HP's strategies nowadays comprise mainly the "Management by Objectives", "Management by Wandering around" meaning informal communication within the company, and "Total Quality Control" which aims at producing highly qualified products.)
The HP way is seen as model for corporate culture in many countries.
The roots of many subsequent companies are located in HP, e.g. Steve Wozniak, who worked at HP and later co-founded Apple. This has led to the establishment of a new corporate culture in Silicon Valley and many firms have tried to imitate the HP way and ad opted measures such as stock options, innovative work rules, teamwork, and profit sharing.
Business Summary PALO ALTO, Calif., Nov. 13, 2000 -- Hewlett-Packard Company (NYSE: HWP) today reported 17% revenue growth (20% excluding currency effects) in its fourth fiscal quarter ended Oct. 31, 2000. Excluding extraordinary other income and restructuring expenses, diluted earnings per share (EPS) was up 14% from the year-ago quarter.
During the quarter, HP completed its previously announced 2-for-1 split of its common stock in the form of a stock dividend. Share and per-share amounts have been adjusted to reflect this split.
Net revenue was $13.3 billion, compared with $11.4 billion in last year's fourth quarter. EPS for the quarter was 41 cents on a diluted basis,(1) excluding investment and divestiture gains and losses, the effects of stock appreciation rights and balance sheet translation, and restructuring expenses. Including these items, diluted EPS on a reported basis was 45 cents per share on approximately 2.05 billion shares of common stock and equivalents outstanding. This compares with diluted EPS of 36 cents in the same period last year(2).
"We are pleased that revenue growth is accelerating, but very disappointed that we missed our EPS growth target this quarter due to the confluence of a number of issues that we now understand and are urgently addressing. I accept full responsibility for the shortfall," said Carly Fiorina, HP chairman, president and chief executive officer.
"Issues that reduced profitability included margin pressures, adverse currency effects, higher-than-expected expenses, and business mix. The good news is that our business is healthy, demand is strong, and we are making good progress against our strategic objectives as we continue the hard work of reinventing hp. We are determined to succeed and are not backing away from our growth targets," Fiorina said.
HP also announced it has terminated discussions with PricewaterhouseCoopers (PwC) regarding the potential acquisition of its consulting business.
Fiorina said, "We are disappointed that we have not been able to reach a mutually acceptable agreement to acquire PwC's consulting business. This is a high-quality operation, and we believe the strategic logic underlying this acquisition is compelling. However, given the current market environment, we are no longer confident that we can satisfy our value creation and employee retention objectives -- and I am unwilling to subject the HP organization to the continuing distraction of pursuing this acquisition any further. We remain committed to aggressively growing our consulting capabilities, organically and possibly by acquisition, and are open to other business arrangements to achieve our goals."
Business Summary
Net revenue in the United States was $6.0 billion, an increase of 13% from the year-ago quarter. Revenue from outside the U.S. rose 20% (26% in local currency) to $7.3 billion. In Europe, revenue was $4.5 billion, an increase of 15% (27% in local currency). In Asia Pacific, revenue was $1.9 billion, an increase of 36% (34% in local currency). In Latin America, revenue increased 11% to $0.6 billion.
Imaging and Printing Systems
The imaging and printing systems segment -- laser and inkjet printing, and imaging devices and associated supplies -- grew 6% in revenue year over year (9% in local currency) against a very strong quarter last year. Internet printing and a migration to color are driving strategy and growth. Strong sales of supplies, scanners, all-in-one (AiO) products, and consumer imaging devices, as well as overall strength in Europe and Asia, partially offset softness in the U.S. business printing market and continuing price erosion in inkjet printers.
Nearly 12 million printing and scanning devices were shipped during the quarter. HP's color LaserJet market share continues to grow and new products began shipping in October. Imaging revenues grew 31% over the year-ago period, driven by strong performances in all product lines: AiOs up 31%, scanners up 12% and digital cameras and printers up 137%. AiO units were up 53% and PhotoSmart printer units were up 208%. Supplies revenues grew 15% against a strong quarter last year.
Operating margin was 13.4%, up from 13.2% last year.
Computing Systems
The computing systems segment -- a broad range of Internet infrastructure systems and solutions for businesses and consumers, including workstations, desktops, notebooks, mobile devices, UNIX(R) and PC servers, storage and software solutions -- grew 29% in revenue year over year (32% in local currency) with strong performances across all product categories.
