Hewlett-Packard Company (HP), is a provider of products, technologies, software, solutions and services to individual consumers, small- and medium-sized businesses (SMBs) and large enterprises, including in the public and education sectors.

CEO Letter:

Dear Fellow Stockholders: If one word can best describe HP’s performance in fiscal 2007, it is growth. For the year, we added more than $12 billion of new revenue, grew non-GAAP operating profit dollars 30 percent¹ and returned more than $12 billion to stockholders through share repurchases and dividends. We grew revenues across all of our business segments and in each of our regions. Overall, it was an impressive performance by HP’s employees and partners around the world.

Many factors contributed to that growth, but three stand out because of the major impact we expect them to have in the years ahead: the explosion of digital information and content; the growing need for technology that enables people to create, store, share and print that content; and the rapidly growing demand for information technology (IT) in emerging markets around the world. The volume of data today is growing faster than our ability to capture and use it. According to Forrester Research, the world’s data doubles approximately every three years , which is expected to lead to a more than sixfold increase in data between 2003 and 2010. Feeding the worldwide demand for information and rich digital content is the enormous expansion of search engines, blogs, social networks, e-mail, text messages and online video and images.

To complicate matters, this content often lacks authentication and proper security, and it is increasingly global and mobile. Potentially hundreds of millions of new users in emerging markets are coming online—from small business owners in China to farmers in Brazil to consumers in Eastern Europe. At the same time, the expectations of consumers have changed. People want instantaneous access to content. They expect this accessibility regardless of what kind of device they are using or where they happen to be. And their tolerance for complexity is low.

Opportunities
Dealing with all this data—and rising consumer expectations— is a huge and disruptive challenge for our customers and their IT environments and a major opportunity for HP. It puts pressure on businesses to rebuild, retool and deploy a flexible infrastructure so they can get the right information to the right people at the right time.

Customers
will need systems, software and services to create, store and analyze content; PCs and handheld devices to access and share it; and monitors, TVs and printers to view and print it. Many companies can do some of these things, but we believe that HP is the only company with the portfolio and partnerships to do them all. It adds up to an enormous addressable market for HP—a $1.2 trillion global market . Today HP has about 9 percent of this market, so we have a lot of room to grow. We are working hard to expand our market coverage and to profitably increase our market share. To capitalize on these opportunities, we continue to align the company around an operating framework with three key elements: targeted growth, efficiency and capital strategy.

Targeted Growth
HP’s businesses are targeting the most promising, high-growth markets and positioning themselves to take advantage of the explosion of digital content. In our Technology Solutions Group, we are helping customers manage and transform their IT environments.

We had a particularly strong performance in blade servers during fiscal 2007. Our innovative c-Class blade systems helped drive year-over-year blade revenue growth of 67 percent, and we increased our industry-leading market share. In our Personal Systems Group, we continue to benefit as demand shifts toward mobility, consumers and emerging markets. For example, our sales of notebook computers increased 47 percent during fiscal 2007. And our PC business in China nearly doubled, making it our third largest market for personal systems.

In our Imaging and Printing Group, we are extending our leadership in our core printing business while also taking advantage of new, high-growth opportunities in supplies, graphic arts and enterprise printing. We are expanding our sales coverage to accelerate growth in the enterprise business, which we expect to be a $121 billion market by 2010. In each of these businesses, we are using our scale to become even more competitive.

We have more than double the scale of each of our printer competitors and all but one of our PC and server competitors. We are leveraging this scale to consolidate share and improve profits while continuing to reinvest to maintain our technology leadership. We expect continued growth in developed countries but much higher growth in what are commonly known as the BRIC countries—Brazil, Russia, India and China—and in other emerging economies.

Our revenue in the BRIC countries grew 33 percent in fiscal 2007 and now represents 8 percent of HP’s total revenue. As we reduce costs, we are shifting our investments to capitalize on these market opportunities. While it is important that we grow, it’s also important that we grow the right way with the right mix.

For example, HP hired 1,000 sales professionals in fiscal 2007 to expand our coverage in key accounts and markets, and the company added more than 1,000 salespeople through acquisitions. We also are investing in higher-margin categories such as software and services. We spent more than $6 billion across our businesses in fiscal 2007 to acquire 10 software, technology and service companies. We expect that each one will add significant capabilities and technology to our portfolio, as well as new opportunities for growth.

Between acquisitions and organic growth, revenue in our software business nearly doubled in fiscal 2007— making HP the sixth largest software company in the world. Software is a critical differentiator for HP—not only in our standalone software business but in each of our businesses as well.

Efficiency
We have made great progress in reducing costs, which allows us to compete more aggressively and win in the market. But we have an opportunity to further improve our efficiency. We look at everything between revenue and non-GAAP operating profit as a cost.

From that perspective, HP had almost $95 billion in costs in fiscal 2007. That is too much. Even with all the work we have done, we must become more efficient, further reduce costs and invest the savings to create more stockholder value. We assess our costs in three areas. The first is corporate overhead, including IT, real estate and other corporate expenses.

We are reducing our IT costs by consolidating and modernizing our data centers and operations. We also are becoming more efficient in our use of real estate, which is a significant expense for a company of HP’s size. During the next two years, we plan to reduce our number of sites worldwide by almost 25 percent. Second are our product costs. HP is the largest customer for most of our suppliers, and we are continually working with them to make sure we get the best terms, including the best price. Third are the costs owned by each of HP’s businesses. The businesses have detailed plans to reduce their costs, and we have launched new efforts to identify more savings.

