cost of $500 million. The project was based on the newly developed universal design, Precision Architecture. This architecture used a new concept called RISCReduced Instruction Set Computing. RISC enables computers to run through programs at double or triple conventional speed by eliminating many routine instructions. Critics claim, however, that the stripped-down set of instructions makes the program less flexible and over-specialized.

Despite these criticisms, market projections were good, and the system itself was state of the art. HP initially failed to capitalize on its technology. The company had adopted a new sales strategy as early as 1984, focusing on markets rather than product lines. Sales efforts were redoubled on every level. The company even began joint marketing with telecommunications and peripherals companies previously regarded as competitors.

John Youngs leadership of Hewlett-Packard is highly regarded. The Precision Architecture line gained much wider acceptance after its problematic introduction, and came to be viewed as a bold gamble. By 1988, Young had restored the companys momentum, with profits rising 27% during that year. Hewlett and Packard, as directors, are no longer involved in the companys day-to-day business. In 1987, their sons, Walter B. Hewlett and David Woodley Packard, were elected to the board.

In April 1989 Hewlett-Packard paid $500 million for the ailing Apollo Computer, a pioneer in the design, manufacture, and sale of engineering workstations. The purchase doubled HPs share of the networked-workstation market and boosted it from the fourth-largest to the largest producer in that fast-growing segment.

In buying Apollo, Hewlett-Packard did more than increase its workstation market share to 30%. It also won original-equipment manufacturer business with companies like Mentor Graphics Corporation, the leading designer of computer-aided engineering software. Mentor and companies like it buy workstations, equip them with their own software, and resell the machines for special uses, such as computer-aided engineering.

Apollo was not HPs only new partner during the late 1980s. In 1988 and 1989 the company entered trade agreements with several companies. Hewlett-Packard cooperates with Hitachi, for microchips; Canon, for printers; Yokogawa, for logic systems; Northern Telecom, for microprocessor development systems; Sony, for digital audio tapes; Arthur Anderson, for computer-integrated-manufacturing management consulting; Samsung, for workstation development; and 3Com, for marketing and research. It also bought Eon Systems, a manufacturer of equipment that monitors computer networks and purchased a 25% stake in Hilco Technologies, a maker of factory software and a 10% share of Octel Communications, a voice-mail system supplier which also has a European distribution deal with Hewlett-Packard.

The company expects that its collaborative efforts are the key to its future. It is well-positioned for the post-1992 unified European economy, and has an enviable balance of foreign and domestic sales.

Principal Subsidiaries

Hewlett-Packard Inter-America; Hewlett-Packard Delaware, Inc.; Hewlett-Packard Pipeline Company; Hewlett-Packard Puerto Rico; Hewlett-Packard Hellas; Hewlett-Packard Finance Company; Hewlett-Packard Atlantic, Inc.; Hewlett-Packard Delaware Trading, Inc.; Fleet Systems Inc.; Hewlett-Packard Delaware Holding, Inc.; Hewlett-Packard Delaware Investment, Inc.; Hewlett-Packard European Distribution Operations Netherlands, Inc.; The Tall Tree Insurance Company; EON Systems, Inc.; Apollo Computer, Inc.; Hewlett-Packard Laboratories Japan, Inc.; Hewlett-Packard Delaware Funding, Inc.; Hewlett-Packard (Canada) Ltd.; Grupo Hewlett-Packard S.A. de C.V. (Mexico); Hewlett-Packard S.A. (Switzerland); Hewlett-Packard Australia Ltd.; Hewlett-Packard Sales (Malaysia) Sdn. Bhd.; Yokogawa Hewlett-Packard Ltd. (Japan); Hewlett-Packard Hong Kong Ltd.; Hewlett-Packard GmbH (Germany); Hewlett-Packard Penang Sdn. Bhd. (Malaysia); Hewlett-Packard Asia Limited (Hong Kong); Hewlett-Packard France; Hewlett-Packard Ireland Ltd.; Hewlett-Packard Singapore (Sales) Pte. Ltd.; Hewlett-Packard Taiwan; China Hewlett-Packard, Ltd.; Samsung Hewlett-Packard Ltd. (Korea); Hewlett-Packard FPG (Taiwan); Hewlett-Packard Italiana S.p.A. (Italy).

Further Reading

Highlights of Hewlett-Packard Company History, Hewlett-Packard corporate typescript, 1988; Hewlett-Packard: In Brief, Palo Alto, California, Hewlett-Packard Company, [n.d.].

John Simley

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Hewlett-Packard

Hewlett-Packard A highly successful manufacturer of electronic equipment, founded in 1938 by Bill Hewlett and Dave Packard, two electrical engineers recently graduated from Stanford. By the 1980s, it was well known for its electronic instruments, calculators, data-gathering equipment, medical equipment, and high-performance workstations. It is noted as the first manufacturer of a hand-held calculator. It was a major developer of software for use in its own products and has exploited this fact by marketing development tools for its own workstations. In 1999, the measurement, component, chemical analysis and medical systems part of the business were split off into a separate and independent company, Agilent Technologies. Hewlett-Packard retained its computing, printing, and imaging businesses and in 2002 it merged with Compaq.

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hp

hp symbol for horsepower

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Hewlett-Packard Company

Hewlett-Packard Company

also known as: hp founded: 1939


Contact Information:

headquarters: 3000 hanover st.
palo alto, ca 94304-1185 phone: (650)857-1501 fax: (650)857-7299 email: [email protected] url: http://www.hp.com

OVERVIEW

Hewlett-Packard Company (HP) primarily designs, manufactures, and services electronic products and systems for computation, analysis, and measurement. HP offers more than 25,000 products and maintains manufacturing plants, research-and-development centers, warehouses, and administration facilities in more than 120 countries. Sales of computers and related products and services account for approximately 70 percent of the company's revenue. With 1997 net revenues of $42.9 billion, Hewlett-Packard is the nation's second-largest computer company and one of the fastest growing. The company is number 16 on the Fortune 500 list of the largest U.S. corporations and a leader in most of the markets in which it competes. These markets include servers, workstations, personal computers (including portables), computer peripherals, network equipment, and handheld calculators. Other products include electric test and measurement equipment, analytical instruments, and medical equipment. HP has become one of the largest diversified companies in the world, generating more than 55 percent of its business outside the United States.


COMPANY FINANCES

Most of Hewlett-Packard's income comes from its broad range of computer products and peripherals, accounting for more than $35 billion of HP's total 1997 revenues. The company is the world's revenue leader for RISC and UNIX-based computers and the second largest supplier of workstations for engineering and business applications. Net revenue from the United States rose 12 percent in 1997, while international revenue grew 11 percent and accounted for 56 percent of total revenues. The company boasted a comfortable 1997 operating profit of 10.1 percent and net profit of 7.3 percent, with a return on assets of 9.8 percent. Strong earnings growth contributed to an increase of $1.6 billion in net cash, enabling the Board of Directors to add $1.0 billion to the authorization for repurchase of the company's common stock. During a 52-week period from 1997 to 1998, HP's stock reached a high of $82.00 (and a low of $50.00). Despite losses in early 1998, Hewlett Packard remained in excellent financial condition enabling it to easily continue investing in future growth.


ANALYSTS' OPINIONS

Second only to IBM among the world's manufacturers of computer equipment and related technologies, Hewlett-Packard's history of consistently strong performance has always appealed to investors and analysts. The company itself remained confident in 1998 that it had the product offerings and resources needed for continuing success, though it warned that future revenue and margin trends could not be safely predicted. Indeed, that unpredictability caused investors to flee HP in the spring of 1998 after the company announced weaker than expected profits in the first quarter. No fewer than six firms and many analysts who had formerly been "bullish" on Hewlett-Packard slashed estimates on HP. HP blamed the drop in earnings on weakness in the Asian market and severe competition in the PC market. Also contributing to the decline was increasing erosion of HP's leading share in the workstation market caused by competitor Dell Computer. Analysts noted that, unlike IBM, Hewlett Packard did not have a major services business to fall back on when times were tough in the hardware market. Nevertheless, though both HP and investors were disappointed by the company's 1998 first quarter results, no one expected the setback to damage the company in the long term. New HP initiatives in the Internet arena also helped boost confidence.


HISTORY

Stanford University electrical engineers William Hewlett and David Packard began their joint venture in 1938 out of a Palo Alto garage with $538.00. They began working on their first product, a resistance-capacity audio oscillator, used for testing sound equipment. Their first order for eight oscillators was from Walt Disney Studios, who used them in the making of the film "Fantasia." Today that same garage is officially designated as a State Historical Landmark and recognized both as HP's birthplace and a Silicon Valley milestone.

Founded as a test-and-measurement company, HP's products quickly gained acceptance from engineers and scientists. When war broke out at the end of 1941, U.S. government orders poured in and the fledgling company expanded rapidly, building the first of its own buildings in 1942. Hewlett and Packard, still a little dazed by their sudden success, had the 10,000-square foot office/laboratory/factory designed so that it could be converted into a grocery store if the electronics business failed. In 1942 HP developed a line of microwave test signal generators and by the end of the war the company was the acknowledged leader in the field. The company was incorporated in 1947.

The 1950s was a time of growth and maturation for Hewlett-Packard. The company had grown tremendously in the decade since World War II began, from 3 employees in 1941 to 215 in 1951. Revenues had soared from $34,000 in 1941 to $5.5 million in 1951. In 1957 the company made its first public stock offering and in 1958 it made its first acquisition, purchasing the F.L. Moseley company of Pasadena, California. By this time, HP was earning in excess of $30 million and employed nearly 1,800 people.

In 1959 HP ventured overseas for the first time, establishing a sales office in Geneva, Switzerland, and a manufacturing plant in Boeblingen, West Germany. A few years later, the German plant introduced a noninvasive fetal heart monitor and pioneered flexible working hours, an idea soon adopted at HP manufacturing facilities worldwide. The company continued its expansion overseas in 1963 forming a joint venture company, Yokogawa Hewlett-Packard in Tokyo, Japan. By 1965 the company's revenues had quintupled again, climbing to $165 million, and more than 9,000 people around the world worked for Hewlett-Packard.

For most U.S. companies, the 1970s was a time of oil shocks, stagflation, and increasingly agile international competition, but for Hewlett-Packard it was a time of continued innovation and rapid growth. In 1972 HP introduced the world's first scientific hand-held calculator and branched into business computing with the HP 3000 minicomputer. In 1973 the company introduced the industry's first commercial distributed data processing system and, in 1974 it developed the first minicomputer based on dynamic random access semiconductors (DRAMS). This period was also marked by a significant growth in earnings and employment, with revenues cracking the $1-billion mark well before the end of the decade and computer sales accounting for half the company's revenues. The 1970s also saw the long reign of Bill Hewlett and Dave Packard come to an end as they handed over responsibility for management of day-to-day operations to John Young.

As with the economic problems of the 1970s, the bitter recession of the early 1980s left Hewlett-Packard virtually unscathed. Between 1980 and 1985, sales more than doubled from $3.0 to $6.5 billion and employment rose from 57,000 to 85,000. The company launched a dazzling array of new products during this time, including its first personal computer, the HP-85, and its most successful product ever, the HP LaserJet printer. In 1984, HP also pioneered inkjet technology with the introduction of the HP Thinkjet printer. In the late 1990s, the company's inkjet and laser printers remained among the most popular and technologically sophisticated in the world.

The early 1980s also saw HP make its first foray into the world of network computing when its U.K. subsidiary, HP Limited, developed an electronic mail system that was the first of its kind based on minicomputers. At about the same time, HP launched its most massive and expensive R&D effort ever, a five-year program to develop computer systems based on innovative RISC (Reduced Instruction Set Computing) architecture. The new line of computer systems was launched in 1986 and formed the basis for the powerful workstations, which by the end of the decade had transformed the world of computing.

FAST FACTS: About Hewlett-Packard Company


Ownership: Hewlett-Packard is a publicly held company traded on the New York Stock Exchange.