UNIX server revenues rose 23% year over year, with orders up 43%, driven by excellent performance in low- and mid-range servers. Superdome, HP's new high-end server introduced this quarter, is achieving stronger-than-expected market acceptance, and volume shipments remain on schedule for January. NetServer revenues were up 20%. Enterprise storage revenues were up 40% with the HP Surestore E Disk Array XP512, HP's flagship enterprise storage product, up 90% in revenues with strong backlog. Software revenues (excluding VeriFone) were up 18%, but down sequentially with strong order backlog at the end of the quarter. OpenView revenues were up 29% with orders up 60%. PC revenues were up 40%, with home PC revenues up 62%, notebooks up 164%, workstations up 11%, and commercial desktops up 8%.
Operating margin was 3.7%, up from 3.2% last year, but down sequentially from 7.3% in the third quarter primarily due to margin pressures, higher expenses and mix changes.
IT Services
The IT services segment -- hardware and software services, along with mission-critical, outsourcing, consulting and customer financing services -- grew 15% in revenue year over year (18% in local currency). HP's consulting business achieved in 46% revenue growth, with substantial new hires broadening and deepening the organization's capabilities.
Operating margin was 7.4%, essentially flat with 7.5% last year.
Costs and Expenses
Cost of goods sold this quarter was 72.5% of net revenue, up from 71.3% in the year-ago period. Expenses grew 15%. After adjusting for currency, expense growth was 17%. Operating expenses, as reported, were 20.3% of net revenue. This compares with 20.7% in the comparable period last year.
Asset Management
Return on assets for the quarter was 10.5% compared with 9.8% in the comparable quarter last year. Inventory was 11.7% of revenue compared with 11.5% in last year's fourth fiscal quarter. Trade receivables were 13.1% of revenue compared with 14.1% in the prior year period. Net property, plant and equipment was 9.2% of revenue compared with 10.2% in the year-ago quarter.
Full-year Review
Net revenue increased 15% to $48.8 billion. Net revenue in the United States rose 14% to $21.6 billion, while revenue from outside the United States increased 16% to $27.2 billion.
Net earnings from continuing operations were $3.6 billion, an increase of 15%, compared with $3.1 billion in fiscal 1999. Net earnings per share were $1.73 on a diluted basis, up 16% from $1.49 last year.
Outlook for FY 2001
For the 2001 fiscal year ending Oct. 31, 2001, HP expects to achieve revenue growth in the range of 15 to 17%, compared to 15% in FY 2000. Gross margin percentage in FY 2001 is expected to be in the range of 27.5 to 28.5%, compared to 28.5% in FY 2000, with improvements beginning in the 2nd quarter. Total operating expenses in FY 2001 are expected to be approximately 10 to 12% above FY 2000. Tax rate is expected to remain constant at approximately 23%.
The forward-looking statements in this Outlook are based on current expectations and are subject to risks, uncertainties and assumptions described under the sub-heading "Forward-Looking Statements." Actual results may differ materially from the expectations expressed above. These statements do not include the potential impact of any mergers, acquisitions or other business combinations that may be completed after Oct. 31, 2000.
HP will be discussing its fourth quarter results and its 2001 outlook on a conference call today, beginning at 6 a.m. (PST). A live Webcast of the conference call will be available at http://www.hp.com/hpinfo/investor/quarters/2000/q4webcast.html. A replay of the Webcast will be available at the same Web site shortly after the call and will remain available through 4:30 p.m. PST on Nov. 22, 2000.
Hewlett-Packard was Silicon Valley's first large firm and due to its success one of the area's most admired electronics firms.
While HP was important for the initial growth of the area and at first was based on electronic devices, the actual Silicon Valley fever was launched in the mid-1950s with Shockley and Fairchild, and other semiconductor firms, and went on to the microelectronics revolution and the development of the first PCs in the mid-1970s, continuing till today.
One major event was crucial for this whole development. It was the invention of the transistor that revolutionized the world of electronics.
By the 1940s, the switching units in computers were mechanical relays, which were then replaced by vacuum tubes. But these vacuum tubes soon turned out to have some critical disadvantages, which impeded the further progress in computing technology. In contrast, transistors were much better. They could perform everything the vacuum tubes did, but "required much less current, did not generate as much heat, and were much smaller") than vacuum tubes.
The use of vacuum tubes, which could not be made as small as transistors, had meant that the computers were very large and drew a lot of power. For example the famous American ENIAC, built in 1946 and consisting of more than 18,000 vacuum tubes, had a total weight of 30 tons, filled a whole room of 500 square meters and consumed 150 KW per hour. The breathtaking development in computers can be seen, when comparing the ENIAC with today's laptops which are portable with about 5 kg, are battery driven and run some 100,000 times faster.)
