Hewlett-Packard Co - Transition To Computer Manufacturing

TRANSITION TO COMPUTER MANUFACTURING

After spending nearly three decades manufacturing various instruments for analysis and measurement, HP diversified into computers by developing the HP 2116A, a machine designed to control HP's test and measurement instruments; although the HP 2116A was not intended for the commercial computer market, it eventually helped to facilitate HP's move in that direction. Even more instrumental in HP's shift to computers was its 1972 launch of the HP 35, the first scientific handheld calculator. The product is viewed by many industry analysts as a major stepping stone in the growth of the personal computing industry because it rendered obsolete the engineer's slide rule. HP also moved into the business computer market—dominated by IBM Corp. and Digital Equipment Corp.—when it introduced the HP 3000 minicomputer. Innovations in employee relations continued throughout the mid-1970s as flexible work hours were offered to employees, and as time clocks were eliminated.

In 1977, John Young took over as president; the following year, he was also named CEO. HP unveiled its first personal computer, the HP-85, in 1980. Sales exceeded $3 billion that year. In 1982, the firm introduced its first desktop mainframe machine, the HP 9000. In 1984, HP launched the ThinkJet printer and its most successful product to date, the LaserJet printer. That year, sales topped $6.5 billion as earnings reached a record $500 million. To handle its growing number of operating groups—each time a group reached 1,500 employees, it was split into two separate groups—HP created four broad sectors to oversee these units.

HP developed a line of computer systems using Reduced-Instruction-Set Computing (RISC), in place of Complex Instruction-Set Computing (CISC), in 1986. The group of machines, dubbed HP Precision Architecture, was able to execute programs two to three times faster than normal by excluding many routine instructions. Though RISC chips were denounced for their inflexibility, other computer firms soon began developing their own versions of the technology. The DeskJet printer, an inkjet printer for the mass market, was launched in 1988. Although HP had succeeded in positioning itself as a leading computer maker by the late 1980s, each of its major computer lines, created for a specific purpose, was incompatible with the others. Recognizing that this strategy had resulted in redundant research and development efforts and limited expansion capabilities for consumers, HP began working to enhance the compatibility levels of its machines. As a result, all computer operations were placed in the same operating sector. Based on revenues of $9.8 billion, HP ranked 49th among Fortune 500 firms in 1988.

HP bought Apollo Computers, an engineering workstations vendor, for $500 million in 1989. The next year, after profits tumbled roughly 11 percent, Packard became more actively involved in managing HP, which laid off 3,000 employees. In 1991, sales reached $14.4 billion, and earnings rebounded to $755 million. HP developed the 95LX, a personal computer weighing just eleven ounces, and laid off another 2,000 employees. Young was replaced by Lewis E. Platt in 1992. Two years later, HP and Intel Corp. agreed to work together to create a computer chip able to run more than one operating system by the end of the decade. HP also moved into the home PC market with the launch of the HP Pavilion.

The mid-1990s were marked by price cuts for Hewlett-Packard as competition in the PC market intensified. In 1995, Hewlett-Packard reduced prices on its commercial PCs by up to 16 percent. The firm also launched its CopyJet color copier and printer, pricing it at roughly one-tenth the price of conventional color copiers. In an effort to enhance its share of the PC market in Europe, HP reduced prices there roughly ten percent in 1996. Two years later, HP introduced the Pavilion home PC line, pricing the base model, the Pavilion 3260, at an unprecedented $800. By then, HP was the second largest computer manufacturer in the world, with annual sales of more than $42 billion. Although Fortune named HP one of the most admired companies in the U.S., profits dipped by six percent, due mainly to increased competition and price slashing in the personal computer market. After deciding to hone its focus to personal computers, printers, workstations, and servers, HP spun off its non-computer related operations as Agilent Technologies in 1999.