Ticker symbol: HWP

Officers: Lewis E. Platt, Chmn., Pres., & CEO, 57, 1997 earnings $1,811,435; Robert P. Wayman, Exec. VP & CFO, 52, 1997 earnings $1,032,300; Edward W. Barnholt, Exec. VP & General Manager, 53, 1997 earnings $748,592

Employees: 123,500

Principal Subsidiary Companies: Hewlett-Packard has subsidiary companies and facilities in 120 countries and manufacturing operations in 40. Some of these include: Apollo Systems Div.; CSTO Div.; Four Pi Systems Corp.; Hewlett-Packard Co. International Div.; Hewlett-Packard Co. Microwave Technology; Hewlett-Packard Co. Optoelectronics Div.; Hewlett-Packard Co. Personal Computer; Hewlett-Packard Co. Scientific Instruments; and Hewlett-Packard Co. Video Communications Div.

Chief Competitors: Hewlett-Packard's principal rival is IBM, the world's number one computer maker. HP's presence in the high-end workstation market also puts it in direct competition with companies like Sun Microsystems, Inc and Silicon Graphics. Its PC business pits it against leading PC manufacturers such as: Dell Computer; Acer Computer; and Compaq Computer. HP is also a leading player in the printer market where it competes against companies such as Canon; Epson; Lexmark; and Xerox.


By 1990 HP's revenues had doubled again from 1985's $6.5 to $13.2 billion and the company had moved into the top 50 in the Fortune 500. Though 1992 and 1993 saw growth briefly slow down to a less frantic 10 percent or so a year, by 1994 the company had still managed to double its 1990 earnings, taking in $25 billion. During this time HP concentrated on marrying its technologies of measurement, computing, and communication and developed new applications for its computer technology in analytical and medical instrumentation. New products included: the 11-ounce HP 95LX palmtop PC, weighing 11 ounces, which combined Lotus 1-2-3 software with advanced calculation features and data-communication capabilities; the HP SONOS 1500 echocardiograph system for real-time, non-invasive cardiac analysis using ultrasound waves; and a color scanner that allowed computers to read photographs and other visual images.

By the late 1990s Hewlett-Packard ranked as the second largest supplier of information technology in the world. From printers and scanners to desktop PCs and workstations, Hewlett-Packard was a dominant force in the world computing market and, in 1998 a study conducted by New York-based CMP Media named Hewlett-Packard the most recognized brand in the U.S. technology market, even finishing ahead of the ubiquitous Microsoft. Perhaps the company's only weakness was that its main strength lay in hardware, making it slow to take advantage of the many opportunities presented by the explosive growth of the Internet from the mid-1990s on. By 1997 the company was moving to correct this deficiency, however, acquiring VeriFone, the industry leader in electronic-payment systems and beginning development of its "Web Quality of Service" line of technologies, which were designed to prevent system overloads and allow businesses to prioritize transactions during peak usage periods. HP also began developing its own version of Java, a popular and versatile programming system originally developed by Sun Microsystems and widely used on the Internet. HP's plan was to focus on implementing this technology in printers and other devices, allowing them to link into and use a computer's interface to do such things as notify the systems administrator that the toner cartridge was running out, or even query a database and initiate an order for a replacement cartridge.

These moves put Hewlett-Packard in a position to play a more important role in the burgeoning Information Age. As CEO Lew Platt explained in his 1997 Letter to Shareholders, "Software has been one of HP's least visible businesses, but it is vitally important to our future." Thus, a second component of HP's new strategy was to form partnerships with electronic commerce software companies to offer what the company referred to in one press release as a "full-production Internet-commerce environment." Some analysts suggested the moves could give HP a leg up on its major competitor, IBM, in the electronic commerce field, a market expected to grow enormously by the end of the decade. In 1998 it was still too early to tell how things would turn out, but, as HP's consumer marketing campaign put it, the future was clearly one of "Expanding Possibilities."

CHRONOLOGY: Key Dates for Hewlett-Packard Company


1938:

Stanford University electrical engineers William Hewlett and David Packard begin work on first product

1939:

Hewlett and Packard formalize venture as a partnership

1942:

Builds first of its own buildings

1947:

Company is incorporated

1957:

Makes first public stock offering

1958:

Purchases F.L. Moseley company

1959:

Establishes offices and plants overseas

1963:

Forms joint venture company, Yokogawa Hewlett-Packard in Tokyo, Japan

1972:

Introduces first scientific hand-held calculator

1973:

Introduces industry's first commercial distributed data processing system

1974:

Develops first minicomputer based on dynamic random access semiconductors (DRAMS)

1986:

Introduces new family of Spectrum computer systems

1989:

Pays $500 million for Apollo Computer

1994:

Doubles 1990 earnings, taking in $25 billion

1998:

CMP Media study names Hewlett-Packard the most recognized brand in the U.S. technology market


STRATEGY

Hewlett-Packard's growth has been generated by a strong commitment to research and development in electronics and computer technology combined with a decentralized organization that gives business units considerable decision-making authority. That growth has been accomplished by providing a continuous flow of new products and services to markets they currently serve, and by expanding into new areas. Reflecting the company's continued investments in new technologies, expenditures for research and development accounted for 7.2 percent of total expenditures in 1997, increasing by 14 percent to $3.1 billion, compared with $2.8 billion in 1996. Future increases in research and development expenditures are anticipated in order to maintain the company's competitive position and ensure a steady flow of innovative, high-quality products.

In Hewlett-Packard's 73 divisions worldwide, the company strives to promote industry standards that recognize customer preferences for open systems in which different vendors' products can work together. Collaboration with other companies and technology alliances allow HP to expand into markets it might otherwise be unable to penetrate. For example, HP and Sybase, Inc. teamed up in a joint venture to develop Intel's upcoming 64-bit processor, the IA-64 (Intel Architecture-64-bit). HP and Intel jointly developed the original architecture. The company often bases its product innovations on such standards and seeks to make technology innovations into industry standards through licensing to other companies. For example, during fiscal 1996 the company helped lead the development of the International Cryptography Framework, an industrywide effort to address the issue of security on the Internet.

Like other large companies, HP flexes its financial muscle when necessary to strengthen its dominant position within the market. In acquiring Apollo Computer in 1989, a maker of workstations, HP jumped to the number two position in market sales behind Sun Microsystems, up from number three before the merger. Similarly, in a move aimed at establishing a stronger presence in the growing electronic commerce market, HP partnered with Cisco Systems in 1997 to develop technologies to increase the efficiency and reliability of business on the Internet. This strategy was deemed a shrewd move by analysts who foresaw the possibility of HP capturing a significant share of the electronic commerce market from IBM. As Zona Research senior analyst, Vernon Keenan, told Wired News, the move was typical of HP's approach of "going after a competitor that's plowed the market initially." In fact, capitalizing on the innovations of others has always been a key part of HP's strategy. The company built its dominance of the printer market on a printer engine developed by the Japanese company, Canon, and was later sued—first by Apple Computer for copyright infringement and then by Xerox for patent infringement. Similarly, HP's decision to develop its own version of the Java programming system standardized by Sun Microsystems enabled it to gain a foothold in previously inaccessible markets.


INFLUENCES

In 1981 HP's computer peripherals group manager Richard Hackborn learned that Japan's Canon was working on a prototype of a small, cheap desktop printer that produced letter-quality type and could be sold for $3,000 retail. HP's only printer at that time was a $100,000 model sold with the company's minicomputers. HP started developing a new line of printers for consumers, using Canon's new engine. HP was confident that they could develop a cheaper, better product than the Japanese, exploiting HP's brand name and making up on volume whatever profits it had to share with Canon. HP had no experience selling to a broad consumer market. However, Richard Hackborn built up, over 15 years, a printer division that now brings in one-third of HP's revenues and 40 percent of its profits.

Similarly, HP's purchase of Apollo Computer in 1989 leapfrogged it into the number two spot in the market for computer workstations, a field experiencing significant growth in the early 1990s. The company entered the PC field even later, but once again its immense resources allowed it to quickly catch up. In 1992 HP was the sixth leading supplier of personal computers, by 1996 it was the third largest. But while HP was gaining ground in the PC field, it was slow to make its products relevant to the Internet. Competitors like IBM and Sun Microsystems had gotten in on the ground floor and by 1997 had a significant lead in this area. HP responded by forming a partnership with Cisco Systems to develop new Internet business tools and by developing its own variant of the Java programming system originally developed by Sun.

Once HP brings its resources to bear, it is able to compete very effectively, offering customers superior technology, performance, price, quality, reliability, distribution, and service and support. But product life cycles are short and to remain competitive the company will have to continue to develop new products and periodically enhance its existing products. Capitalizing on its early entry into the market, HP has dominated the printer market with its LaserJet and DeskJet brands. The company has worked diligently to create and sustain a competitive advantage through branding, new product development, and aggressive pricing.

Hewlett-Packard has certainly been responsible for its share of innovations over the years, but perhaps its greatest strength lies in its ability to create highly technical products with a user-friendly interface. So strong is HP in this area that in 1997 it was able to lure Donald
A. Norman, the former head of Apple's Research Laboratories, to a position at Hewlett-Packard Labs. Said Norman to Wired," I should be able to do tasks without learning a complex technology . . . Today we have to learn tools; I want to make that necessity disappear."


CURRENT TRENDS

Hewlett-Packard is currently spending millions to develop new products such as printers that can produce photo-quality images from screens, and palm-size sensors that can transmit soil content data from the ground to farmers' PCs. On October 14, 1997, HP and Intel revealed the first details of their jointly defined Explicitly Parallel Instruction Computing (EPIC) technology and IA-64 (Intel Architecture 64-bit). The new technology was expected to offer breakthrough performance for the next-generation of 64-bit high-end workstation and servers. The company also announced a joint strategy with Microsoft to increase the productivity and simplify integration of enterprise computing technology while reducing costs. In another move, HP expanded its share of the computer printer market with new products such as the mopier (makes multiple original prints) and the HP Network ScanJet 5. The company estimated that even a gain as small as 1 percent could significantly increase its printer sales.

But it was in the Internet arena that the company hoped to make its biggest gains. By 1998 the Internet had become the fastest growing segment of the information technology market and all the major companies were scrambling to stake out a piece of the action. The emerging global network and a host of new specialized "information appliances" were revolutionizing the way people gathered and share information. HP believed it had the expertise to help create and manage these data highways, pointing to its expertise in both instrumentation and computing as a key advantage. The company's biggest step in this direction came with its alliance with Cisco Systems, Inc. early in 1997. The two companies agreed to a broad technology-development, Internet solutions, and customer-support alliance that would integrate computing, networking, and network management to supply complete, fully secure Internet-ready networked computing solutions.

Although the company continued to maintain its growth in 1998, earnings for the second quarter of fiscal 1998 were down slightly from the previous year, provoking many investors to sell their shares and pushing down the value of HP's stock. The company blamed the decrease in profitability on lower prices for computers and printers and on economic weakness in Asia.


PRODUCTS

HP's first products were electronic measuring instruments used primarily by engineers and scientists. Later the company extended its range of measurement instruments to serve the areas of medicine and chemical analysis. The eventual move into the computer field was a logical progression based on the need to help its customers collect and manipulate large quantities of measurement data. By the late 1990s, though still a leader in instrumentation, HP was best known for its broad line of computer and computer-based products, including associated software, peripherals, support, and services. In 1998 HP was the world's leading supplier of RISC systems and UNIX system-based computers and the world's second largest supplier of powerful workstations for engineering and business applications. It was also one of the fastest-growing personal computer companies in the world. HP's PC products include the Pavilion family of PCs for home users, the OmniGo 100 handheld organizer, and the 200LX palmtop PC.

HP is also the world's leading supplier of printers. New products like the HP LaserJet 4000 printers deliver high-resolution 1,200 dots-per-inch print performance at full engine speed and incorporate new technology that allows them to exchange information with printers, scanners, and other devices directly without a PC. The company also introduced a new DeskJet inkjet printer, the 722C that features exclusive new color and photo enhancement technologies that enable it to produce photo-quality images more quickly. Other HP "hardcopy" products include DesignJet large-format printers, ScanJet scanners, OfficeJet all-in-ones, and CopyJet color printer-copiers.

