BUSINESS REPORT ON HEWLETT PACKARD

MBA/PGDM (2012-2014) NEW DELHI INSTITUTE OF MANAGEMENT

Submitted in partial fulfillment for the award for Post Graduate Diploma in Management

Submitted to: MADAM GAURI MODWEL Prof. Economics

Submitted by: THOKCHOM RAJESH KUMAR SINGH SECTION M2 ROLL No. : 98

HEWLETT PACKARD COMPANY ANALYSIS 2013

TABLE OF CONTENTS: History Fast Facts Technology Leadership Growth Products and Services Industry and Competitive Analysis Dominant Economic Characteristics Driving Forces
SWOT Analysis

Diversification Efforts Financial Analysis Strategic Issues Identifications and Recommendations Reference

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History
Hewlett-Packard was started in 1939 by Dave Packard and Bill Hewlett in a small one car garage behind Packards house. At the time it was started HP had $538 in working capital and little more than a couple hundred dollars worth of assets. It was in this garage that HPs legacy was born, when Bill and Dave created the first HP product the Audio Oscillator HP200A. Following the invention of their first product, the pair moved into a small building down the road from their famed garage and hired their first employees. The first true purchase of HPs products came when Walt Disney ordered 8 of the audio oscillators for use in production of its movies. Another milestone was reached in 1940 when HP sent out its first ever Christmas bonus in the amount of $5. This Christmas bonus set the tone for all bonuses to come, as it quickly turned into a production bonus and soon helped to shape the company wide profit sharing plan that HP adapts. In 1942 HP builds its first ever company owned building, and in order to protect themselves, build it so that it can be easily converted to a convenience store should the electronics industry fail. One of the most important milestones for the company was reached in 1947 as HP became a true Corporation. HP also caught attention for their Management by Walking Around and Open Door Policy programs. In 1957 HP had its initial public offering of stock and wrote their first set of corporate objectives which set the tone for their management style as a company. In 1958 HP made its first sizeable acquisition when they purchased F.L. Moseley Company which further expanded their product line. The late 50s and 60s were an extremely important time for HP as a company as it was during this time that they became a global company by building a manufacturing plant in Germany. It was also during this time that they created their Division Separation structure where they separated profit and loss accountability between divisions. This division was thought to help keep employees nimble while fostering motivation and creativity. They also had their stock listed on the New York and Pacific Stock exchanges and were listed in Fortune 500s top companies at 460. It was also during the 60s that HP created its first computer, which was used in house to control company tests. HP also creates their first scientific calculator around this time which gains critical success. In the early 80s HP took much more interest in the personal computing industry as it was during this time that they create the first mass marketed personal computer. They also enter into creating printers for use with their personal computers, the printers HP manufactured during this time set the standard for the direction in which printers would evolve. In 1987 Bill Hewlett retired as vice chairman of the board of directors, his son Walter Hewlett and David W Packard (son of Dave Packard) step up to take his place. In 1992 Lew Platt became HP president and CEO who was the first president and CEO of HP to not be a member of the Hewlett or Packard family. In 1993 Dave Packard relinquishes his chair of the board of directors position to Lew Platt. Possibly one of the most damaging events hits HP in 1996 when Dave Packard one of the original founders dies. In 1999 Carly Fiorina becomes President and CEO of HP. In 2002 HP merged with Compaq Computer. This merger created an $87 billion entity which operates in more than
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160 countries and has almost 150,000 employees! Quite a change from a company which 70 years ago started in a 1 car garage shack with 2 college kids who had $500 to work with!

Fast Facts
HP was incorporated in 1939. Corporate headquarters are in Palo Alto, Calif. Meg Whitman is president and CEO. Its merger with Compaq in 2002, and the acquisition of EDS in 2008, which led to combined revenues of $118.4 billion in 2008 and a Fortune 500 ranking of 9 in 2009. Revenue US$ 120.357 billion (2012) Operating US$ -11.057 billion (2012) income Net income US$ -12.650 billion (2012) Total assets US$ 108.768 billion (2012) Total equity US$ 22.436 billion (2012) Employees 311,610 (2012) Divisions Financing, Hardware, Services, Software

Technology Leadership
HP's three business groups drive industry leadership in core technology areas: The Personal Systems Group: business and consumer PCs, mobile computing devices and workstations The Imaging and Printing Group: inkjet, LaserJet and commercial printing, printing supplies, digital photography and entertainment The Technology Solutions Group: business products including storage and servers, managed services and software.

