HP Individual Report

7/30/2019 HP Individual Report

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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: Submitted by:

MADAM GAURI MODWEL THOKCHOM RAJESH KUMAR SINGHProf. Economics SECTION M2 ROLL No. : 98


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HEWLETT PACKARD COMPANY ANALYSIS 2013

Macro Economics, SEC: M2 R.No: 98 Page 2

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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HistoryHewlett-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 HPslegacy was born, when Bill and Dave created the first HP productthe 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 wasthought 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 Whitmanis president and CEO. Its mergerwith 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)

Operatingincome

US$ -11.057 billion (2012)

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.
http://en.wikipedia.org/wiki/Mergerhttp://en.wikipedia.org/wiki/Merger


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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 shareworldwide in their industry due mostly to the fact that they are the most diversified firm. Theyare quickly followed by Dell who isnt as diversified, but who base most of their sales oncomputers and like HP hold a relatively lower price with the plan of offering a lower cost for ahigher quality product. Apple Inc. holds the highest price as they are firm believers in providingthe best quality even if it costs them more since they are a fully differentiated firm. Apples newcampaigns against PCs is proving to be working as their market share is rising, but at the end of2007 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 isbasically 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 theirproducts as well as service. Gateway is the lowest on all accounts being based fully oncomputers. They focus on having extremely low prices with their eMachine line, but they arenot 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 companiesjockeying for sales of a wide variety of products and services. The industry is expecting amarket of nearly $17.01 billion dollars in connectors in 2014. Though the market isexperiencing a slight down turn at the present time, the estimated outlook shows a 10-yearcompounded 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 technologyforces, which affect its nature as a hardware market, its connector content, market growth andbusiness attractiveness.

Computers and peripherals have been among the fastest growing markets in theelectronics 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 keyThe 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 canuse with the computer. In many cases picking a computer that is brand specific isnt asimportant as picking a computer based on its specifications in order to provide the best ability forrunning the software that the consumers wish to use. This is a challenging aspect for computermakers as they must ensure that the computers they design are capable of producing the samequality of performance as competitors in order to run the applications that most consumers lookto use. The replacement cycle is also no surprise as a top mention due to the fact that theindustry 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. Consumersconsistently demand more from their computers and applications in daily life, with demanddriving 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 theindustry to be in its adulthood or maturity phase. It is becoming harder for companies to makenew 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 toknow about. Many people think of the computer and peripherals industry as an industry forthings such as desktops, notebooks, mice, and keyboards. However the industry is much largerthan just those things that are typically thought about. The industry also includes products suchas:

Handheld devicesPDAs, 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 enabledcompanies to create peripherals which are usable across the industry in most types of computersystems. .

Competitive forces within the industry are remarkably strong as many companies look tooverpower their competitors. Major competitors in the market include HP and Dell who at thepresent time are conquering much of the industry and also Gateway, Sony, E-Machine andApple. Depending upon the segment, IBM and Sun are competitors also included in thisindustry. Competition is cut throat in the industry as product differentiation is relativelynonexistent 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 ratherweakly differentiated.

Companies who are looking to enter into the industry are typically unable to do so aslarge capital requirements are needed. Companies who wish to compete on a global scale withHewlett-Packard and Dell are going to find that it is impossible to get started and get their nameout. The larger companies have not only the name brand recognition but they can also partake ineconomies of scale purchases as they may be able to buy a million motherboards whereas asmaller company may only be able to buy ten thousand. Companies who are looking to enterinto the peripheral market and compete against companies such as SanDisk on the other handhave 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 beable to use economies of scale as they may be able to purchase a larger quantity of a particularpart for their products as they may not cost as much capital. While it is relatively hard to enterthe market, depending in which segment you plan to partake in, it is easy to remove yourselffrom the industry. Typically competitors are more than willing to buy each other out as that willmean less competition in the industry. HP completing its purchase of competitor Compaq is agood 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 companypursuing 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 IdentificationLargest in IndustryFortune 500 CompanyDiversifiedEconomies of ScaleTechnologyGlobalMarket ShareStrong Imaging & Printing

background

MarketingSelling online/in storeIntegrated Bid Desk

Opportunities

Expansion in Emerging MarketsInnovation/R&DPartnerships (Celebrities, Other

Companies)

Gaining Market ShareIntegrated Bid DeskTechnology is a strong marketGaming industry

Weaknesses

Account ManagementSoftwareComplacencyNo real specialization

Threats

Self DestructionIntense CompetitionPoor EconomySpecialization


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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 of17.12, 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 obtainingthese 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 heavilyinvolved 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 belooking 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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