No Money Without Trust
Hewlett Packard made headlines at the beginning of November when it officially announced that it had split into two separate financial entities: Hewlett Packard Enterprise (which provides data center hardware & services to corporate clientèle) & HP Inc. (which sells personal computers & printers to retail customers). The financial dailies & weeklies sweetly pontificated about how each company had fared on the stock markets & what were the differences in the administrative styles of Meg Whitman & Dion Weisler. It was also emphasised that the news was not quite as explosive as it was being cracked up to be, because HP had started the paperwork for the split back in July.
All very well & good. But what the investor community would really like to know is why & when the split really took place. This question is not going to be resolved with anything short of the cold hard facts, no matter how many references to "branching out" & "evolving" are bandied about in the popular press. Because, if an investment is made in either company before understanding the relationship dynamics between the two HPs & which step or decision made them go their separate ways, it will be practically impossible to make certain the people in charge of shareholder money won't commit the same blunders again.
However, the HP PR department is strangely silent. If the two halves of HP filed for divorce in July, shouldn't they have had ample time to come up with a coherent explanation four months later? Apparently, they need more time. But they had better step up their game because the longer they stick to the silent treatment, the more suspicious their stakeholders (both investors & customers) are going to become.
However, the HP PR department is strangely silent. If the two halves of HP filed for divorce in July, shouldn't they have had ample time to come up with a coherent explanation four months later? Apparently, they need more time. But they had better step up their game because the longer they stick to the silent treatment, the more suspicious their stakeholders (both investors & customers) are going to become.
The Hewlett-Packard Company (January 1, 1939 - November 1, 2015)
William Redington Hewlett & David Packard were two Stanford University electrical engineers who established HP in Packard's garage in Palo Alto (California) with an initial capital investment of US$538.
HP's first high profile customer was Walt Disney Productions, which bought 8 Model 200B oscillators (for US$71.50 each). The company also worked on counter-radar technology & artillery shell fuses during World War II. These enterprises eventually proved profitable enough that HP was able to be incorporated on August 18, 1947 & went public on November 6, 1957.
After its IPO, the small company started gradually expanding its scope & influence. While it achieved a number of milestones, the easiest way to get an understanding of its priorities over the years is to assess its history during its strongest era that unfolded between 1960 & 2000, decade by decade.
HP is accepted as the symbolic founder of Silicon Valley, but it probably never would have gone into semiconductors were it not for its partnership with Japanese companies Sony & Yokogawa Electric to develop high quality consumer electronics during the early 1960s. The experience gathered working in this sector eventually led to HP's entry into the computer market in 1966 when it produced the HP 2100 / HP 1000 series of minicomputers.
It spent the 1970s manufacturing & marketing the HP-35 (handheld scientific electronic calculator), the HP-65 (handheld programmable), the HP-41C (alphanumeric programmable expandable) & the HP-28C (symbolic & graphing calculator). It also produced the first technical desktop computers between 1975 & 1979, but the limitations of the available technology resulted in prohibitively high price tags.
The highlight of the 1980s was the mass production & marketing of HP's signature inkjet & laser printers & scanners designed to be compatible with desktop computers. Not only were the initial prototypes well-received they went on to spawn an entire line of successful multifunction products such as the single-unit printer/scanner/copier/fax machines.
Until the 1990s, HP's computer product line was targeted at businesses, research projects & universities; the 1990s signalled HP's first large-scale foray into the consumer market. That decade also marked a business decision that went on to prove very detrimental to the company's image later on. In 1997, HP sold over US$120 million worth of its printers and computer products to Iran through a European subsidiary and a Dubai-based distributor, despite U.S. export sanctions prohibiting such deals imposed by Bill Clinton's executive orders issued in 1995. The sale triggered an inquiry by the SEC. HP responded that products worth US$120 million were sold in fiscal year 2008 for distribution by way of a company based in the Netherlands, Redington Gulf, and that as these sales took place through a foreign subsidiary, HP didn't violate sanctions.
What Went Wrong?
From 2000 onwards, HP seems to have lost its edge. It stopped producing new technology & it no longer had the drive to open up new markets to American technology. While it still commanded a position of importance on the global stage, it seems to have accepted its position as a corporate behemoth who could afford to rest on its laurels for the next few decades. The loss of the sharp, competitive attitude that was its main feature in the beginning decades might have been the first indication of its impending breakup. However, there are also quite a few misadventures that followed HP's acceptance of a complacent attitude, the main ones being as follows:
2003:-
HP restated its Q1 cash flow from operations, reducing it 18% because of an accounting error. Actual cash flow from operations was US$647 million, not US$791 million as reported earlier. HP shifted US$144 million to net cash used in investing activities.
2006:-
HP Chairwoman Patricia Dunn recruited a team of private investigators to impersonate HP board members & journalists to illegally obtain phone records & other data in an attempt to identify the source of an information leak.
2007:-
HP was found to have incorporated defective NVIDIA chipsets into its computers. On finding out about the problems this step caused to consumers, it tried to take the quick-fix route of offering extensions in warranty periods, instead of issuing a product recall.