Growth
HP is focused on three technology shifts that have the power to transform our customers' lives and businesses. Next-generation data center Always on, always connected mobile computing Ubiquitous printing and imaging.
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Products and Services

HP Laptops, Notebook Computers & Tablet PCs HP Printers & Multifunction ePrint HP Technology & Industry Solutions Technology and Enterprise Services Data Storage from HP HP Software HP Servers HP Networking Products & Services HP EcoSolutions HP Managed Print Services HP Ink, Toner, and Paper HP Support & Drivers HP Scanners & Fax HP Monitors & Accessories HP Workstations HP Desktops & All-in-One PCs HP Smartphones & Handhelds

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Industry and Competitive Analysis

This strategic map shows that at this time Hewlett-Packard holds the highest market share worldwide in their industry due mostly to the fact that they are the most diversified firm. They are quickly followed by Dell who isnt as diversified, but who base most of their sales on computers and like HP hold a relatively lower price with the plan of offering a lower cost for a higher quality product. Apple Inc. holds the highest price as they are firm believers in providing the best quality even if it costs them more since they are a fully differentiated firm. Apples new campaigns against PCs is proving to be working as their market share is rising, but at the end of 2007 hadnt quite reached the amount of Dell, or HP, but they are still doing extremely well as they do not rely on as many different product lines as Dell and HP to create these sales. IBM is basically solely based upon servers for businesses so they do not have as much diversification, but they base their company on a slightly higher price, but offer excellent quality in their products as well as service. Gateway is the lowest on all accounts being based fully on computers. They focus on having extremely low prices with their eMachine line, but they are not seeing the market share of the other businesses due to past problems with their computers.

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Dominant Economic Characteristics

The market for computers and peripherals is extensive with many competing companies jockeying for sales of a wide variety of products and services. The industry is expecting a market of nearly $17.01 billion dollars in connectors in 2014. Though the market is experiencing a slight down turn at the present time, the estimated outlook shows a 10-year compounded growth rate of nearly 9% in dollar value and roughly 10% in expected unit growth. The computer industry is characterized by several very significant business and technology forces, which affect its nature as a hardware market, its connector content, market growth and business attractiveness. Computers and peripherals have been among the fastest growing markets in the electronics sector Interconnect technology, software, and new killer applications have driven the market The replacement cycle is of great significance to the computer and peripheral market, and is helping to drive growth Prices are among the most deflationary with unit growth higher than dollars This markets nature is growth/cyclical, with business cycles amplified by inventory overhangs Consumer demand drives the PC segment Market is transitioning toward adulthood if not maturity Significant outsourcing Future growth many depend heavily on emerging markets such as China, India and South America Market segments include specialty areas where customization is key The fact that computer peripherals and software are driving the market should be of no surprise. Many people are driven to buy computers because of the software and connectors that they can use with the computer. In many cases picking a computer that is brand specific isnt as important as picking a computer based on its specifications in order to provide the best ability for running the software that the consumers wish to use. This is a challenging aspect for computer makers as they must ensure that the computers they design are capable of producing the same quality of performance as competitors in order to run the applications that most consumers look to use. The replacement cycle is also no surprise as a top mention due to the fact that the industry is continually changing. Due to the ever changing technology and rapid replacement, price and consumer demand also plays a large role in the growth of the industry. Consumers consistently demand more from their computers and applications in daily life, with demand driving higher it is without a doubt that growth of the industry would continue to move forward. Due to the extreme innovation over the years it is of no surprise that many analysts consider the industry to be in its adulthood or maturity phase. It is becoming harder for companies to make new and innovative products for the industry as there is already so much out there

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Within the computer industry there are many sectors that are important for companies to know about. Many people think of the computer and peripherals industry as an industry for things such as desktops, notebooks, mice, and keyboards. However the industry is much larger than just those things that are typically thought about. The industry also includes products such as: Handheld devices PDAs, GPS Smart Phones Notebook/Tablet computers Desktop computers Workstations Entry level, mid-range, enterprise servers and mainframes Scientific/technical and super computers Computer peripherals Storage systems and Networking equipments

