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Hewlett-Packard Company (NYSE: HPQ), commonly referred to as HP, is an American multinational information technology corporation headquartered in Palo Alto, California, USA. The company was founded in a one-car garage in Palo Alto by Bill Hewlett and Dave Packard, and is now one of the world's largest information technology companies, operating in nearly every country. HP specializes in developing and manufacturing computing, data storage, and networking hardware, designing software and delivering services. Major product lines include personal computing devices, enterprise servers, related storage devices, as well as a diverse range of printers and other imaging products. HP markets its products to households, small- to medium-sized businesses and enterprises directly as well as via online distribution, consumer-electronics and office-supply retailers, software partners and major technology vendors.
HP's posted net revenue in 2009 was $115 billion, with approximately $40 billion coming from services. In 2006, the intense competition between HP and IBM tipped in HP's favor, with HP posting revenue of US$91.7 billion,[5] compared to $91.4 billion for IBM; the gap between the companies widened to $21 billion in 2009. In 2007, HP's revenue was $104 billion,[6] making HP the first IT company in history to report revenues exceeding $100 billion.[7] In 2008 HP retained its global leadership position in inkjet, laser, large format and multi-function printers market, and its leadership position in the hardware industry.[8] Also HP became #2 globally in IT services as reported by IDC & Gartner.[9]
Major company changes include a spin-off of part of its business as Agilent Technologies in 1999, its merger with Compaq in 2002, and the acquisition of EDS in 2008, which led to combined revenues of $118.4 billion in 2008 and a Fortune 500 ranking of 9 in 2009.[9] In November 2009, HP announced the acquisition of 3Com;[10] with the deal closing on April 12, 2010.[11] On April 28, 2010, HP announced the buyout of Palm for $1.2 billion.[12] On September 2, 2010 won its bidding war for 3PAR with a $33 a share offer ($2.07 billion) which Dell declined to match.[13]
On August 6, 2010 CEO Mark Hurd resigned.[14] Cathie Lesjak assumed the role interim CEO, and on September 30, 2010, Léo Apotheker became HP's new permanent CEO and Ray Lane, Managing Partner at Kleiner Perkins Caufield & Byers, was elected to the position of non-executive Chairman. Both appointments were effective November 1, 2010.[15]
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 infrastructure--servers, 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 tools--from 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 Packard's 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 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 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 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.
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 Nixon's 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-Packard's 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 company's 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 company's 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 printer--a 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 clones--computers 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. Compaq's staff also had the technical and business grounding to establish new industry standards on its own--without 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 Compaq's chairman, offered an initial investment of $2.5 million.
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 Rosen--who had lost a $400,000 investment in another PC start-up--explained 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."
In 1983, Compaq's consensus management approach, which allowed every division of the company a say in product development, proved valuable. Canion, Compaq's 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 portable--although larger than a briefcase--full-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 Compaq's 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 dealer's cost of advertising, sales training, or incentives.
Compaq's 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 Compaq's portable model. From the first quarter of 1983 to the last quarter of 1984, Compaq's 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, Rosen's 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 Compaq's 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 Compaq's 1987 introduction of the DESKPRO 386. Based on Intel's new chip, this new PC performed over three times faster than IBM's fastest PC, and nearly twice as fast as Compaq's closest competitor. It took IBM nine months to introduce a comparable machine using Intel's 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, Compaq's revenues increased fivefold to $3 billion, while other PC manufacturers--including Apple Computer and Sun Microsystems--had setbacks. Much of this growth was due to Compaq's successful marketing efforts in Europe. Led by Eckhard Pfeiffer, former head of TI's 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 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. The following year, HP 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.
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 IBM's 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 Compaq's 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 HP's 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 1990's 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 cofounder 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.
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.
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 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.
1991 also Brings a Slump to Compaq
For reasons ranging from economic recession and price competition to problems with the flow of distribution, Compaq's sales and earnings fell in 1991 for the first time in the company's history. The DESKPRO 386 PC series continued to be a bestseller, with desktop PCs accounting for close to three-fourths of Compaq's 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 company's 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 company's 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 company's first low-cost desktop PCs (COMPAQ ProLinea), 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 division's 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.
Compaq's 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 company's 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 company's 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 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. 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.
HP'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 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, cofounder David Packard died on March 26, 1996.
HP'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 the decline were the Asian economic crisis; HP's slow response to 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.
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 companies--computer services having been one of Compaq's weakest areas. The deal increased Compaq's 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 Digital's PC production into that of Compaq and the scaling back of Compaq's network equipment unit. However, it would take some time before the full impact of this combination--at the time the largest merger in the relatively short history of computers--could be assessed.
Compaq's transformation from a PC company to a global IT--and Internet--leader 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 world's fastest Internet search and navigation guide, and the following year created a separate company, The AltaVista Company, to extend Compaq's 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 Compaq's Alta Vista business and its related properties (Shopping.com and Zip2). Innovative products and services were introduced, including the Aero 8000, the world's 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 Compaq's 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 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, 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 HP's 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 company's history of invention and innovation and introducing a new company logo. Under Fiorina's 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 2001--HP Netaction Software Suite and HP Open View Software Suite--thus, 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 Compaq's revenue in 2001. The Global Services unit of the company continued to be the company's strongest segment. Compaq's 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 company's 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 customers--a 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.