2014:-
The United States Securities & Exchange Commission found that HP's Russian subsidiary paid more than US$2 million through agents & shell companies to a Russian government official to retain a multimillion-dollar contract with the federal prosecutor's office. HP's Polish subsidiary provided gifts and cash bribes worth more than US$600,000 to a Polish government official for contracts with the national police agency. In addition, as part of its bid to win a software sale to Mexico's state-owned petroleum company, HP's Mexican subsidiary paid more than US$1 million in inflated commissions to a consultant with close ties to company officials, & money was funnelled to one of those officials. HP agreed to pay US$108 million to settle the SEC charges and a parallel criminal case.
HP is accepted as the symbolic founder of Silicon Valley, but it probably never would have gone into semiconductors were it not for its partnership with Japanese companies Sony & Yokogawa Electric to develop high quality consumer electronics during the early 1960s. The experience gathered working in this sector eventually led to HP's entry into the computer market in 1966 when it produced the HP 2100 / HP 1000 series of minicomputers.
It spent the 1970s manufacturing & marketing the HP-35 (handheld scientific electronic calculator), the HP-65 (handheld programmable), the HP-41C (alphanumeric programmable expandable) & the HP-28C (symbolic & graphing calculator). It also produced the first technical desktop computers between 1975 & 1979, but the limitations of the available technology resulted in prohibitively high price tags.
The highlight of the 1980s was the mass production & marketing of HP's signature inkjet & laser printers & scanners designed to be compatible with desktop computers. Not only were the initial prototypes well-received they went on to spawn an entire line of successful multifunction products such as the single-unit printer/scanner/copier/fax machines.
Until the 1990s, HP's computer product line was targeted at businesses, research projects & universities; the 1990s signalled HP's first large-scale foray into the consumer market. That decade also marked a business decision that went on to prove very detrimental to the company's image later on. In 1997, HP sold over US$120 million worth of its printers and computer products to Iran through a European subsidiary and a Dubai-based distributor, despite U.S. export sanctions prohibiting such deals imposed by Bill Clinton's executive orders issued in 1995. The sale triggered an inquiry by the SEC. HP responded that products worth US$120 million were sold in fiscal year 2008 for distribution by way of a company based in the Netherlands, Redington Gulf, and that as these sales took place through a foreign subsidiary, HP didn't violate sanctions.
What Went Wrong?
From 2000 onwards, HP seems to have lost its edge. It stopped producing new technology & it no longer had the drive to open up new markets to American technology. While it still commanded a position of importance on the global stage, it seems to have accepted its position as a corporate behemoth who could afford to rest on its laurels for the next few decades. The loss of the sharp, competitive attitude that was its main feature in the beginning decades might have been the first indication of its impending breakup. However, there are also quite a few misadventures that followed HP's acceptance of a complacent attitude, the main ones being as follows:
2003:-
HP restated its Q1 cash flow from operations, reducing it 18% because of an accounting error. Actual cash flow from operations was US$647 million, not US$791 million as reported earlier. HP shifted US$144 million to net cash used in investing activities.
2006:-
HP Chairwoman Patricia Dunn recruited a team of private investigators to impersonate HP board members & journalists to illegally obtain phone records & other data in an attempt to identify the source of an information leak.
2007:-
HP was found to have incorporated defective NVIDIA chipsets into its computers. On finding out about the problems this step caused to consumers, it tried to take the quick-fix route of offering extensions in warranty periods, instead of issuing a product recall.
2014:-
The United States Securities & Exchange Commission found that HP's Russian subsidiary paid more than US$2 million through agents & shell companies to a Russian government official to retain a multimillion-dollar contract with the federal prosecutor's office. HP's Polish subsidiary provided gifts and cash bribes worth more than US$600,000 to a Polish government official for contracts with the national police agency. In addition, as part of its bid to win a software sale to Mexico's state-owned petroleum company, HP's Mexican subsidiary paid more than US$1 million in inflated commissions to a consultant with close ties to company officials, & money was funnelled to one of those officials. HP agreed to pay US$108 million to settle the SEC charges and a parallel criminal case.
Grace Under Pressure & Full Disclosure
While the triggers of the HP breakup might never be fully understood by the general public, one thing that is common to all splits is the erosion of trust by the presence of conflict. Whether an enterprise is legal or illegal has absolutely nothing to do with the need for trust between the principle players.
It seems highly likely that some form of disloyalty led to the splintering of the company. No matter; what is done is done. But the important thing is not to allow a repetition of past blunders to mar the future of the new HPs. The PR departments of the two firms should be honest about what really happened. Or else, it is feared, the HP name will continue giving birth to "spin-offs" that will lose a percentage of the original firm's grandeur with every split...until the iconic founder of Silicon Valley is nothing but a myth from the distant past.
While the triggers of the HP breakup might never be fully understood by the general public, one thing that is common to all splits is the erosion of trust by the presence of conflict. Whether an enterprise is legal or illegal has absolutely nothing to do with the need for trust between the principle players.
It seems highly likely that some form of disloyalty led to the splintering of the company. No matter; what is done is done. But the important thing is not to allow a repetition of past blunders to mar the future of the new HPs. The PR departments of the two firms should be honest about what really happened. Or else, it is feared, the HP name will continue giving birth to "spin-offs" that will lose a percentage of the original firm's grandeur with every split...until the iconic founder of Silicon Valley is nothing but a myth from the distant past.
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