The peripheral portion of the industry has depended on standardization for its continued growth. Activities such as a standard drivers, motherboards, sockets, and connectors have enabled companies to create peripherals which are usable across the industry in most types of computer systems. . Competitive forces within the industry are remarkably strong as many companies look to overpower their competitors. Major competitors in the market include HP and Dell who at the present time are conquering much of the industry and also Gateway, Sony, E-Machine and Apple. Depending upon the segment, IBM and Sun are competitors also included in this industry. Competition is cut throat in the industry as product differentiation is relatively nonexistent at this point. All companies offer customizable products, however the customization options between companies are all relatively the same. It is safe to say that products are rather weakly differentiated. Companies who are looking to enter into the industry are typically unable to do so as large capital requirements are needed. Companies who wish to compete on a global scale with Hewlett-Packard and Dell are going to find that it is impossible to get started and get their name out. The larger companies have not only the name brand recognition but they can also partake in economies of scale purchases as they may be able to buy a million motherboards whereas a smaller company may only be able to buy ten thousand. Companies who are looking to enter into the peripheral market and compete against companies such as SanDisk on the other hand have a much easier time as the capital requirements are far less and consumers are more easily swayed to buy non name brand products for purchases. These smaller companies may also be able to use economies of scale as they may be able to purchase a larger quantity of a particular part for their products as they may not cost as much capital. While it is relatively hard to enter the market, depending in which segment you plan to partake in, it is easy to remove yourself from the industry. Typically competitors are more than willing to buy each other out as that will mean less competition in the industry. HP completing its purchase of competitor Compaq is a good example of the ease in which a company can exit the industry.
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Driving Forces
There are many driving forces in the Computer & Peripherals industry that a company pursuing profits must acknowledge. One of the main driving forces is innovation. Customers are always looking for the next big product to hit the market that they can take advantage of in their everyday lives. Products such as wireless keyboards and small flash drives or jump drives as they are called have had a significant impact on the way consumers conduct their lives in relation to their use of computers. These small drives allow for ease of mobility between computers, allowing users to transport their all important files between their machines. Price is also a very significant force in the industry as consumers are constantly looking for the best possible machines at the lowest possible price. Price is an important driving force especially at the current time due to a weak economy and people spending more money than ever on necessitates which leaves them with less money for buying extra goods. Large corporations who are one of the greatest consumers of computers and peripherals are experiencing large setbacks due to the current market situation, this is causing those large corporations to be tighter with their expenditures and reducing the amount of product that they can and will buy. With the majority of the population being of an age where they have had little to no contact with computers it is also extremely important that computers be simple and easy to use. Those from the baby boom era are typically less inclined to be able to use computers to their full potential because of the computers complicated nature. Another aspect that tends to drive much of society in todays day and age is the greening of many products. Computer manufacturers dont escape the pressure of environmentally minded people. Manufacturers must keep in mind that at some point the computers and peripherals that they produce will need to be disposed of, and they must be ready for the disposal of those products. Computer makers must also be mindful of the electric energy that is needed to run their computersthough this is not a factor in all consumer purchases, it is still a factor that does play a part in purchase habits of some consumers. The continual replacement factor of products in this industry also drives and shapes the industry. The main productsdesktops, notebooks and other hardwareare continually evolving and as a result consumers and companies are continually upgrading and changing their systems. This continual evolution of the products has consumers pushing for easier upgrade methods and some standardization.

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SWOT Analysis Strengths

Brand Name Identification Largest in Industry Fortune 500 Company Diversified Economies of Scale Technology Global Market Share Strong Imaging & Printing background Marketing Selling online/in store Integrated Bid Desk

Opportunities
Expansion in Emerging Markets Innovation/R&D Partnerships (Celebrities, Other Companies) Gaining Market Share Integrated Bid Desk Technology is a strong market Gaming industry

Weaknesses
Account Management Software Complacency No real specialization

Threats
Self Destruction Intense Competition Poor Economy Specialization

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Financial Analysis
Overview
Chart 1: Stock Performance Over 5 Years

After a strong financial performance from 2005 to 2010, HP significantly underperformed the S&P 500 benchmark in 2011. Investors have voiced concerns about dropping margins in hardware products - HPs bread and butter, costly acquisitions such as Autonomy, leadership churning, and a lack of coherent strategy. The stock price has taken a hit accordingly: HP is down 30% over the last 5 years, compared with the market which is only down 5%.
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Chart 2: Basic Financial Information

In 2011, HP saw its net income shrink by 19.26%, despite a modest 1% increase in sales over the same period. Earnings per share were $3.32 compared with a stock price of $26.61, giving HP a price to earnings ratio of 8.02 at the end of the fiscal year. Compared with an industry median of 17.12, HP could be seen as either undervalued or underperforming. The distinction lies in ones outlook on HPs future growth prospects.

Revenue, Income, and Cash Flow

Revenue, income, and cash flow are three of the most important metrics to analyzing the health of a tech powerhouse like HP. Revenue is a good indicator of demand for HPs products and services across product lines Net income takes into account COGS, SG&A expenses, depreciation, amortization, and nonoperating expenses to understand the true costs of obtaining these revenues.

