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: students@hp.com
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 __BODY__.6 billion in net cash, enabling the Board of Directors to add __BODY__.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 __BODY__-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.

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."

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.

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For an annual report:

on the Internet at: http://www.hp.com or 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