Early in 1997 Hewlett-Packard introduced a new Jet-Direct print server with advanced features designed to save network administrators time and protect a company's network-printing investment. The AdvanceStack Switch 800T that HP started shipping in May 1997 earned a Communications Week Max Award for its 10/100Mbit Ethernet switching. Recently HP teamed up with Intel Corporation and Microsoft to help develop the reference specifications for the NetPC system, the newest class of personal computer. HP also put forth the most affordable scanner ever offered to consumers, the Scan-Jet 5s. HP also introduced the HP-UX system to enable companies to avoid date-related system and application failures in the transition to the year 2000.


CORPORATE CITIZENSHIP

In 1939, the year the company was founded with $538 and no revenues or profits, its ledger showed a $5 gift to the community. Co-founders Bill Hewlett and Dave Packard began a tradition of community involvement with a modest gift to a local charity in Palo Alto, California. Today HP is recognized as a leading giver among corporations in the United States. HP gives a lot of HP equipment, mostly for educational programs. In 1996 the company donated $72 million towards its philanthropy efforts and about 80 percent or $57 million of this amount went to education.

In 1997 the company donated about $61 million in cash and equipment, and was recognized for its philanthropy by the National Society of Fund Raising Executives who awarded it the Outstanding Corporation Award. It also launched the Diversity in Education Initiative, a program aimed at encouraging females and minorities to consider technical careers, and to help improve the teaching of math and science in schools and colleges.

Hewlett-Packard's environmental philanthropy focuses on many areas of concern. Since 1991, HP has donated nearly $4 million in cash and equipment to U.S. conservation and environmental causes. In addition, the company continues to support environmental efforts throughout the world. In Europe HP contributes to a coalition of educational institutions, and government and environmental researchers working to improve the quality of water in several European rivers. This includes the Rhine Basin Program, to which HP Europe has donated more than $5 million. But HP does more than just donate money to environmental programs. It is a leading supplier of measurement and computation systems used for environmental monitoring and strives to develop products that minimize impact on the environment and on human health and safety. Most HP products are designed so that they can be taken apart and recycled. The company also offers customers in several countries a no-cost recycling program for HP LaserJet toner cartridges. Each month, HP recycles or reuses approximately 3 million pounds of material from old products at its product-recovery centers in Grenoble, France, and Roseville, California.

In 1996, HP's commuter transportation department won a U.S. Environmental Protection Agency award for its efforts to improve air quality and reduce traffic congestion by encouraging the use of commute alternatives. Similarly, two HP plants in California were recognized by the Integrated Waste Management Board as among the top-10 waste-conscious businesses for diverting from landfill 92 percent of the solid waste they generated in 1996. Another HP site that uses wastewater from manufacturing to irrigate landscaping won a 1995 award from the California Water Pollution Control Association for its program. Also in 1995, HP Austria won an award cosponsored by the national government and an international environmental organization for the site's environmental efforts. On the energy conservation side, HP's NightDIRECTOR made it possible to switch networked PCs on remotely for off-hours maintenance, instead of leaving them running all night.


GLOBAL PRESENCE

Sales outside the United States make up more than half the company's revenue. HP's total orders originating outside the United States, as a percentage of total company orders, were approximately 56 percent in fiscal 1996, 55 percent in fiscal 1995, and 54 percent in fiscal 1994. Approximately two-thirds of HP's international orders in each of the last three fiscal years were derived from Europe, with most of the balance coming from Japan, other countries in Asia Pacific, Latin America, and Canada. In addition, part of the company's product and components manufacturing, along with key suppliers, are outside the United States. HP is one of the top 10 U.S. exporters.

Hewlett-Packard operates facilities in 10 states, Puerto Rico, and 16 countries, and has 600 sales and support offices and distributorships in more than 120 countries. Sales are made to industrial and commercial customers, educational and scientific institutions, health care providers (including individual doctors, hospitals, clinics, and research laboratories), and in the case of its calculators and other personal information products, computer peripherals and PCs, to individuals for personal use. Foreign sales subsidiaries make up most of the company's sales in international markets. In countries with low sales volume, the company is marketing its products through various representative and distributorship arrangements. Certain sales in international markets, however, are made directly by the company from the United States. The Frankfurt Heart Center, one of Germany's largest cardiac treatment facilities, asked Hewlett-Packard to supply cardiology and patient monitoring equipment and to design a medical information management system that would make all patient data available online.

HP anticipates revenues in China to rise more than 50 percent in 1997 from a total of $550 million in 1996. Furthermore, HP's vice president, Alex Sozonoff, stated, "China has been strategically elevated as the major investment market for Hewlett-Packard." Space TV Systems, Inc. chose HP's MediaStream Broadcast Server as its on-air remedy for the world's first global direct-to-home satellite service that will feature Chinese programming. This joint venture will supply programming to China, Taiwan, Hong Kong, Japan, Korea, Australia, and North America.

HP's heavy dependence on foreign markets hurt the company in early 1998 as the Asian economy struggled in the wake of a region-wide economic collapse. Sales of medical instrumentation and test measurement systems fell and the company found itself posting earnings well short of expectations. The Asian economic problems also put pressure on HP's Asian partners, one of whom, Sam-sung, was forced to sell its 45-percent share in the company's 13-year-old joint venture, Hewlett-Packard Korea, to HP for $36 million. In addition to bailing out Samsung, HP also announced it would invest $250 to $300 million in South Korea in 1998. Perhaps that is one reason why the company was rated the number 9 most admired company in Asia, compared to its number 10 rating in the United States.


EMPLOYMENT

Hewlett-Packard believes strongly in the principles of equal opportunity and affirmative action for all employees and promotes an informal, non-authoritarian working atmosphere. In fact, HP won the prestigious Catalyst Award, an annual national prize that recognizes organizations for their programs to advance the careers of female professionals. The company also adheres to the belief that it is the employees who make the company's success possible and rewards them for their efforts with regular cash profit sharing and stock-purchase programs. Employees are eligible for profit sharing as soon as they have worked for the company for six months, receiving two bonuses annually. In May 1998, HP distributed $210 million to more than 118,000 employees throughout the world.


SOURCES OF INFORMATION

Bibliography

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"hp announces $4 million grant program to strengthen educational opportunities for women and minority engineers; using cash grants, universities and k-12 schools will partner to encourage and prepare women and minorities for high-tech careers." marketguide, 27 march 1997. available at http://www.marketguide.com/mgi/industry/industry.htm.

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"intel and microsoft release netpc reference specification for broad industry review; product announcements from pc manufacturers expected within 90 days; specification co-authored by compaq, dell and hewlett-packard." marketguide, 12 march 1997. available at http://www.marketguide.com/mgi/industry/industry.htm.

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"new hp jetdirect 10/100base-tx print server simplifies migration to high-speed networking; hp print server operates in 10base-t or 100basetx environments, making the transition to fast ethernet easy." marketguide, 14 april 1997. available at http://www.marketguide.com/mgi/industry/industry.htm.

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"president clinton announces ron brown award." marketguide, 3 april 1997. available at http://www.marketguide.com/mgi/industry/industry.htm.

"space tv systems selects hp mediastream broadcast server for its first digital direct-to-home satellite tv service." marketguide, 7 april 1997. available at http://www.marketguide.com/mgi/industry/industry.htm.

"xerox sues hp over patents." reuters, 14 may 1998.


For an annual report:

on the internet at: http://www.hp.comor write: hewlett-packard company, 3000 hanover st., palo alto, ca 94304


For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. hewlett-packard's primary sics are:

3571 electronic computers

3572 computer storage devices

3575 computer terminals

3577 computer peripheral equipment, nec

3578 calculating & accounting equipment

7378 computer maintenance & repair

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Hewlett-Packard Company

Hewlett-Packard Company

founded: 1939 variant name: hp



Contact Information:

headquarters: 3000 hanover st.palo alto, ca 94304-1185 phone: (650)857-1501 fax: (650)857-5518 toll free: (800) 752-0900 email: [email protected] url: http://www.hp.com

OVERVIEW

Hewlett-Packard Company (HP) primarily designs, manufactures, and services electronic products and systems for computation, analysis, and measurement. HP offers more than 25,000 products and maintains manufacturing plants, research-and-development centers, warehouses, and administration facilities in more than 120 countries. Sales of computers and related products and services account for approximately 70 percent of the company's revenue. With 2001 net sales revenues of $45.2 billion, Hewlett-Packard moved from the nation's third to second-largest computer company, following the 2002 merger with Compaq Computer. Before the merger the company in 2002 was number 19 on the Fortune 500 list of the largest U.S. corporations and a leader in most of the markets in which it competes. It should remain in that position or improve slightly since Compaq before the merger was number 21 on the Fortune 500 rankings in 2002. These markets include servers, workstations, personal computers (including portables), computer peripherals, network equipment, and handheld calculators. Other products include electric test and measurement equipment, analytical instruments, and medical equipment. HP has become one of the largest diversified companies in the world, generating more than 55 percent of its business outside the United States. The merger gives the company additional opportunities for revenues in Africa, Latin America and Singapore thanks to Compaq's solid business foundation in those areas of the globe.

COMPANY FINANCES

Most of Hewlett-Packard's income comes from its broad range of computer products and peripherals, accounting for more than $35 billion of HP's total 1997 revenues. The company is the world's revenue leader for RISC and UNIX-based computers and the second largest supplier of workstations for engineering and business applications. Net revenue from the United States rose 12 percent in 1997, while international revenue grew 11 percent and accounted for 56 percent of total revenues. The company boasted a comfortable 1997 operating profit of 10.1 percent and net profit of 7.3 percent, with a return on assets of 9.8 percent. Strong earnings growth contributed to an increase of $1.6 billion in net cash, enabling the Board of Directors to add $1.0 billion to the authorization for repurchase of the company's common stock. During a 52-week period from 1997 to 1998, HP's stock reached a high of $82.00 (and a low of $50.00). Despite losses in early 1998, Hewlett Packard remained in excellent financial condition enabling it to easily continue investing in future growth. Nonetheless, the new HP in 2002 was far weaker than arch-rival IBM in total net income for HP and Compaq the last four quarters—HP's $1.1 billion to IBM's $8.4 billion.



ANALYSTS' OPINIONS

Second only to IBM among the world's manufacturers of computer equipment and related technologies, Hewlett-Packard's history of consistently strong performance has always appealed to investors and analysts. The company itself remained confident in 1998 that it had the product offerings and resources needed for continuing success, though it warned that future revenue and margin trends could not be safely predicted. Indeed, that unpredictability caused investors to flee HP in the spring of 1998 after the company announced weaker than expected profits in the first quarter. No fewer than six firms and many analysts who had formerly been "bullish" on Hewlett-Packard slashed estimates on HP. HP blamed the drop in earnings on weakness in the Asian market and severe competition in the PC market. Also contributing to the decline was increasing erosion of HP's leading share in the workstation market caused by competitor Dell Computer. Analysts noted that, unlike IBM, Hewlett Packard did not have a major services business to fall back on when times were tough in the hardware market. New HP initiatives in the Internet arena also helped boost confidence in the early 2000s. That confidence seemed for many analysts all too absent following the HP and Compaq merger in 2002. Not only did the "new" HP experience subpar Moody's Investors Service and Standard and Poor's credit ratings in 2002, but Tony Sacconaghi, a computer hardware analyst with Sanford Bernstein investment house expressed doubts about the newly merged giant's ability to go head-to-head against superpowers Dell, IBM, and Sun Microsystems, according to business writer Matt Beer.

HISTORY

Stanford University electrical engineers William Hewlett and David Packard began their joint venture in 1938 out of a Palo Alto garage with $538.00. They began working on their first product, a resistance-capacity audio oscillator, used for testing sound equipment. Their first order for eight oscillators was from Walt Disney Studios, who used them in the making of the film "Fantasia." Today that same garage is officially designated as a State Historical Landmark and recognized both as HP's birthplace and a Silicon Valley milestone.

