Suddenly, Hewlett Packard Is Doing Everything Right

It axed a raft of committees. Now, new products fly to market

It was early last December, and time was running out for Hewlett-Packard Co. In barely a month, it was supposed to introduce a hot new workstation. But market researchers said that at $7,500, the machine was priced $2,500 too high to compete with models from archrivals Sun Microsystems Inc. and Digital Equipment Corp. Stolid, slow-moving HP was delivering a dud.

Or was it? Within a week, HP engineers had hustled to configure a new workstation, priced at $4,990 -- a sly five bucks less than Sun's cheapest. Stolid? Slow-moving? Try swift and surprising: Fifty-three-year-old HP, for much of the 1980s a victim of corporate calcification, suddenly is one of the hottest, most aggressive computer makers around. By slashing bureaucracy and accelerating product development over the past two years, the Palo Alto (Calif.) company is gaining market share and opening potentially vast new computer markets.

And, at a time when most of the world's largest computer makers are watching profits evaporate and stock prices plunge, HP is delighting investors with unexpectedly strong returns. Analysts had anticipated only flat earnings for the first quarter, ended Jan. 31. Instead, profits were the best in five years. A new-product explosion, coupled with cost cuts, sent earnings soaring 49%, to $306 million, on a 13% rise in sales, to $3.9 billion. As a result, the stock shot up 14% on Feb. 19, to 73 1/2, tying a record set in 1987. Analysts raised 1992 earnings estimates by 20%, to around $5 a share. Declares HP Chief Executive John A. Young: "We can get more than our fair share of business."

SELF-RULE. Even competitors are impressed. "They're the toughest company we go after," says Casey Powell, chairman of minicomputer maker Sequent Computer Systems Inc. "Whatever they're doing, it's working pretty damn well."

Why is everything clicking now? Young has eliminated nearly 6,000 jobs, or 6% of the HP work force, since 1989, boosting sales per employee 60%. But even more important, in Oision is streamlined: One group sells minis and workstations directly to big customers, the other sells printers and PCs through dealers. They're largely autonomous, with their own sales forces.

The whole company seems speedier. In less than a week last August, it struck a deal to buy a service business from Mentor Graphics Corp. "I was totally amazed they could move that fast," marvels Jack Woida, a Mentor marketing director.

The fast action has extended to product development as well. In the past year, HP has introduced three new workstations, a raft of minicomputers, two groundbreaking printers, a palmtop PC, a new microprocessor chip, and 60 new test and measurement instruments. Some 60% of HP's orders last year were for products less than two years old, compared with 45% in 1989.

The trend is especially dramatic in computers. Last year, HP replaced its entire line with 21 new models. Vice-President Willem P. Roelandts says these machines got to market in record time because he got fast approval to use technology from HP's workstations. "Before, it would have taken umpteen committees," he says. The result: While the mini market is growing about 3% annually, HP's mini sales are jumping at a 25% annual clip. And sales of its models with industry-standard Unix software are growing 50%, expanding HP's market share by snagging IBM mainframe and DEC VAX customers.

PROFITABLE PRINTERS. Even more impressive, HP has held on to 60% of the desktop laser printer market -- despite competition from 75 other suppliers, including Apple Computer Inc. and just about every Japanese computer maker. And while $800-and-up HP Laserjets continue to dominate desktop publishing, HP's less expensive ink-jet printers are grabbing market share from cheap dot-matrix printers. Ink-jet models sell for less than half the price of Laserjets but are more profitable because HP builds more of their parts.

But HP is proudest of its record in workstations, where it is now gaining back market share lost after the rocky merger with Apollo Computer Inc. in 1989. A new HP line, introduced 10 months ago as the fastest on the market, now accounts for half of its workstation sales. Even though short supplies of a key chip slowed shipments, HP was the only workstation maker besides Silicon Graphics Inc. to increase sales in the fourth quarter. This year, analysts expect it to take share from Sun and DEC. HP no longer suffers from what employees call "terminal niceness." Now it's aggressive. An ad boasting about the speed of the $4,990 workstation challenged: "Can Sun do that? Nope."

HP engineers also are helping the company create entirely new markets. The 95LX palmtop PC, which moved from idea to market in just 15 months, has racked up $50 million in sales since its unveiling last April. On Feb. 26, HP announced plans to build an interactive-television device. Says the vice-president in charge, Robert J. Frankenberg: "Before, this might have been killed in a committee before it even got to me." But now, a new company charter calls for building just such "informationappliances" as well as standard computers (box).

NO MORE EASY FIXES. For all the improvements, Young has plenty to do.HP has just 2% of the worldwide PC market, and its strategy there remains vague. More important, with 19% of the $8.8 billion workstation market, HP is well behind Sun, with 29%. And DEC claims its speedy Alpha computers, due out in late 1992, will blow away HP's Precision Architecture design. Says Hambrecht & Quist Inc. analystRobert G. Herwick: "HP has to make a lot of headway in the next 18 months."

The big cost savings are over, too. HP will have to keep revenues growing rapidly to maintain its earnings momentum. With no sign in sight of a strong economic recovery, that will be a challenge. And new markets, such as palmtops, probably won't pay off much this year.

Finally, there's the big question of who will replace Young, 59, when he retires, perhaps as early as next year. One hopeful is Executive Vice-President Lewis E. Platt, head of minis and workstations. He wins high marks for an aggressive style. But insiders say Executive Vice-President Richard A. Hackborn, head of printers and PCs, has demonstrated more vision. His relentless cost-cutting in manufacturing and distribution has become the model for the new HP. Whoever takes over, it's clear that for the first time in years, HP's CEO will have the wind at his back.

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