HP's posted net revenue in 2009 was $115 billion, with approximately $40 billion coming from services. In 2006, the intense competition between HP and IBM tipped in HP's favor, with HP posting revenue of US$91.7 billion,[5] compared to $91.4 billion for IBM; the gap between the companies widened to $21 billion in 2009. In 2007, HP's revenue was $104 billion,[6] making HP the first IT company in history to report revenues exceeding $100 billion.[7] In 2008 HP retained its global leadership position in inkjet, laser, large format and multi-function printers market, and its leadership position in the hardware industry.[8] Also HP became #2 globally in IT services as reported by IDC & Gartner.[9]
Major company changes include a spin-off of part of its business as Agilent Technologies in 1999, its merger with Compaq in 2002, and the acquisition of EDS in 2008, which led to combined revenues of $118.4 billion in 2008 and a Fortune 500 ranking of 9 in 2009.[9] In November 2009, HP announced the acquisition of 3Com;[10] with the deal closing on April 12, 2010.[11] On April 28, 2010, HP announced the buyout of Palm for $1.2 billion.[12] On September 2, 2010 won its bidding war for 3PAR with a $33 a share offer ($2.07 billion) which Dell declined to match.[13]
On August 6, 2010 CEO Mark Hurd resigned.[14] Cathie Lesjak assumed the role interim CEO, and on September 30, 2010, Léo Apotheker became HP's new permanent CEO and Ray Lane, Managing Partner at Kleiner Perkins Caufield & Byers, was elected to the position of non-executive Chairman. Both appointments were effective November 1, 2010.[15]
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 infrastructure--servers, 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 tools--from 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 Packard's 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 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 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 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.
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 Nixon's 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-Packard's 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 company's 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 company's 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 printer--a 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 clones--computers 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. Compaq's staff also had the technical and business grounding to establish new industry standards on its own--without 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 Compaq's chairman, offered an initial investment of $2.5 million.
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 Rosen--who had lost a $400,000 investment in another PC start-up--explained 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."
In 1983, Compaq's consensus management approach, which allowed every division of the company a say in product development, proved valuable. Canion, Compaq's 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 portable--although larger than a briefcase--full-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 Compaq's 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 dealer's cost of advertising, sales training, or incentives.
Compaq's 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 Compaq's portable model. From the first quarter of 1983 to the last quarter of 1984, Compaq's 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, Rosen's 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 Compaq's 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 Compaq's 1987 introduction of the DESKPRO 386. Based on Intel's new chip, this new PC performed over three times faster than IBM's fastest PC, and nearly twice as fast as Compaq's closest competitor. It took IBM nine months to introduce a comparable machine using Intel's 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, Compaq's revenues increased fivefold to $3 billion, while other PC manufacturers--including Apple Computer and Sun Microsystems--had setbacks. Much of this growth was due to Compaq's successful marketing efforts in Europe. Led by Eckhard Pfeiffer, former head of TI's 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 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. The following year, HP 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.
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 IBM's 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 Compaq's 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 HP's 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 1990's 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 cofounder 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.
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.
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 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.
1991 also Brings a Slump to Compaq
For reasons ranging from economic recession and price competition to problems with the flow of distribution, Compaq's sales and earnings fell in 1991 for the first time in the company's history. The DESKPRO 386 PC series continued to be a bestseller, with desktop PCs accounting for close to three-fourths of Compaq's 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 company's 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 company's 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 company's first low-cost desktop PCs (COMPAQ ProLinea), 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 division's 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.
Compaq's 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 company's 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 company's 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 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. 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.
HP'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 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, cofounder David Packard died on March 26, 1996.
HP'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 the decline were the Asian economic crisis; HP's slow response to 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.
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 companies--computer services having been one of Compaq's weakest areas. The deal increased Compaq's 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 Digital's PC production into that of Compaq and the scaling back of Compaq's network equipment unit. However, it would take some time before the full impact of this combination--at the time the largest merger in the relatively short history of computers--could be assessed.
Compaq's transformation from a PC company to a global IT--and Internet--leader 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 world's fastest Internet search and navigation guide, and the following year created a separate company, The AltaVista Company, to extend Compaq's 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 Compaq's Alta Vista business and its related properties (Shopping.com and Zip2). Innovative products and services were introduced, including the Aero 8000, the world's 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 Compaq's 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 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, 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 HP's 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 company's history of invention and innovation and introducing a new company logo. Under Fiorina's 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 2001--HP Netaction Software Suite and HP Open View Software Suite--thus, 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 Compaq's revenue in 2001. The Global Services unit of the company continued to be the company's strongest segment. Compaq's 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 company's 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 customers--a 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.