Founded as a test-and-measurement company, HP's products quickly gained acceptance from engineers and scientists. When war broke out at the end of 1941, U.S. government orders poured in and the fledgling company expanded rapidly, building the first of its own buildings in 1942. Hewlett and Packard, still a little dazed by their sudden success, had the 10,000-square foot office/laboratory/factory designed so that it could be converted into a grocery store if the electronics business failed. In 1942 HP developed a line of microwave test signal generators and by the end of the war the company was the acknowledged leader in the field. The company was incorporated in 1947.

The 1950s was a time of growth and maturation for Hewlett-Packard. The company had grown tremendously in the decade since World War II began, from 3 employees in 1941 to 215 in 1951. Revenues had soared from $34,000 in 1941 to $5.5 million in 1951. In 1957 the company made its first public stock offering, and in 1958 it made its first acquisition, purchasing the F.L. Moseley company of Pasadena, California. By this time, HP was earning in excess of $30 million and employed nearly 1,800 people.

In 1959 HP ventured overseas for the first time, establishing a sales office in Geneva, Switzerland, and a manufacturing plant in Boeblingen, West Germany. A few years later, the German plant introduced a non-invasive fetal heart monitor and pioneered flexible working hours, an idea soon adopted at HP manufacturing facilities worldwide. The company continued its expansion overseas in 1963 forming a joint venture company, Yokogawa Hewlett-Packard in Tokyo, Japan. By 1965 the company's revenues had quintupled again, climbing to $165 million, and more than 9,000 people around the world worked for Hewlett-Packard.

For some U.S. companies, the 1970s was an unprofitable time of oil shocks and increasingly agile international competition, but for Hewlett-Packard it was a time of continued innovation and rapid growth. In 1972 HP introduced the world's first scientific hand-held calculator and branched into business computing with the HP 3000 minicomputer. In 1973 the company introduced the industry's first commercial distributed data processing system and, in 1974, it developed the first minicomputer based on dynamic random access semiconductors (DRAMS). This period was also marked by a significant growth in earnings and employment, with revenues cracking the $1-billion mark well before the end of the decade and computer sales accounting for half the company's revenues. The 1970s also saw the long reign of Bill Hewlett and Dave Packard come to an end as they handed over responsibility for management of day-to-day operations to John Young.

As with the economic problems of the 1970s, the bitter recession of the early 1980s left Hewlett-Packard virtually unscathed. Between 1980 and 1985, sales more than doubled from $3.0 to $6.5 billion and the number of employees rose from 57,000 to 85,000. The company launched a dazzling array of new products during this time, including its first personal computer, the HP-85, and its most successful product ever, the HP LaserJet printer. In 1984, HP also pioneered inkjet technology with the introduction of the HP Thinkjet printer. In the late 1990s and 2000s, the company's inkjet and laser printers remained among the most popular and technologically sophisticated in the world, as well as a constant product customers continually needed to purchase.

FAST FACTS: About Hewlett-Packard Company


Ownership: Hewlett-Packard is a publicly held company traded on the New York Stock Exchange.

Ticker symbol: HPQ

Officers: Carleton (Carly) Fiorina, Chmn. and CEO, 47; Michael D. Capellas, Pres., 48, 2001 salary $1.6 million

Employees: 135,000

Principal Subsidiary Companies: Hewlett-Packard (HP) has subsidiary companies and facilities in 162 countries and claims to offer its services to one billion customers. Some of these include: Apollo Systems Div., CSTO Div., Four Pi Systems Corp., Hewlett-Packard Co. International Div., Hewlett-Packard Co. Microwave Technology, Hewlett-Packard Co. Opto-electronics Div., Hewlett-Packard Co. Personal Computer, Hewlett-Packard Co. Scientific Instruments, and Hewlett-Packard Co. Video Communications Div.

Chief Competitors: Hewlett-Packard's principal rival is IBM, the world's number one computer maker. HP's presence in the high-end workstation market also puts it in direct competition with companies such as Sun Microsystems, Inc.; Silicon Graphics. Its PC business pits it against leading PC manufacturers such as Dell Computer, but in 2002 it merged with another competitor, Compaq Computer. HP is also a leading player in the printer market where it competes against companies such as Canon, Epson, Lexmark, and Xerox.


The early 1980s also saw HP make its first foray into the world of network computing when its U.K. subsidiary, HP Limited, developed an electronic mail system that was the first of its kind based on minicomputers. At about the same time, HP launched its most massive and expensive R&D effort ever, a five-year program to develop computer systems based on innovative RISC (Reduced Instruction Set Computing) architecture. The new line of computer systems was launched in 1986 and formed the basis for the powerful workstations, which by the end of the decade had transformed the world of computing.

By 1990 HP's revenues had doubled again from 1985's $6.5 to $13.2 billion and the company had moved into the top 50 in the Fortune 500. Though 1992 and 1993 saw growth briefly slow down to a less frantic 10 percent or so a year, by 1994 the company had still managed to double its 1990 earnings, taking in $25 billion. During this time HP concentrated on marrying its technologies of measurement, computing, and communication and developed new applications for its computer technology in analytical and medical instrumentation. New products included: the 11-ounce HP 95LX palmtop PC, weighing 11 ounces, which combined Lotus 1-2-3 software with advanced calculation features and data-communication capabilities; the HP SONOS 1500 echocardiograph system for real-time, non-invasive cardiac analysis using ultrasound waves; and a color scanner that allowed computers to read photographs and other visual images.

By the late 1990s Hewlett-Packard ranked as the second largest supplier of information technology in the world. From printers and scanners to desktop PCs and workstations, Hewlett-Packard was a dominant force in the world computing market and, in 1998 a study conducted by New York-based CMP Media named Hewlett-Packard the most recognized brand in the U.S. technology market, even finishing ahead of the ubiquitous Microsoft. Perhaps the company's only weakness was that its main strength lay in hardware, making it slow to take advantage of the many opportunities presented by the explosive growth of the Internet from the mid-1990s on. By 1997 the company was moving to correct this deficiency, however, acquiring VeriFone, the industry leader in electronic-payment systems and beginning development of its "Web Quality of Service" line of technologies, which were designed to prevent system overloads and allow businesses to prioritize transactions during peak usage periods. HP also began developing its own version of Java, a popular and versatile programming system originally developed by Sun Microsystems and widely used on the Internet. HP's plan was to focus on implementing this technology in printers and other devices, allowing them to link into and use a computer's interface to do such things as notify the systems administrator that the toner cartridge was running out, or even query a database and initiate an order for a replacement cartridge.

CHRONOLOGY: Key Dates for Hewlett-Packard Company


1938:

Stanford University electrical engineers William Hewlett and David Packard begin work on first product in a tiny garage; the first is an electronic instrument used to test sound equipment, the resistance-capacity audio oscillator (HP 200A), and the company said Walt Disney purchased these to use to assist with the sound track of the movie "Fantasia"

1939:

Hewlett and Packard formalize venture as a partnership, deciding which name came first in company name by a coin toss

1942:

Builds first of its own buildings

1947:

Company is incorporated

1957:

Makes first public stock offering

1958:

Purchases F.L. Moseley company

1959:

Establishes offices and plants overseas

1963:

Forms joint venture company, Yokogawa Hewlett-Packard in Tokyo, Japan

1972:

Introduces first scientific hand-held calculator

1973:

Introduces industry's first commercial distributed data processing system

1974:

Develops first minicomputer based on dynamic random access semiconductors (DRAMS)

1986:

Introduces new family of Spectrum computer systems

1989:

Pays $500 million for Apollo Computer

1994:

Doubles 1990 earnings, taking in $25 billion

1998:

CMP Media study names Hewlett-Packard the most recognized brand in the U.S. technology market

2002:

Director Walter Hewlett tries to block the merger of HP with Compaq; before the issue is settled, Hewlett and Carleton (Carly) Fiorina, HP Chairman, engage in an angry mud-slinging duel in the press; Hewlett is unable to halt the Compaq merger, which he claimed would be ruinous for HP; the successful merger brings together two companies with combined revenues the last four quarters of $87.4 billion; Hewlett-Packard merges with Compaq Computer for $19 billion in stock, and Compaq name is absorbed, though for a time at least its products and inventory will be sold with the Compaq name attached

These moves put Hewlett-Packard in a position to play a more important role in the burgeoning Information Age. As CEO Lew Platt explained in his 1997 Letter to Shareholders, "Software has been one of HP's least visible businesses, but it is vitally important to our future." Thus, a second component of HP's new strategy was to form partnerships with electronic commerce software companies to offer what the company referred to in one press release as a "full-production Internet-commerce environment." Some analysts suggested the moves could give HP a leg up on its major competitor, IBM, in the electronic commerce field, a market expected to grow enormously by the end of the decade.

STRATEGY

Hewlett-Packard's growth has been generated by a strong commitment to research and development in electronics and computer technology combined with a decentralized organization that gives business units considerable decision-making authority. That growth has been accomplished by providing a continuous flow of new products and services to markets they currently serve, and by expanding into new areas. Reflecting the company's continued investments in new technologies, expenditures for research and development accounted for 7.2 percent of total expenditures in 1997, increasing by 14 percent to $3.1 billion, compared with $2.8 billion in 1996. Future increases in research and development expenditures are anticipated in order to maintain the company's competitive position and ensure a steady flow of innovative, high-quality products. In 2002, the new HP will have total r and d dollars comparable to the moneys both intended to spend separately in 2002—roughly $4 billion.

Hewlett-Packard strives to promote industry standards that recognize customer preferences for open systems in which different vendors' products can work together. Collaboration with other companies and technology alliances allow HP to expand into markets it might otherwise be unable to penetrate. For example, HP and Sybase, Inc. teamed up in a joint venture to develop Intel's up-coming 64-bit processor, the IA-64 (Intel Architecture-64-bit). HP and Intel jointly developed the original architecture, but in 2002, HP admitted again and again that it needed serious improvements in its Intel-related products. The company often bases its product innovations on such standards and seeks to make technology innovations into industry standards through licensing to other companies.

Like other large companies, HP flexes its financial muscle when necessary to strengthen its dominant position within the market. In acquiring Compaq in 2002, company executives belie they have accomplished a shrewd move by capturing a significant share of the electronic commerce market formerly held by Compaq. As Zona Research senior analyst, Vernon Keenan, told Wired News about an earlier merger with another competitor, such strategy is typical of HP's approach of "going after a competitor that's plowed the market initially." In fact, capitalizing on the innovations of others has always been a key part of HP's strategy. The company built its dominance of the printer market on a printer engine developed by the Japanese company, Canon, and was later sued—first by Apple Computer for copyright infringement and then by Xerox for patent infringement. Similarly, HP's decision to develop its own version of the Java programming system standardized by Sun Microsystems enabled it to gain a foothold in previously inaccessible markets.

INFLUENCES

In 1981 HP's computer peripherals group manager Richard Hackborn learned that Japan's Canon was working on a prototype of a small, cheap desktop printer that produced letter-quality type and could be sold for $3,000 retail. HP's only printer at that time was a $100,000 model sold with the company's minicomputers. HP started developing a new line of printers for consumers, using Canon's new engine. HP was confident that they could develop a cheaper, better product than the Japanese, exploiting HP's brand name and making up on volume whatever profits it had to share with Canon. HP had no experience selling to a broad consumer market. However, Richard Hackborn built up, over 15 years, a printer division that in the late 1990s brought in one-third of HP's revenues and 40 percent of its profits. In 2002 the company's printer revenues continued to be the mainstay of company profits.

