3000 Hanover Street
Our basic business purpose is to create information products that accelerate the advancement of knowledge and improve the effectiveness of people and organizations.
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 University's electrical engineering program, were encouraged by Professor Frederick Terman to start their own business in California. The two men worked in the garage behind Packard's 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 models--baking paint for the instrument panel in Packard's oven--they 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 company's 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 world's 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 HP's 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 Nixon's 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-Packard's 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 company's 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 company's 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 market's initial reaction was cool, causing Young and other managers to investigate new, IBM-compatible designs, which were introduced in the mid-1980s. HP's 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 printer--a 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 RISC--Reduced-Instruction-Set Computing. RISC 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 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 company's 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 Young's 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 company's 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 company's stock began trading on the Tokyo stock exchange--its first listing outside the United States--then 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 HP's 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.
HP's 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 company's 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 company's computer systems organization, took over in November 1992. Following Packard's retirement as chairman in 1993, Platt was named chairman, president, and CEO of HP.
Aggressively Expanded in PCs in the Mid-1990s
When Platt took over as CEO in 1992, Hewlett-Packard's share of the personal computer market was a mere one percent. Moreover, PCs accounted for only 5.7 percent of the company's 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 company's 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-Packard's pursuit of personal computer prominence was problematic given that sector's 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 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-Packard's 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; HP's slow response to the opportunities presented by the explosion of the Internet; and falling prices for personal computers and computer peripherals. In addition, HP's 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 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 divestment--which included the company's original lines of business--would sharpen the firm's 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, Platt 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.; 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).
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.
Comment about this article, ask questions, or add new information about this topic: