HP Inc (US)

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HP or Hewlett Packard is one of the world's leading technology brands, the global #1 in printers, and until recently in PCs as well - until that lead was captured by rival Lenovo. It is also one of the leaders in IT services. However, the company behind the brand appeared to have lost its way in recent years as a result of management turmoil and unpredictable changes in the direction of the market. HP reinvented itself in 2002 in a merger with competitor Compaq. Although full integration of what were already two huge businesses seemed at first to have gone smoothly, the enlarged business remained over-dependent on its original printers business for profits. The board certainly thought so, forcing out high profile CEO Carly Fiorina in early 2005. New CEO Mark Hurd demonstrated a firm grasp on the business, knocking rival Dell off its perch as the global #1 in PCs in 2007, and closing the gap with IBM in IT services by buying consultancy EDS in 2008. Yet Hurd too was unceremoniously dismissed in 2010. So was his successor less than a year later, after announcing a proposal to withdraw from the PC market and then signing off on the catastrophic purchase of software developer Autonomy. A slightly different break-up plan was completed in 2015. PC and printer hardware now forms the core of HP Inc. Separate company Hewlett Packard Enterprise specialises in servers and storage, and has partly divested its services and software divisions.

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Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 13th Jul 2017: HP held onto the top spot in the global PC market in 2Q according to latest figures from researcher IDC. It regained the lead from Lenovo last quarter for the first time since 2013. IDC recorded a 3% year-on-decline in total global PC shipments, but HP enjoyed a 6% increase, compared to a decline of almost the same percentage by Lenovo. As a result, the US company widened its lead to almost 23% of the global market, while its Chinese rival slipped back to 20.5%. Dell, Apple and Asus rounded out the global top five, with Acer back to 6th place.

Adbrands Weekly Update 13th Apr 2017: HP regained the lead in the global PC sector for 1Q 2017, according to market-watcher IDC, for the first time since 2013. IDC estimated 13% year-on-year growth in shipments to 13.1m units, equivalent to 21.8% global share. Lenovo's growth was under 2% to 12.3m units or 20.8% share. Dell held firm at #3, while Apple nudged ahead of Acer in 4th and 5th position respectively. Total shipments rose just 0.6% to 60.3m units. Rival researcher Gartner had quite a different view, maintaining Lenovo in the #1 position, though with only the narrowest of leads. It also had Asus in the #4 position ahead of both Apple and Acer, and said total units declined by over 2% to 62m devices.

Adbrands Weekly Update 12th Jan 2017: Figures from technology researcher IDC showed a continuing slump in global PC sales in 2016, but the rate of the decline has slowed. Total shipments for the year were down 5.7%, slowing to 1.5% in the final quarter. Lenovo retains the global #1 spot, but HP is close behind, with less than 1% market share to separate them. Apple and Asus are also closely matched in the #4 and #5 spots. Apple was #4 in the final quarter, but Asus had it for the year as a whole, while Acer was just behind at #6. Dell holds firm at #3.

Adbrands Weekly Update 24th Nov 2016: Ads Of The Week: "Brothers". Moving swiftly on from their Sainsbury's spot, AMV BBDO are back with another cracker, a rather more thoughtful one for HP. It's kind of a Christmas spot without the Christmas, because it's got the giving, and the coloured lights and the family theme, but isn't even remotely seasonal. In fact, we might actually call it profound, and quite moving, as a young musician tries to find a way of including his deaf brother in his world. The results are emotionally rich and ultimately uplifting. Just be grateful you don't have to live next door to them. Look at the size of those speakers!

Adbrands Weekly Update 13th Oct 2016: HP closed the gap on rival Lenovo during 3Q 2016, bringing the two tech groups neck-and-neck in the global PC market, according to figures from IDC. Growth at HP lifted the US company's global share to 21.2%, only fractionally behind Lenovo, which slipped to 21.3%. Dell also powered up, hitting 15.8%. Apple and Asus rounded out the top five. Global shipments declined almost 4% year-on-year to just under 68m units, though that figure was better than had been expected. In the US alone, HP retained the top spot, ahead of Dell and Lenovo.

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Background

Free for all users | see full profile for current activities: Hewlett-Packard was founded in 1938 as a partnership between former university classmates David Packard and William Hewlett. Its first product was a resistance-capacitance audio oscillator, an electronic instrument used to test sound equipment. The company's first factory was a small garage in Palo Alto, and among its earliest clients was Walt Disney, which bought eight oscillators for use in production of ground-breaking animated movie Fantasia. The key breakthrough for Hewlett and Packard came with a series of contracts from the US government following the outbreak of World War II. By the end of the war, Hewlett-Packard's revenues had leapt from less than $40,000 to over $1m. The company floated in the 1950s and established international offices. During the following decade, HP took steps into the medical and analytics sectors through acquisitions. In 1969, Packard left the company and spent almost three years as US Deputy Secretary of Defence in the first Nixon administration. He was re-elected chairman in 1971, and served in that position virtually until his death in 1996.

It was in the 1970s that the group truly found its direction, with the arrival of the computer revolution. HP introduced the world's first handheld scientific calculator in 1972, and went on to unveil a series of PCs and compact mainframe computers. However perhaps the most important development was the introduction of the first LaserJet and inkjet printers, which quickly established the standard for office printing. By the 1980s, HP was established as the dominant force in computer printing technology. However the group continued to maintain its position in the PC sector. In 1989 the company acquired leading workstation manufacturer Apollo Computers, as well as Texas Instruments' line of UNIX computers. 

In 1999 HP spun off its $1.6bn medical devices and electronic testing equipment as Agilent Technologies. That same year, Carly Fiorina was recruited from Lucent Technologies to become the group's new CEO. She began an overhaul of HP's cumbersome management structure, cutting jobs and combining divisions to focus on growth. She also followed the hugely successful example of market-leading IBM, which had successfully reinvented itself as an IT services business. Fiorina elevated HP's support department into a fully-fledged IT services company. As the technology boom reached its peak, HP's sales came close to hitting $50bn. Firmly established as the #2 computer company worldwide, it nonetheless continued to trail IBM, almost twice its size. In 2001, the technology boom suddenly burst, and HP was hit by a major downturn in spending. Revenues slipped by 7% overall (after 15% growth a year earlier). North American revenues were hardest hit, down by 13%. In September 2001, after several months of negotiation, HP announced the deal that would transform the company, and finally put it within striking distance of arch-rival IBM. 

Compaq Computer Corporation had been founded in 1982 by Rod Canion, Jim Harris and Bill Murto, three senior managers from Texas Instruments. Their initial product, sketched on a paper place mat in a Houston pie shop, was arguably the first IBM "clone", a portable personal computer which could run all of the software being developed for the IBM PC, but at a significantly lower price. They raised initial funding from high-tech venture capital firm Sevin-Rosen Partners and floated in 1983, shipping more than 53,000 portable PCs the same year. First year revenues were $111m, then a record for any US start-up. In 1984, the business moved into Europe and also introduced its first desktop PC. By 1986, Compaq had shipped its 500,000th PC and sales had leapt to over $500m, another record. In 1988, it overtook Apple and Olivetti to become the 2nd biggest computer supplier in Europe. Seven years later, after a bitter price war with IBM as well as other clone manufacturers, the group was crowned as the #1 PC manufacturer worldwide. In 1998, Compaq threw itself whole-heartedly onto the internet, acquiring search engine portal AltaVista as its launch pad for establishing a global online marketplace. (It sold most of its shares a year later for a substantial profit). By 2001, Compaq remained the #3 computer hardware company behind IBM and HP, but its dominance in the PC sector had come under increasing pressure from another rival, Dell. Even before the full downturn in the technology market in 2001, sales of PCs globally had begun to stall. Facing the possibility of even fiercer competition in future, Compaq agreed to merge with HP in a bid to counter Dell and overturn IBM's dominance of the computer market as a whole.

However, while each company's managers saw the clear benefits of merger, not all shareholders shared their views. Fiorina and her team at HP could not have anticipated the force of opposition to the merger, not least from their founders' own families. David Packard had died in 1996, followed by William Hewlett earlier that year in 2001. However Hewlett's son Walter argued that the deal would dilute Hewlett Packard's printer business by creating a larger, lower-margin computer division, and he united the families of both founders in opposition to the deal. An increasingly bitter war of words ensued. Most seriously of all, Hewlett was able to pull together a voting block equivalent to around 18% of the company's shareholders. By early 2002 there appeared a distinct possibility that the merger deal could be voted down. In a bid to save her job as well as her deal, Fiorina embarked on a high-profile tour of the group's institutional shareholders to explain her rationale for the merger. The deal was finally voted through by a slim margin. HP then took the brave decision to ask Walter Hewlett to remain a director of the company. He responded by launching a lawsuit against the group accusing HP of "buying" vote approval from institutional shareholder Deutsche Bank. The directorship offer was promptly withdrawn, and the HP-Compaq merger was completed in May 2002.