Similarly, HP's purchase of Apollo Computer in 1989 leapfrogged it into the number two spot in the market for computer workstations, a field experiencing significant growth in the early 1990s. The company entered the PC field even later, but once again its immense resources allowed it to quickly catch up. In 1992 HP was the sixth leading supplier of personal computers, by 1996 it was the third largest. But while HP was gaining ground in the PC field, it was slow to make its products relevant to the Internet. Competitors like IBM and Sun Microsystems had gotten in on the ground floor and by 1997 had a significant lead in this area. HP responded by forming a partnership with Cisco Systems to develop new Internet business tools and by developing its own variant of the Java programming system originally developed by Sun. Likewise, in 2002, its $18.69-billion stock purchase of Compaq was designed to again leapfrog the company into competitive areas where heretofore it was lagging such as Compaq's handheld iPAQ, Armada laptop and ProLiant IA-32 server, according to business writer Nathan Cochrane.



CURRENT TRENDS

Hewlett-Packard is currently spending millions to develop new products such as printers that can produce photo-quality images from screens, and palm-size sensors that can transmit soil content data from the ground to farmers' PCs. On October 14, 1997, HP and Intel revealed the first details of their jointly defined Explicitly Parallel Instruction Computing (EPIC) technology and IA-64 (Intel Architecture 64-bit). The new technology was expected to offer breakthrough performance for the next-generation of 64-bit high-end workstation and servers. The company also announced a joint strategy with Microsoft to increase the productivity and simplify integration of enterprise computing technology while reducing costs. In another move, HP expanded its share of the computer printer market with new products such as the mopier (makes multiple original prints) and the HP Network ScanJet 5. The company estimated that even a gain as small as 1 percent could significantly increase its printer sales.

But it was in the Internet arena that the company hoped to make its biggest gains. By 1998 the Internet had become the fastest growing segment of the information technology market and all the major companies were scrambling to stake out a piece of the action. The emerging global network and a host of new specialized "information appliances" were revolutionizing the way people gathered and share information. HP believed it had the expertise to help create and manage these data highways, pointing to its expertise in both instrumentation and computing as a key advantage. The company's biggest step in this direction came with its alliance with Cisco Systems, Inc. early in 1997. The two companies agreed to a broad technology-development, Internet solutions, and customer-support alliance that would integrate computing, networking, and network management to supply complete, fully secure Internet-ready networked computing solutions.

Although the company continued to maintain its growth in 1998, earnings for the second quarter of fiscal 1998 were down slightly from the previous year, provoking many investors to sell their shares and pushing down the value of HP's stock. The company blamed the decrease in profitability on lower prices for computers and printers and on economic weakness in Asia.

In 2002, the company's merger with Compaq was regarded as well masterminded by HP, but nonetheless many retailers expressed strong fears that their inventory might contain a number of products headed toward the discontinued scrap pile, according to Business Wire magazine.



PRODUCTS

HP's first products were electronic measuring instruments used primarily by engineers and scientists. Later the company extended its range of measurement instruments to serve the areas of medicine and chemical analysis. The eventual move into the computer field was a logical progression based on the need to help its customers collect and manipulate large quantities of measurement data. By the late 1990s, though still a leader in instrumentation, HP was best known for its broad line of computer and computer-based products, including associated software, peripherals, support, and services. In 1998 HP was the world's leading supplier of RISC systems and UNIX system-based computers and the world's second largest supplier of powerful workstations for engineering and business applications. It was also one of the fastest-growing personal computer companies in the world. HP's merger with Compaq more than doubled its available inventory of PC, laptop and handheld equipment, but as of May 2002 it was unclear which products would be showcased and which discontinued.

HP is also the world's leading supplier of printers. Products such as the HP LaserJet 4000 printers deliver high-resolution 1,200 dots-per-inch print performance at full engine speed and incorporate new technology that allows them to exchange information with printers, scanners, and other devices directly without a PC. The company also has a popular DeskJet inkjet printer, the 722C that features exclusive new color and photo enhancement technologies that enable it to produce photo-quality images more quickly. Other HP "hardcopy" products include DesignJet large-format printers, ScanJet scanners, OfficeJet all-in-ones, and CopyJet color printer-copiers.

The 2002 merger with Compaq not so coincidentally allows Hewlett Packard to strongly position itself in areas where it was formally weak such as handheld devices, server infrastructure softwarvoice control and voice-recognition software. While some analysts were skeptical and predicted a corporate disaster ahead similar to the yoking of AOL and Time Warner, other observers expressed belief that the merger might help the so-called "new" HP aggressively fight IBM for market share in the information technology (IT) industry.



CORPORATE CITIZENSHIP

In 1939, the year the company was founded with $538 and no revenues or profits, its ledger showed a $5 gift to the community. Co-founders Bill Hewlett and Dave Packard began a tradition of community involvement with a modest gift to a local charity in Palo Alto, California. Today HP is recognized as a leading giver among corporations in the United States. HP donates HP equipment, mostly for educational programs. In 1996 the company donated $72 million towards its philanthropy efforts and about 80 percent or $57 million of this amount went to education.

The company, recognized in the past for its philanthropy by the National Society of Fund Raising Executives who awarded it the Outstanding Corporation Award, contributed more than $54 million in resources worldwide to philanthropies in 2001. It also launched the Diversity in Education Initiative, a program aimed at encouraging females and minorities to consider technical careers, and to help improve the teaching of math and science in schools and colleges. During the 2000s, HP was widely praised for its innovative Digital Village Program, an attempt to introduce underserved populations to "social and economic opportunities of the digital age," according to an HP spokeperson in 2002.

Hewlett-Packard's environmental philanthropy focuses on many areas of concern, and the company continues to support environmental efforts throughout the world. In Europe HP contributes to a coalition of educational institutions, and government and environmental researchers working to improve the quality of water in several European rivers. This includes the Rhine Basin Program, to which HP Europe has donated more than $5 million. But HP does more than just donate money to environmental programs. It is a leading supplier of measurement and computation systems used for environmental monitoring and strives to develop products that minimize impact on the environment and on human health and safety. Most HP products are designed so that they can be taken apart and recycled. The company also offers customers in several countries a no-cost recycling program for HP LaserJet toner cartridges. Each month, HP recycles or reuses approximately 3 million pounds of material from old products at its product-recovery centers in Grenoble, France, and Roseville, California.

By the 2000s HP's products was able to announce that its products are made without the use of many toxic chemicals or ozone-threatening compounds, including carbon tetrachloride, HBFCs, chlorofluorocarbons, halons, trichloroethane, and methyl bromide. The company also has instituted steps to use fire extinguishers and air conditioning units that are less threatening to the ozone layer.

In 2001, the U.S. branch of Green Cross International, an environmental awareness group, awarded HP CEO Carly Fiorina its top environmental leadership award.


GLOBAL PRESENCE

Sales outside the United States make up more than half the company's revenue. Approximately two-thirds of HP's international orders prior to the Compaq merger were derived from Europe, with most of the balance coming from Japan, other countries in Asia Pacific, Latin America, and Canada. In addition, part of the company's product and components manufacturing, along with key suppliers, are outside the United States. HP is one of the top 10 U.S. exporters. The 2002 merger with Compaq tremendously strengthened HP's presence in Latin America and Singapore, among other international bases.

HP continues to keep an aggressive corporate presence in China. Space TV Systems, Inc. chose HP's MediaStream Broadcast Server as its on-air remedy for the world's first global direct-to-home satellite service that will feature Chinese programming. In 2002 HP established a Shanghai software research and development outpost with plans to expand to a 2,000-employee center by 2007.

HP's heavy dependence on international markets hurt the company in early 1998 as the Asian economy struggled in the wake of a region-wide economic collapse. Sales of medical instrumentation and test measurement systems fell and the company found itself posting earnings well short of expectations. After HP merged with Compaq in 2002, the expanded company boasted four main Asian business sectors: the Enterprise Systems Group, HP Services, the Imaging & Printing Group, and the Personal Systems Group.


EMPLOYMENT

Hewlett-Packard believes strongly in the principles of equal opportunity and affirmative action for all employees and promotes an informal, non-authoritarian working atmosphere. In fact, HP won the prestigious Catalyst Award, an annual national prize that recognizes organizations for their programs to advance the careers of female professionals. The company also adheres to the belief that it is the employees who make the company's success possible and rewards them for their efforts with regular cash profit sharing and stock-purchase programs. Employees are eligible for profit sharing as soon as they have worked for the company for six months. In May 1998, HP distributed $210 million to more than 118,000 employees throughout the world. In 2000, as profits stalled worldwide and Hewlett Packard began serious negotiations with Compaq, no bonuses were paid rank-and-file employees. Although second quarter 2002 performance was still iffy, particularly in Europe and other international markets, the company nonetheless paid employees a substantial bonus in May 2002.


SOURCES OF INFORMATION

Bibliography

antonelli, cesca. "hp ceo fiorina must boost revenue, investors say." bloomberg news, 14 may 2002.

beer, matt. ": venerable hp begins life anew with compaq in fold." agence france presse, 6 may 2002.

brennan, peter j. "hp to keep compaq name on corporate pcs." bloomberg news, 7 may 2002.


cochrane, nathan. "new hp cuts to the chase." the age (melbourne), 14 may 2002.


"compaq keynote at planet pda offers insiders' view of hp mega-merger; director in ipaq unit to discuss implications at industry trade show next week." business wire, 10 may 2002.


hewlett-packard 1976 annual report. palo alto, ca: hewlett packard company, january 1977.


hewlett-packard 2001 annual report. palo alto, ca: hewlett packard company, 2001.

"hewlett-packard company." hoover's online, 20 may 2002. available at http://www.hoovers.com.


the hewlett packard home page, 20 may 2002. available at http://www.hp.com.

"hp awards $210 million in profit sharing to employees." business wire, 28 may 1998.

"hp breaks the bad news." wired news, 15 may 1998. available at http://www.wired.com/news/.

"hp buys out korean partner." wired news, 27 may 1998. available at http://www.wired.com/news/.

"hp jumps into java war." wired news, 20 may 1998. available at http://www.wired.com/news/.

"hp reports second quarter results." business wire, 14 may 2002.

"hp laserjet 5si mopier wins best new product award at fose; hp also ranked no. 1 in federal government survey on competitiveness and past performance." marketguide, 8 april 1997.

"hp takes internet plunge." reuters, 11 may 1998.

kolesnikov, sonia. "day 1 for new hp in asia." united press international, 8 may 2002.

williams, martyn "how hp - compaq stacks up." idg news service, 5 september 2001. available at http://www.itworld.com


For an annual report:

on the internet at: http://www.hp.comor write: hewlett-packard company, 3000 hanover st., palo alto, ca 94304

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. hewlett-packard's primary sics are:

3571 electronic computers

3572 computer storage devices

3575 computer terminals

3577 computer peripheral equipment, nec

3578 calculating & accounting equipment

7378 computer maintenance & repair

also investigate companies by their north american industry classification system codes, also known as naics codes. hewlett-packard's primary naics codes are:

334111 electronic computer manufacturing

334119 other computer peripheral equipment manufacturing

454110 electronic shopping and mail-order houses

511210 software publishers

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Hewlett-Packard Company

Hewlett-Packard Company

BUILT BY ENGINEERS, USED BY ORDINARY PEOPLE CAMPAIGN
EXPANDING POSSIBILITIES CAMPAIGN
YOU + HP CAMPAIGN

3000 Hanover St.
Palo Alto, California 94304
USA
Telephone: (650) 857-1501
Fax: (650) 857-5518
Web site: www.hp.com

BUILT BY ENGINEERS, USED BY ORDINARY PEOPLE CAMPAIGN

OVERVIEW

In early 1996 the Hewlett-Packard Company began to rethink its role in the electronics products industry. Undisputedly the market leader for printers and other electronic products, Hewlett-Packard (HP) nevertheless saw the competition at its heels. Even more important, as technology became more "personalized" and accessible to the average person, the company was not sure it could rely solely on its history as a purveyor of electronic goods to businesses and institutions.

Hewlett-Packard turned to the San Francisco advertising firm Goodby Silverstein & Partners to create an ad campaign that would give it a more human face and present it as a company responsive to the needs of its customers. Goodby Silverstein designed "Built by Engineers, Used by Ordinary People," a campaign focusing on the new Mopier business printer and the 690 series of DeskJet printers for the home. The campaign, which ran from late 1996 until about the middle of 1997, was designed to appeal to both HP's core customers—businesses—and to recreational or home users of electronics. The consumer ads showed people in situations that could easily be made simpler by the use of Hewlett-Packard products, while the business ads showed the imagination and flexibility of HP's engineering capacity.