This development was launched by the transistor (short for "transfer resistance") invention in 1947 by William Shockley and his colleagues John Bardeen and Walter Brattain. This "major invention of the century") was made at the Bell Labs in Murray Hill, New Jersey, which are the "R&D arm of the American Telephone and Telegraph Company (AT&T).") And in 1956, the three scientists received the Nobel Prize in Physics for their invention that had "more significance than the mere obsolescence of another bit of technology.")
The transistor is a "switch - or, more precisely, an electronic "gate," opening and closing to allow the passage of current.") Transistors are solid-state and are based on semiconductors such as silicon. The crystals of these elements show properties, which are between those of conductors and insulators, so they are called semiconductors. The peculiarity of semiconductor crystals is that they can be made "to act as a conductor for electrical current passing through it in one direction") only, by adding impurities or "doping" them - for instance, "adding small amounts of boron of phosphorus.")
In 1955, William Shockley, co-inventor of the transistor, decided to start his own company, Shockley Semiconductor, to build transistors, after leaving the Bell Labs. The new firm was seated in Palo Alto in Santa Clara County, California, where he had grown up. Shockley man aged to hire eight of the best scientists from the East Coast, who were attracted by his scientific reputation. These talented young men - "the cream of electronics research" - represented the "greatest collection of electronics genius ever assembled". Their names were: Julius Blank, Victor Grinich, Eugene Kleiner, Jean Hoerni, Jay Last, Gordon Moore, Robert Noyce and Sheldon Roberts.)
But however brilliant Shockley was, who was called a "marvelous intuitive problem solver" and a "tremendous generator of ideas" by Robert Noyce, it soon turned out that he was "hard as hell to work with", as his style was "oppressive" and he "didn't have trust and faith in other individuals.")
When Shockley refused the suggestions of his eight engineers who wanted to concentrate on silicon transistors, while their boss pursued research on four-layer diodes, they decided to quit and start their own firm in 1957.
Within several months Shockley had to shut down his firm, since he had lost his engineers, whom he called traitors and they are now known as "the Traitorous Eight".
Although Shockley was not very successful with his firm in Palo Alto, he "deserves credit for starting the entrepreneurial chain-reaction that launched the semiconductor industry in Silicon Valley,") since he had brought together excellent scientists there like Robert Noyce without whom there might never have been a Silicon Valley on the San Francisco Peninsula at all. Or as M. Malone calls it, "Shockley put the last stone in place in the construction of Silicon Valley.")
The father of one of those young men who left Shockley had contacts to a New York investment firm, which sent a young executive named Arthur Rock to secure financing for their new enterprise. Rock asked a lot of companies, if they were interested in backing this project, but has not been successful so far. The concept of investing money in new technology ventures was largely unknown then, and indeed the term "venture capital" itself wouldn't be coined until 1965") - by Arthur Rock, who should become Silicon Valley's first and most famous venture capitalist later on.
Finally, due to Rock's efforts, the "Traitorous Eight" managed to obtain financial support from industrialist Sherman Fairchild to start Fairchild Semiconductor in 1957.
Fairchild Semiconductor was developed by Shockley's firm, and as the "still existing granddaddy of them all") has itself spawned scores of other companies in Silicon Valley: Most semiconductor firms' roots can be traced back to Fairchild. The most famous ones of them are National Semiconductor, Intel, Advanced Micro Devices (AMD); and many well-known Valley leaders have worked at Fairchild, e.g. Charlie Sporck (National Semiconductor), Jerry Sanders (AMD's founder), Jean Hoerni, and last but not least Robert Noyce, who is considered the "Mayor of Silicon Valley") due to his overwhelming success.
Robert Noyce was born in southwestern Iowa in 1927. His father was a preacher in the Congregational Church and thus was "perpetually on the move to new congregations, his family in tow.") When the Noyces decided to stay at the college town of Grinnell, Iowa, for a longer period of time after many years of moving, this place meant stability in young Bob's life and thus would become his first and only real home, which he would later regard as important for his eventual success.
After high school, Robert studied at Grinnell College. His physics professor had been in contact with John Bardeen (one of the three inventors of the transistor) and obtained two of the first transistors in 1948, which he presented his students, including Bob Noyce. This aroused young Robert's interest in semiconductors and transistors, which made him try to learn everything he could get about this fascinating field of solid-state physics.
Having graduated from Grinnell College he continued his studies at "the premier school of science on the East Coast, MIT,") where he met famous scientists like Shockley. He received his doctorate, and decided to work at Philco until 1955, when he was invited by William Shockley to join a new firm named "Shockley Semiconductor" in Santa Clara County - together with seven other splendid scientists.
When the so-called "Shockley Eight" started a new venture with Fairchild Semiconductor, Robert Noyce began "his own transformation from engineer to business manager:") He was chosen to lead the new company as he seemed the best to do this job.