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Chart 3: Revenue vs. Net Income

In 2011, HP had overall revenues of $130B and net income of $7.2B. This represents a 1% increase in revenue from 2010 and a 30% increase over 2007, but a 20% drop in net income from 2010 and no change from net income in 2007. Cash flow actually increased from $12B to $13B from 2010 to 2011, and increased about 20% over a five year period, but doesnt give a true picture of HPs lackluster performance in the last year. The downward trend in net income must be reversed in the upcoming quarters or HPs stock price will suffer.

Comparison to Industry and Market

HPs low P/E ratio indicates one of two things: either HP is a strong company and is therefore undervalued by investors in comparison to its industry competitors, or HP is a weak company that is appropriately discounted for its weak performance in 2011. Its price to book ratio, however, is quite low at 1.49 compared to the industry median of 5.03, and its price to cash flow ratio is a measly 4.89 versus the industry median of 12.61 and a market median of 10.29. This
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means that HP is seen as hardly being worth the assets that compose it or the cash flow it generates: investors see very little growth in HPs future and are moving their assets elsewhere.

Chart 4: Top Competitors

Strategic Issues Identifications and Recommendations

There are many issues that face Hewlett-Packard in different segments of the industry in which they participate. In the server and software segments, HP faces stiff competition from rival IBM who is currently leading in this niche of the general industry. HP needs to concern themselves with catching up and surpassing IBM in these two segments if they wish to truly prosper. Their main strategy for doing this must include customer service and not becoming complacent after making large strides. This is a huge segment in their industry and should be heavily considered when HP distributes out money for which segments they want to invest in most. They do not want to let this pass to the wayside because since they are already heavily involved in this industry if they focus more R&D they can easily catch up to IBM and possibly surpass them in next few years. By far HP is a much larger firm and with proper focus they can really boost sales in this segment. In the personal computing segment of the industry HP faces both stiff competition and have a hard time differentiating themselves from lead competitors due to the nature of the business. Personal computers typically use many of the same products (i.e. Windows, AMD/Intel) causing companies to have to differentiate on customer service and image rather than on the specifications of computers. HP must keep themselves aware of any problems with lines of their computers and work quickly to fix the problems. They cannot afford to keep having troubles such as they did with the wireless cards on certain models of their notebooks. Having a problem with a certain product line is not the end of the world, all companies have this problem at some point, but its how the problem is fixed that makes the difference. HP also needs to keep themselves aware of the economy in which they are operating. Right now the economy is at a low point and consumers are having little to no money for buying products that HP offers. That being said HP needs to make sure that they offer low price range products that will enable them to keep bringing in a profit during these slower times. By offering the
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lower priced products they can ensure future business as people will undoubtedly be looking to upgrade to bigger and better things along the line. Gateway is looking at strong gains at this time due to the low price of their eMachines and this should be a focus for HP as well because if they can cut into this niche even if its only for the short run to get past this time of economic turmoil they can easily boost their market share. Those same consumers will also be looking to buy peripherals to use in conjunction with their products. Furthermore being that HP operates across a wide industry of products they need to be aware of not just competitors across the board but also aware of competitors that are specializing in certain products. A company such as IBM that is specializing in software or servers is going to have more capital to put toward a single product line than HP who is spreading capital over a range of different products. That specializing company will also have more time to put research and development of that product line. This is where it becomes important for HP to evaluate all of their product lines and really make the tough decisions of which lines are not worth the money that is invested in them. If they can focus on the strong segments and cut out the poorly performing ones HP will see a huge gain for their company in sales, loyalty, and market share. While HP has issues that it faces it also has many opportunities for expansion in both foreign markets and in its home market. They need to ensure that their product quality is of the highest degree and that their image is of the same quality. Through research and development opportunities they may be able to take the industry by storm as Dell seems to faltering in their day to day operations. It is important to take advantage of the failings of other companies. It may seem cut-throat, but if HP takes advantage of this and properly invests their money they will surely beat out their competitors, even if they specialize in certain segments.

Address: Corporate Office:

Palo Alto, California, United States India Software Operations No. 29, Cunningham Road Bangalore - 560 052. Phone: (080) 2225 1554 Fax: (080) 2220 0196

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Reference:
http://www.linkedin.com/company/hewlett-packard/products?sort=&start=1 http://www.vyoms.com/company-profiles/hp.asp http://en.wikipedia.org/wiki/Hewlett-Packard http://www8.hp.com/us/en/hp-information/about-hp/history/history.html

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