HISTORICAL CONTEXT

Like many pioneering companies of the 20th century, Hewlett-Packard was born in a garage. It was founded by engineers David Packard and Bill Hewlett in 1938. At the time the mission was to develop and market a resistance-capacity audio oscillator that could be used to test sound equipment. Hewlett and Packard's $538 in founding capital carried them through until the Walt Disney studios ordered eight of their devices. Then in 1941 the United States entered the Second World War, and an immediate overwhelming need for HP's instruments was created. After the war ended, the company lost its mainstay government orders and decided to seek clients in the private sector. Hewlett-Packard introduced its measuring devices into the flourishing post-war electronics industry. In 1972 the company pioneered personal computing with the world's first handheld scientific calculator, and it then went on to introduce the first desktop mainframe (in 1982) and the LaserJet printer (the first and most prominent of a line of printers for business and home), as well as copiers and scanners.

TARGET MARKET

Although Hewlett-Packard held its position as the world's leading supplier of hard-copy products (LaserJet and DeskJet printers, DesignJet large-format printers and plotters, ScanJet scanners, OfficeJet printer-fax-copiers, CopyJet color printer-copiers, and HP FAX facsimile machines), the company became concerned in 1996 that it projected an image too cold and technological for the home-electronics user to relate to. Since HP had a growing customer base of individual consumers, it decided to focus on making its technology seem more accessible.

The resulting television and print advertising in the "Built by Engineers, Used by Ordinary People" campaign targeted two audiences: families with children and business professionals, particularly corporate executives, management information system (MIS) experts, and end users. Creative elements were designed to appeal to low-end users while at the same time showing off the products' high-tech features to viewers well versed in information technology.

COMPETITION

Although Hewlett-Packard remained the market leader for printers, its largest competitors—Canon, Xerox, and Lexmark—were making strenuous efforts to narrow the gap. Also, as high technology moved into people's living rooms, the company saw that other makers of computers and electronic goods—such as Microsoft and Apple, among others—had been able to position themselves as interesting and cutting edge while Hewlett-Packard was viewed by consumers as reliable but stodgy.

Canon, the giant Japanese maker of business machines, cameras, and other optical products, presented a formidable challenge to Hewlett-Packard with its line of laser and BubbleJet printers. Marketing its products under the tag line "You can with a Canon," the company experienced strong growth in its printers during 1997. Canon targeted businesses with such products as the Digital GP215, a multifunctional digital device for networked workgroups that printed, faxed, copied, and scanned. The company also introduced the MultiPASS L90, another multifunctional system, and a new color laser printer, the CLBP 360PS. The BubbleJet continued to defend its market share with a very small and light personal model, the BJC-50, weighing only 900 grams.

Xerox Corporation, which introduced the first (manually operated) commercial xerographic product in 1949 and the first automatic office copier in 1959, made its first laser printer in 1977 and by 1991 was developing an extensive printer line. To highlight the company's evolution from copy machines to a wide range of business products, Xerox in 1994 adopted the tag line "The Document Company, Xerox" as its new corporate signature. As a document company, Xerox in 1997 introduced an array of specialized printer products for business, including a color printer for signs, banners, and billboards; a printer designed specifically for engineering needs; and the Xerox Productivity Centre System, which allowed users to scan, store, manage, electronically collate, distribute, print, and copy wide-format documents such as those used by architects, mapmakers, and graphic artists.

HP GETS ANOTHER MAKEOVER

At the end of 1997 Hewlett-Packard launched a second advertising campaign, this one with the tag line "Expanding Possibilities." "Expanding Possibilities" grew out of reflections at the company that it was still perceived by consumers simply as the company that makes computer printers. HP had failed to establish a strong corporate identity in the way it wanted to be perceived: as an interesting, even sexy, maker of products that are relevant to the ways ordinary people live.

"Expanding Possibilities" differed greatly from "Built by Engineers, Used by Ordinary People" in that it did not focus on specific products. Rather, in recognition of the increasing role technology plays in everyday life, it asked viewers to think about the company as more than just the maker of business-related gadgets.

One way it did this was to make changes, albeit not drastic ones, in the company's use of color. Until then the boxes used to house the company's computers and printers had been a simple white, suggesting scientific prowess and accuracy but also sterility and lack of emotion. The company began using strong, vivid colors on its boxes, consumer manuals, and store displays.

Television ads (also developed by Goodby Silverstein & Partners) that began running in November showed new ways for people to use the company's products to make and transmit images. In one spot new parents use a Hewlett-Packard camera and computer to send out birth announcements over the Internet. In another, former Negro League baseball player Buck O'Neil uses HP printers, scanners, and computers to make and sell Negro League baseball cards online.

Lexmark brought up the rear in this august assemblage, but it was able to chip away at the other companies' lead during 1997. Lexmark, based in Lexington, Kentucky, was smaller than its competitors and had a narrower product range. It concentrated on laser, ink jet, and dot matrix printers and associated supplies that were comparable but lower-priced than Hewlett-Packard models. In November 1997 Lexmark won the first Annual Peripherals Excellence Award for network laser printers, beating out Hewlett-Packard and Apple.

MARKETING STRATEGY

The Hewlett-Packard advertising account had been held since 1988 by Saatchi & Saatchi in San Francisco, but the company decided against asking them to carry out the new campaign. According to the San Jose Business Journal, this was partially because of a 1995 print campaign that cost more than $30 million but failed to leave any lasting impression on consumers. Arlene King, peripherals-advertising manager at Hewlett-Packard, had another explanation for the move. "We wanted to get more visible advertising than we did in the past. We had been with Saatchi for eight years and we were becoming too alike." In May 1996 HP chose Goodby Silverstein & Partners in San Francisco to head the $40 million printer advertising account (Saatchi did, however, retain the PC portion of the Hewlett-Packard account). Goodby Silverstein & Partners had previously been known for creative and popular campaigns such as the "Got Milk?" ads for the California Milk Processor Board.

In consumer research, Goodby Silverstein found that most people associated Hewlett-Packard with technical strength and reliability. Therefore, the new campaign needed to link Hewlett-Packard's heritage as an engineering company and its reputation for building reliable products with the usefulness of HP products in "ordinary" situations. In short, the challenge was to humanize the face of technical prowess by giving complicated engineering a human face.

The $10.5 million Goodby Silverstein campaign for Hewlett-Packard, "Built by Engineers, Used by Ordinary People," solved the dilemma by poking gentle fun at its own engineers while illustrating the excellence of HP products, particularly the 693 DeskJet printer, for use in the home, and the LaserJet 5si Mopier (multiple originals copier), a network printer for large-scale commercial use.

The year-long campaign was two-pronged, targeting both individual consumers and corporate entities. It featured television spots that ran from late November 1996 through late February 1997 on CNN and national networks. Those were supplemented by print ads in publications like Newsweek, the Wall Street Journal, Business Week, Fortune, PC Magazine, PC Week, and PC Computing that ran beyond the close of the television segment. In addition, the San Francisco-based interactive ad agency Red Sky developed an interactive ad that could be viewed on the Internet though the end of February 1997.

The Goodby Silverstein television spots showed both the ordinary and the extraordinary uses to which Hewlett-Packard printers can be put. In "Mower," the first of the "corporate side ads," a nerdy-looking announcer sporting a bow tie lists what a Mopier can do (print, staple, collate) and then jokes that the only thing it cannot do is mow the lawn. That serves as enough of a challenge to HP engineers, who immediately begin reconfiguring the printer. In the next scene the Mopier is turned on its side charging around an overgrown field, having been transformed by the company's engineers into a lawnmower.

In a second spot, "Translation," the interviewer asks an HP engineer to explain exactly how a Mopier works. The engineer answers in highly technical jargon, which is translated for the layperson in a running voice-over. In both of these spots the engineers were actual Hewlett-Packard employees.

In the consumer-oriented spots, the usefulness of HP products in personal situations was demonstrated. In the "Baby-sitter" spot, an elderly man babysitting his infant granddaughter panics when she wakes up and begins to cry for her mother. Suddenly he has a brilliant idea: he grabs a picture of the mother and turns on his DeskJet printer. When the mother returns, she sees the grandfather—with a color print of the mother pasted on his face—holding the peacefully sleeping baby.

In a similar ad ("Room"), a teenager whose mother checks up on him through the key hole on his bedroom door fools her into thinking he has finally cleaned his extremely messy room by making a color printout of a picture of the room in a pristine state and positioning it just beyond the key hole.

The interactive ad developed by Red Sky was an extension of the television and print campaign into the electronic medium. It carried on the playfulness of the television spots but was also very different, using as it did the interactive capabilities of online advertising. As Joel Hladecek, Red Sky's chief creative director, told the San Francisco Business Times, "There are two rules of advertising in this medium. The audience has the ability to choose what it's interested in, and people will avoid advertising if they can."

Red Sky responded by burying the advertising message within entertainment. Their 1997 Pong advertising banner for Hewlett-Packard, promoting the LaserJet Mopier, played off the print and television tag line. Viewers used Shockwave technology to play games of Pong with an engineer named Jerry. They were initially drawn to the ad by the familiar sound of a ping-pong game. They then discovered that the ad was more than just a banner: it was an interactive game in which they could use their mouse to actually play along. The ad ran through February 1997 at various sites.

OUTCOME

The "Built by Engineers, Used by Ordinary People" campaign was pronounced an unqualified success by the company. Post-campaign quantitative research showed that the campaign had been very effective in reaching the desired targets. Those assessments were confirmed by the number of awards the campaign won during 1996 and 1997.

At the ICON Awards, sponsored by Marketing Computers and Business Week to honor excellence in high technology marketing and advertising, "Built by Engineers" won 1996 Best of Show ICONs for "Baby-sitter," "Room," and "Mower"; platinum in the best advertising campaign, broadcast category; and gold in the best advertising/television campaign category.

At the international Clio Awards, which recognize excellence and creativity in consumer advertising, "Baby-sitter," "Room," and "Mower" won best national campaign certificates, and "Baby-sitter" was also a certificate winner. In addition, Adweek, which publishes an annual list of the 10 best spots of the year, declared "Baby-sitter" to be one of the best spots of 1996. The spots won other awards as well, both in local advertising industry shows, such as the San Francisco Show, and in New York-based shows, such as The One Show.

In Europe the campaign also won a Directors and Art Directors Silver Pencil Award in London for "Baby-sitter." Finally, "Baby-sitter" won a Silver Lion at the Cannes Advertising Festival.

The Red Sky interactive ad also garnered acclaim, in this case from critics of Internet advertising. Microscope, a weekly online Web ad review magazine, rated the banner ad "a perfect 10" and called it "the most attention-getting ad on the Web." PC World followed suit, awarding it the number one position in PC World's Top 10 Advertiser Achievement Awards. The ad went on to win a Platinum Award in the 1997 Marketing Computers/Business Week ICON Award for the multimedia category.

FURTHER READING

Beatty, Sally Goll. "H-P to Get Marketing Makeover." Wall Street Journal, November 11, 1997.

Bennis, Warren, and Patricia Ward Biedermann. Organizing Genius: The Secrets of Creative Collaboration, Addison-Wesley Publishing Co, Inc., 1998.

Charry, Tamar. "H-P Gently Mocks Its Own Nerds in Ads." Denver Post, January 6, 1997.

Ginsberg, Steven. "HP Hopes New Agency, Campaign Can Attract Reams of New Customers." San Jose Business Journal, December 16, 1997.

Hemmila, Donna. "Red Sky Warning: Interactive Ad Firm Creates Strange Digital Worlds." San Francisco Business Times, April 24, 1998.

"Hewlett-Packard: HP Plays Ping-pong with Mopier Ad." M2 Presswire, February 13, 1997.

"HP Breaks First Work From Goodby With New Effort Promoting Printers." Computer Publishing & Advertising Report, November 25, 1996.