A few months later, doubts were raised over the success of the integration of the two companies when former Compaq boss Michael Capellas resigned unexpectedly from the company in order to take control of troubled Worldcom. However HP appeared to shrug off these concerns, reporting strong results for 2003 which seemed to show integration between the two companies proceeding smoothly. Yet underlying performance remained a serious problem. Far from establishing a clear lead over Dell in the PC market, Compaq-HP was actually overtaken by the challenger in sales in 2002, while HP's services division still struggled to catch up with IBM and EDS. The over-dependence on printers led an increasing number of commentators to question the validity of the merger with Compaq. HP's shares plunged after the merger and failed to recover for several years. 

Meanwhile, behind the scenes, the group's board became increasingly unhappy with CEO Fiorina's flamboyant and autocratic management style. As the only female executive running a Top 20 US company, Fiorina achieved superstar status in both her own industry and in the general financial community, and it was clear that she enjoyed being in the spotlight. Senior managers were reported to have felt that Fiorina spent too much time grooming her public persona at a string of conferences and conventions, and not enough back at base running the company. At the same time she was known for occasionally harsh treatment of failure within HP, and a reluctance to share the spotlight with others. The simmering tension within the company came to a head in early 2005, when Fiorina was apparently ordered by the board to delegate more management responsibility in order to rebuild HP's challenge to Dell and IBM. She apparently refused. After a two-day meeting, the group board asked for her resignation. Shortly afterwards, Mark Hurd, previously head of NCR, was appointed as Fiorina's successor. Among his first moves was the launch of a major restructuring program which cut around 14,5000 jobs worldwide or 10% of HP's total workforce. 

A year later, HP became the subject of an embarrassing privacy scandal as a result of the unlawful methods employed to uncover the source of leaks of confidential information relating to the build-up to Fiorina's ousting. The investigation was itself successful, identifying the board’s longest-serving member, George Keyworth II, as the source of the leak. However, in the course of the inquiry, private investigators hired to conduct the search apparently posed as other board members under suspicion in order to gain access to their personal phone records, and also obtained phone records for nine financial journalists who had covered the story. Another group director, Thomas Perkins, resigned from HP in protest over the methods used, and eventually forced the board to issue a statement over the affair. This culminated in the resignation of non-executive chairwoman Patricia Dunn. The State of California subsequently issued criminal proceedings against several people involved with the case, including Dunn. HP itself later settled a civil case brought by the state with a payment of $14.5m. (The case against Dunn was subsequently dropped, and that against her co-defendants reduced from felony to misdemeanour). None of this appeared to affect the continuing rehabilitation of the company, which ended 2006 within a whisker of retaking top spot in the global PC market from Dell. It finally achieved that goal the following year.

Much of the credit for HP's turnaround went to CEO Mark Hurd, widely regarded as having done an excellent job of refocusing the widely diversified group. In addition to careful management of HP's costbase, he also strengthened the group's IT services division by acquiring rival EDS for $14bn in 2008. By 2010 he had re-established HP as one of the world's most admired technology groups. As a result, it came as a considerable shock in August that year when Hurd was asked by the board to resign following an internal investigation triggered by claims from a part-time contractor accusing him of sexual harassment. Although Hurd was found not to have breached HP's own guidelines on sexual harassment, or indeed conducted a sexual relationship with the woman in question, the internal investigation revealed a number of falsified expense claims from him which, said the company, demonstrated a "profound lack of judgment that seriously undermined his credibility and damaged his effectiveness."

Hurd's successor was named as Leo Apotheker, a German who had previously been one of two joint CEOs at business software company SAP. Yet Apotheker's brief tenure at HP was disastrous. It began with a public row with Oracle, a former ally of HP which was already involved in a bitter feud with SAP. Oracle's CEO Larry Ellison publicly condemned the HP board for sacking Mark Hurd, and also for hiring a man who he believed had presided over a controversial corporate espionage case in which staff at one of SAP's subsidiaries hacked into Oracle computers. Soon after his appointment Apotheker raised HP's financial forecasts, only to downgrade them again months later. Several disappointing quarters followed, during which an internal memo from Apotheker was leaked in which he encouraged staff to "watch every penny" of costs. Shortly afterwards he agreed an absurdly over-priced offer for British software maker Autonomy, equivalent to 10 times annual revenues. The decision to pull the plug on HP's tablet after just six weeks on-sale, and the announcement that the company would quit as the world's biggest PC maker by separating out that business, confirmed suspicions that Apotheker, but also the HP board, had no real idea what they were doing. Acknowledging the reality of the widespread condemnation of Apotheker, the board took the decision to sack him in September 2011. See full profile for current activities


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