"New Television Ad Campaign Unveiled for HP Printers." Business Wire, November 8, 1996.

Scrupski, Stephen. "The Curse of Normality." Electronic Design, March 17, 1997.

Voight, Joan. "Ads Soften Hewlett-Packard Image: Goody Silverstein Promotes Printers for 'Normal People'." Adweek Eastern Edition, November 18, 1996.

                                            Susan M. Steiner

EXPANDING POSSIBILITIES CAMPAIGN

OVERVIEW

Although it was widely known and respected in the business world for its solid engineering and reliable products, Hewlett-Packard, a huge company with 121,900 employees and revenues of $42.9 billion in 1997, found itself relatively unknown to the general public. Beginning in the late 1990s, Hewlett-Packard sought to expand its presence in the consumer market. To do so, the company initiated a $75 million consumer brand strategy that included an advertising campaign called "Expanding Possibilities." It was the first time in Hewlett-Packard's 60-year history that it had tried to shed its reputation as an engineering and business firm for a more consumer-oriented image. In 1997 the consumer business accounted for only a quarter of Hewlett-Packard's revenue, but the company saw this segment as being the place where growth would come most rapidly. As the general public became more focused on technology, Hewlett-Packard wanted to have a more prominent place in the consumer's mind.

The "Expanding Possibilities" campaign first appeared in the United States on November 11, 1997, in the form of three television spots that featured color printing applications people could employ in everyday situations. The ads ran through January 1998. They were aired in prime time on CBS, ABC, NBC, CNN, A&E, and the Discovery Channel. In Canada the spots ran on the Hockey Night, Bravo!, Showcase, Discover, and Life Network channels. Goodby, Silverstein & Partners of San Francisco created the spots. The original "Expanding Possibilities" campaign was budgeted at $15 million for the United States and at $40 million globally.

The "Mason" spot showed a couple capturing their newborn baby's wrinkled image on a Hewlett-Packard digital camera. The father downloaded the image onto a Hewlett-Packard computer, created a birth announcement, and E-mailed it to relatives. "Herta" featured a grandmother who took family photographs off the wall, scanned them into her Hewlett-Packard PC, and made a family history book for her children and grandchildren. "Buck" centered on a former Negro Leagues baseball player, Buck O'Neil, and a young friend who created their own baseball cards with O'Neil's Hewlett-Packard scanner, PC, and printer and then sold them on the Internet.

In March 1998 Hewlett-Packard added a $12 million brand campaign with two more television spots and a print element, all created by Saatchi & Saatchi of San Francisco. The two 30-second spots ran during sports and news programs in the company's top 10 regional markets in the United States. The schedule later included national exposure on CNN, ESPN, the Discovery Channel, and the Learning Channel. This round of the campaign, unlike the original ads, was aimed toward businesses. In one spot, for example, an airline maintenance worker discovered that it would take five months to produce a revised manual telling workers not to remove the plug in a plane's oil pan. As an alternative, he quickly updated the manual via the Internet. The print ads appeared in the Wall Street Journal for a month. A third group of "Expanding Possibilities" ads that were released in October 1998 used print media, on-line services, and radio to reach corporate customers, small businesses, home users, and students.

HISTORICAL CONTEXT

Two Stanford University engineers, William Hewlett and David Packard, founded the company with $538 in a Palo Alto garage in 1939. Their first major customer, Walt Disney, bought oscillators to help make his film Fantasia. In the 1970s and 1980s Hewlett-Packard became known as an entrepreneurial high-tech company, and it has been credited with establishing Silicon Valley. For years it made the lists of America's best-managed companies. By the late 1980s, however, the company seemed entrapped in a bureaucratic jungle, with burdensome decision making by consensus and other organizational problems. In 1990 Hewlett-Packard was reorganized, and cost-cutting measures included voluntary severance and early-retirement programs. The company's single sales force was divided by product lines, and administrative and manufacturing areas were consolidated.

During its history Hewlett-Packard had always been much better known in the business community than among general consumers. It was the world's second largest computer supplier and a leading provider of electronic products and systems for computing, measurement, and communications. But it did not use advertising to appeal directly to consumers. Lewis Platt, then the chairman, president, and CEO of Hewlett-Packard, said that 18 months of focus group testing showed that the public felt the company to be trustworthy and reliable but did not view it as innovative. Hewlett-Packard's reputation stemmed from its engineering-dominated culture, and while people judged its products to be of high quality, they perceived the company as being technical and impersonal.

In addition, the company's decentralized structure contributed to its fragmented marketing efforts and prevented it from taking full advantage of consumer interactions. For example, the owners of Hewlett-Packard's 75 million ink-jet printers bought from two to five new cartridges a year, but the company did not have a plan to take advantage of these customer contacts.

Hewlett-Packard's vision of the future included a blending of consumer electronics, including PCs and communications and entertainment products, with new product categories emerging. The company's goal was to prepare to become the largest consumer electronics supplier by the early 2000s. This would mean becoming much better known among consumers. As the technology battleground moved into the home, however, Hewlett-Packard had to prepare to compete with electronics and entertainment companies such as Sony and General Electric that already had a much higher profile with consumers and that were viewed in more positive terms.

TARGET MARKET

The primary target of the initial "Expanding Possibilities" ads was families with children, but the company also wanted to become better known among small businesses, microbusinesses, and the owners of home businesses. Both business owners and workers were targeted. In Canada, Hewlett-Packard made a direct appeal to entrepreneurs and the self-employed. According to Statistics Canada, the latter group numbered 1.8 million, up 28 percent from 1991 to 1998.

COMPETITION

In 1997 and 1998 the consumer demand for sub-$1,000 computers continued to erode profit margins throughout the industry. Many major computer manufacturers responded by going after small and medium-sized businesses and by launching large-scale e-business ventures. The top marketers supported these moves with glossy multi-million-dollar brand advertising campaigns. IBM made the first and most dramatic move in this direction with a $130 million e-business initiative that targeted businesses using the Internet.

Among Hewlett-Packard's other competitors were Compaq, Dell, and Apple. Compaq spent some $102 million on advertising in 1997 and planned to double the amount in 1998, when it launched its first global brand campaign. Dell spent $43 million on ads in 1997 and planned to double the amount in 1998 to brand itself as the originator and leader in selling directly to the consumer and in providing technical support services to its customers. Apple spent $47 million on its "Think Different" campaign, which aimed to link the company's computers with Einstein, Picasso, and other creative people.

MARKETING STRATEGY

To demonstrate the excitement of its new campaign, Hewlett-Packard hosted a gala announcement event in San Francisco on November 11, 1997. At the kickoff event Hewlett-Packard chairman Platt described the company's image as "a lab coat that was empty." The company had excelled at engineering prowess but never at savvy self-promotion. The new campaign aimed to add to the company's strengths a new spirit of excitement, creativity, and innovation. Along with the new advertising, Hewlett-Packard introduced new product packaging, in-store merchandising, and vending machines for its ink-jet printer supplies.

HEWLETT-PACKARD EARNS HIGH RANKINGS

Hewlett-Packard's reputation could be gleaned from the following rankings:

  • first worldwide in sales of ink-jet printers, photo-quality printers, and laser printers
  • first worldwide in sales of acute-care patient-monitoring systems
  • first in reliability for notebooks, desktop PCs, and PC servers (IDC and Dataquest)
  • first in on-site support staff responsiveness, technical knowledge of phone staff, and remote automated diagnostics (Computerworld)
  • second most-admired computers/office equipment company (Fortune, March 1, 1999)
  • third most-admired company in Asia (Asian Business, May 1, 1998)
  • tenth best company to work for in the United States (Fortune, January 11, 1999)

The introduction of the "Expanding Possibilities" campaign meant dropping Goodby, Silverstein & Partners' award-winning campaign that used the tag line "Built by engineers. Used by normal people." One reason for the switch was to dispel the notion that the company was dominated by engineers. "The consumer brand strategy and advertising campaign aim to make the HP brand more relevant to consumers by revealing the company's dynamic side and dispelling the idea that HP is only a printer company," said the firm's Antonio Perez. "People used to say HP was a great stealth marketer," said Jill Kramer, the company's marketing communications manager, in Adweek. "There's been growing recognition with HP that our brand is truly an asset and that is something we should be investing in. We are becoming more visible and more aggressive."

Part of the reason for a move toward consumers was the rapid pace of change. With technology and products evolving so quickly, consumers were easily confused and often felt behind the times. Executives at Hewlett-Packard felt that a finely honed brand identity might attract consumers looking for a guide through the digital and technology jungle. In addition, the company recognized that the market for traditional business products was expanding to include in-home and consumer use. Lower-cost, higher-quality printers, scanners, and all-in-one machines made the products attractive outside the typical corporate or business setting. The campaign also called attention to Hewlett-Packard's Internet products, something it had been producing for years but had never promoted to the public.

Hewlett-Packard sometimes referred to the new campaign as "the real life campaign" because the strategy was to shine the spotlight on people not usually associated with technology. Grandparents and children were highlighted, and they shared their stories in their own words. The intent was not just to show what people could do with Hewlett-Packard products but also to demonstrate what the products could help people achieve. Hewlett-Packard products were presented as engines for consumers' creative thinking.

Although Hewlett-Packard wanted to change its image with the "Expanding Possibilities" campaign, there were certain elements in its marketing effort and image that were retained. The company logo and the display of the Hewlett-Packard name with the logo remained the same. The company also maintained continuity with its advertising agencies. Goodby, Silverstein & Partners continued handling the ads for Hewlett-Packard printers and scanners and for the company's other computer equipment. Saatchi & Saatchi Advertising continued the advertising for the company's Pavilion line of personal computers, and Winkler Advertising continued to create the company's ads for laser printer supplies.

OUTCOME

Independent research showed that the ads were successful in changing the perceptions of consumers. According to Goodby, Silverstein & Partners, studies showed that the ads had helped Hewlett-Packard come to be perceived as a company that "empowers people to 'make exciting things happen.'" People's awareness that Hewlett-Packard made more than just printers also increased.

In March 1998 the Business Journal of San Jose reported that Hewlett-Packard led the market as the top seller of workstations running off Microsoft Windows. It sold nearly 155,000 Windows-based workstations, or 42 percent of the market, in 1997. The journal attributed part of Hewlett-Packard's success to the "Expanding Possibilities" campaign.

The original three "Expanding Possibilities" spots won two Icon Awards, and "Buck" won a silver Clio.

FURTHER READING

Elkin, Tobi. "Upfront: The Clients—Brands: Computer." Adweek, May 18, 1998.

"HP's New Brand Advertising Campaign Demonstrates How Consumers Can 'Expand Possibilities,'" Business Wire, November 12, 1997.

Johnson, Bradley. "Seeing Opening, HP Rushes New Global Ad Effort." Adweek, March 2, 1998.

"The Pack." Brandweek, September 28, 1998.

                                       Chris John Amorosino

YOU + HP CAMPAIGN

OVERVIEW

Long known as a reliable but predictable maker of computer printers, Hewlett-Packard Company (HP) was, in 2003, engaged in a recasting of its moribund image, a project initiated by HP's chief executive officer, Carly Fiorina, after a divisive 2002 merger with computer company Compaq. That year HP unveiled its most ambitious consumer advertising campaign ever. The new campaign, called "You + HP," featured HP's digital cameras and imaging products, a segment of the Fortune 100 company's operations that was seen as a major growth opportunity.

"You + HP" supplemented an ongoing enterprise campaign that had introduced the "+" graphic as a means of showcasing HP's partnerships with other companies and institutions and that further positioned the old-line company as a forward-looking, glamorous company in tune with twenty-first-century lifestyles. Developed by HP's main U.S. advertising agency, Goodby, Silverstein & Partners of San Francisco, the campaign broke in October 2003 with the risky use of 20-page print inserts, first in USA Today and later in trendsetting magazines, and went on to feature some of the most talked-about television spots of the time. Directed by Francçois Vogel, the television spots dramatized the digital-photography revolution with visuals integrating still frames and live action, while catchy pop music by the Cure (in the campaign's first year) and the Kinks (in the second year) played as the spots' sound track.

The print and television portions of "You + HP" were well received by industry commentators as well as the general public, and the campaign was credited with effectively updating HP's image for a new generation of consumers. The campaign continued to evolve, and the company's broader marketing efforts kept the "+ HP" idea as their starting point. HP's change in direction, however, was not welcomed by all; the company's board of directors ousted Fiorina in 2005.

HISTORICAL CONTEXT

HP had a storied history of innovation and was a Fortune 100 company when Carly Fiorina took over as chief executive officer in 1999. Though the company was well known for its quality products and particularly for its printers, "it had become clear," according to Advertising Age, "that HP had to do something to change its consumer image." HP's takeover of its rival Compaq in 2002—at a time when PC sales (the heart of Compaq's business) were abysmal—raised further questions about the company's direction in the precarious postbubble marketplace. Fiorina and Allison Johnson, HP's senior vice president for global brand and communications, asked agency Goodby, Silverstein & Partners to answer these questions by showcasing the merger itself and then by focusing on other high-profile but previously unpublicized HP partnerships in a large-scale rebranding push that broke in the fall of 2002.

Ads touting the merger used an "HP + Compaq" graphic to show the strength of the partnership, and the "+" sign was then used as a unifying visual symbol in the larger branding campaign, which extolled HP's contributions to an impressive array of corporate and institutional partners. The campaign was launched with "Anthem," a television spot that, as Creativity magazine noted, "linked HP technology to bigger and cooler things—Dreamworks' imagemaking, FedEx's efficiency, BMW's Formula 1 need for speed." Other memorable ads were "Restore," which brought figures from a Dutch master painting to life in order to illustrate the role HP played in restoring art for London's National Gallery, and "The Next Shift," which featured iconic toys—Slinky, Elmo, Spiderman, and others—commuting to work in Manhattan as a way of illustrating HP's involvement in keeping Toys "R" Us stores stocked and ready for business. Creativity selected Goodby's HP branding work as its campaign of the year for 2003, arguing that the spots had worked together to "render formerly square HP a magnetic new personality."

Meanwhile the rapid rise in popularity of digital cameras presented one of the few bright spots in the dismal technology sectors of the struggling American economy. As the 2003 holiday season approached, digital cameras were poised to overtake traditional cameras in yearly sales for the first time. Though HP was not known for its cameras, its wide portfolio of products meant that it was positioned to offer consumers an integrated system for home digital photography.

TARGET MARKET

"You + HP" specifically targeted consumers, which distinguished the campaign from other HP enterprise and business-to-business efforts. Digital-imaging products were becoming integral to the personal lives of ordinary Americans, so these products in particular offered HP the opportunity to position itself as "the ultimate lifestyle technology company," in the words of Advertising Age.

Because most of those who were buying digital cameras were first-time purchasers, it was imperative that HP emphasize the simplicity of the new technology. At the same time, simplicity could not be the campaign's main message, because HP did not want to appear to be pointing out consumers' ignorance. Goodby and HP therefore pitched the company's digital-imaging products as vehicles for promoting individuals' creativity and fulfillment. Scott Berg, director of worldwide media for HP, told Adweek, "Our position was to say the digital camera could become a natural extension of, or appendage to, your being, that you are free from the tyranny of the photo lab." By linking the HP brand image with the inspirational notion of personal fulfillment, Fiorina aimed at making the tech giant a true pop-culture brand along the lines of Coca-Cola or Nike. The "You + HP" campaign, then, was meant to cut across demographic lines, and it dwarfed all previous HP attempts to target consumers.

To make the pitch specific to HP, the campaign pointed to the company's full range of products, suggesting that the seamless transition from picture taking to picture printing was possible because HP could satisfy every step of the process. Consumers could take pictures with an HP camera, store and manipulate them on an HP personal computer, and print them using an HP printer, ink cartridge, and paper.

COMPETITION

Given its sprawling portfolio HP competed with a wide range of companies, but its "You + HP" campaign, while leveraging and further establishing its overall brand identity, directly pitted the company against other digital-camera manufacturers. At the time of the campaign it was number six among digital-camera vendors in the United States, well behind segment leaders Eastman Kodak Company and Sony Corporation.

Kodak's success, according to Advertising Age, was chiefly attributable to its "century-long simple stance that Kodak equals pictures." Though hampered somewhat by losses in the rapidly diminishing film-photography side of its business, Kodak could claim, like HP, to offer simple solutions to the entire picture-making process, especially as PCs became unnecessary for printing. Kodak had the industry-leading photo printer as well as the industry-leading online printing and storage site (called the Kodak EasyShare Gallery), and it had kiosks at major retail stores, such as Wal-Mart and CVS, that allowed consumers yet another outlet for printing pictures. Kodak's digital-imaging ads therefore focused on ease of use while reinforcing the company's history of photographic excellence.

Sony likewise made appeals to consumers based on its legacy, but that legacy was one of "quality technology and cutting-edge design," according to Advertising Age, rather than one of film photography. This image merged neatly with the company's digital-imaging marketing efforts, which drew attention to the convenient size and sleekness of Sony cameras. In 2005 Sony reinforced its image by unveiling the tagline "WorryFree Digital Products," orchestrating a marketing push with partner retailers to head off the concerns of first-time digital-camera buyers and assure them that its products were simple and easy to use.

TOO COOL?

Though no one argued that Carly Fiorina had been a bold, decisive leader during her tenure at HP, her February 2005 dismissal generated plenty of speculation about the overall value of her contributions to the company. Many pointed to the Compaq acquisition—narrowly approved over the open hostility of Walter Hewlett, son of the company's founder—as an outright blunder, moving HP as it did into a heavy investment in PCs at the expense of its lucrative printer business. Some observers even wondered whether Fiorina's drastic makeover of the HP image, celebrated though it had been in advertising circles, could be classified a success. As analyst Rob Enderle told the San Francisco Chronicle, "When she took over, HP was kind of stuck in the mud. Now, it's clearly a much more vibrant company, but it's harder to tell what it is. It used to have a clear identity—like your grandpa five years after retirement, really nice but not going anyplace. Now, it has a faster-moving capability, but it would have been nice to keep the warm, fuzzy part."

MARKETING STRATEGY

"You + HP" was launched with a 20-page print insert in the October 2, 2003, edition of USA Today. The idea of spending $10 million on such an insert, designed to run in about a dozen publications, went against the grain of traditional print advertising for photography brands, which tended to focus on maximum coverage and frequency. Because the campaign was "more lifestyle-oriented than anything else," as Berg told Adweek, the company "had to find a way to stand out in unique environments" rather than take a blanket approach to print placement. Goodby's creative team decided that the magazines in which the insert would appear after its launch should be ones whose editorial focus celebrated the power of photography; the team thus chose such titles as Vogue, the New Yorker, People, Entertainment Weekly, InStyle, ESPN: The Magazine, GQ, Travel + Leisure, and Condé Nast Traveler. The inserts put the consumer at the center of HP's message, featuring the word "You" in a prominent position on nearly every page, employing vibrant photo collages and statements such as "You are a point-and-shoot revolutionary with an itchy shutter finger" and "You are the Van Gogh of pic files." The ads featured the full range of HP digital-imaging products, pointing out the brand's coverage of the entire picture-making process but forgoing the usual listings of technical specifications.

The campaign's initial television spots, directed by Vogel and shot in Barcelona, further underscored the revolutionary nature of digital-photography technology. In both "You" and "Statue," people in social settings and on city streets were frozen in still frames suggesting photographs, while the scenes' action moved on briskly and a continuous stream of individual moments were framed before dissolving back into motion. The fluidity of the movement from human interaction to still frame, along with the profusion of photographic possibilities suggested, communicated the limitless options available to the digital-camera owner while dramatizing the integration of artistic expression and ordinary life. The arresting visual effects worked with the Cure's moody 1989 hit song "Pictures of You" to create, as Adweek put it, "an emotional paean to digital photography."

In 2004 Goodby's creative team planned a second series of television spots to be paired with the upbeat Kinks song "Picture Book." This time the challenge was to go beyond illustrating picture-taking possibilities and find a visual method for dramatizing the ease of printing photos. In a test spot filmed as his bid to direct the new series, Vogel shot himself at his desk putting empty white frames around his head while coolly singing along to the Kinks song playing in the background. Vogel then tweaked the footage until it appeared that he was effortlessly creating a series of casual self-portraits from thin air. Not only did this test ad get him the job, but it was reshot with little alteration as the 30-second spot "François." In the spot "Picture Book" the principle of picking photographs out of thin air was applied to crowds of people. At the start of the commercial, two rows of people held frames to their faces, after which the frames became pictures, and then the people traded these self-portraits with one another. In "Relay" the photographic frame was passed like a baton between groups and individuals. Photos transformed into dynamic real-life scenes and vice versa as the frame made its way through a hypnotic flux of distinctive people and moments.

OUTCOME

"You + HP" was widely acknowledged as a key contributor to the ongoing transformation of the company's image from, as Advertising Age put it, "well-regarded though stodgy into a brand akin to sexier rivals such as Sony Corp." For the print insert that launched the campaign, which "cut through in a medium that HP's rivals have dominated for decades," Goodby was awarded Adweek's Media Plan of the Year for Best Use of Magazines. Goodby's market research indicated that the inserts raised consumers' likelihood to buy HP digital-imaging products by 8 percent. The 2004 television spots generated, according to Goodby and HP, more consumer feedback than either had ever gotten from an ad, and Adweek named "You + HP" its Campaign of the Year for 2004. TV Guide's praise went beyond the realm of advertising, claiming that the spot "Picture Book" was the best 60 seconds of television then on the air.

In 2004 HP extended the "You + HP" concept to digital music, partnering with Apple to sell HP-branded iPods and offering iTunes software on its PCs. The iPod, an MP3 player that allowed consumers to mix and match music to suit their personalities, offered HP a further vehicle for connecting the personal-expression ethos to its brand image. A business-to-business campaign called "Change + HP" was likewise launched in 2004, using the company's new cutting-edge image to appeal to information-technology decision makers in the rapidly evolving tech marketplace. "You + HP," along with the umbrella "+ HP" idea and HP's image, continued to evolve through 2005. Whether HP's change in direction was a welcome one remained an open question, however, at least to the company's board of directors. Fiorina was ousted as chief executive officer in February 2005.

FURTHER READING

Anderson, Mae. "Campaign of the Year: Hewlett-Packard." Adweek, February 7, 2005.

Bulik, Beth Snyder. "Hewlett-Packard." Advertising Age, December 13, 2004.

―――――――. "Kodak Scores with Digital Cameras but Film-Biz Losses Cloud Big Picture." Advertising Age, April 25, 2005.

―――――――. "Sony, Kodak Lead U.S. Battle for Share in Digital Cameras." Advertising Age, May 31, 2004.

"Campaign of the Year: HP." Creativity, December 2003.

Champagne, Christine. "Agency Producer: Josh Reynolds." Adweek, January 24, 2005.

Dolliver, Mark. "Creative: Portfolio." Adweek, October 20, 2003.

"Goodby, Silverstein & Partners." Advertising Age, January 12, 2004.

Granatstein, Lisal. "Goodby, Silverstein & Partners." Adweek, June 21, 2004.

"HP 'Francois.'" Creativity, April 2005.

Khermouch, Gerry. "Can HP Make Consumers' Hearts Race?" Business Week Online, October 2, 2003.

Maddox, Kate. "HP Demonstrates Power of Partnerships." B to B, October 25, 2004.

Parpis, Eleftheria. "Creative All-Stars." Adweek, January 19, 2004.

Said, Carolyn. "Fiorina: 'Wicked Smart' but Ultimately Unsuccessful." San Francisco Chronicle, February 10, 2005.

Wasserman, Todd. "HP Puts More Focus on Digital Cameras." Brandweek, September 1, 2003.

Woodward, Sarah. "Francois Vogel." Shoot, March 26, 2004.

                                               Mark Lane

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