We continue to align the company around an operating framework with three key elements: targeted growth, efficiency and capital strategy.

Capital Strategy
We align our capital strategy with our operations to maximize stockholder value. The first priority is to continue to invest in our businesses. We do that in two ways. One is to invest to grow, which shows up in research and development, demand generation and mergers and acquisitions. The other is to invest to save.

We have made significant investments in our IT and real estate infrastructure so we can reduce costs in the future. Our second priority is to return cash to stockholders, predominantly with share repurchases and to a lesser extent with dividends. Last year HP returned more than $12 billion to stockholders. We will continue to balance repurchase and dividend levels with other capital allocation priorities.

Global Citizenship
As HP has grown to become one of the world’s largest IT companies, our commitment to global citizenship has remained integral to our business strategy. It is an important part of our heritage and the values engrained in HP by Bill Hewlett and Dave Packard. Today, our citizenship efforts are built on a foundation of strong corporate accountability and governance, a commitment to environmental responsibility and active investment and involvement in the communities in which we do business.

We are focused primarily on three global citizenship priorities: climate and energy, product reuse and recycling, and supply chain responsibility. HP is committed to reducing our own environmental impact as well as that of our customers, partners and suppliers.

We launched our Design for Environment program in 1992, and we have been investing in energy-efficiency programs for more than a decade. Innovations such as our Dynamic Smart Cooling and Thermal Logic technologies offer advanced, energy-efficient solutions for customers. We expect these technologies to contribute to a 60 percent reduction in energy consumption in our new data centers.

We also are expanding our use of renewable energy, including solar power for our San Diego facility and wind power for several of our facilities in Ireland.

We believe we have reached a tipping point where the price and performance of IT are no longer compromised by being green; they are enhanced by it. Our goal is to reduce the combined energy consumption of our operations and products by 20 percent in 2010 compared to 2005 levels. During 2007, we met our goal of recycling 1 billion pounds of electronic products—including 500 million pounds between 2004 and 2007.

We plan to recycle another 1 billion pounds of electronic products and print cartridges by the end of 2010. At the same time, we are working to ensure that our suppliers and vendors meet HP’s high standards for social and environmental responsibility. HP was the first IT company to formally launch a supplier code of conduct.

We continually work with our suppliers and with companies inside and outside the technology industry to raise standards for labor and human rights, health and safety, environmental responsibility and ethics. We do extensive onsite auditing to engage our suppliers, identify performance gaps and help them to build their capabilities to meet our expectations.

We believe that HP has an unparalleled ability to drive simplicity, innovate and influence industry actions in a way that is good for customers, good for business and good for the planet.

We believe that HP has an unparalleled ability to drive simplicity, innovate and influence industry actions in a way that is good for customers, good for business and good for the planet.

Conclusion
We made solid progress in 2007—demonstrating that HP can cut costs and increase revenue at the same time. However, we are not complacent about our success, nor do we underestimate the strength of our competitors.
We see significant opportunities to take advantage of the explosion of digital content and address our $1.2 trillion market opportunity.

We believe that we have a portfolio and a set of capabilities unmatched in the industry. We are investing in the right people and infrastructure, and we are continuing to leverage our scale and reduce our costs to improve our operating performance.

Our goal is simple: to make HP the partner of choice for our customers, the investment of choice for our stockholders and the employer of choice for our employees.

Thank you for your investment in HP.
Sincerely,
Mark V. Hurd
Chairman, Chief Executive Officer and President

Read HP 2007 Annual Report Online

Executive Team:

Mark V. Hurd Chairman, Chief Executive Officer and President
R. Todd Bradley Executive Vice President, Personal Systems Group
Jon E. Flaxman Executive Vice President and Chief Administrative Officer
Michael J. Holston Executive Vice President, General Counsel and Secretary
Vyomesh I. Joshi Executive Vice President, Imaging and Printing Group
Catherine A. Lesjak Executive Vice President and Chief Financial Officer
Ann M. Livermore Executive Vice President, Technology Solutions Group
Randall D. Mott Executive Vice President and Chief Information Officer
Marcela Perez de Alonso Executive Vice President, Human Resources
Shane V. Robison Executive Vice President and Chief Strategy and Technology Officer

Download HP 2007 Annual Report

PDF format, 1.78MB, 180Pages.

Members of the Board:

Lawrence T. Babbio, Jr.
Director  since 2002
Mr. Babbio has served as a Senior Advisor to Warburg Pincus, a private equity firm, since June 2007. Previously, Mr. Babbio served as Vice Chairman and President of Verizon Communications, Inc. (formerly Bell Atlantic Corporation), a telecommunications company, from 2000 until his retirement in April 2007. He was a director of Compaq Computer Corporation from 1995 until HP’s acquisition of Compaq in May 2002.

Sari M. Baldauf
Director since 2006
Ms. Baldauf served as Executive Vice President and General Manager of the Networks business group of Nokia Corporation, a communications company, from July 1998 until February 2005. She previously held various positions at Nokia since 1983. Ms. Baldauf also serves as a director of SanomaWSOY, F-Secure Corporation, VIT Corporation, and CapMan Plc, and a s t he n on-executive c hairman o f t he S avonlinna O pera F estival a nd as a member of the Global Board of the International Youth Foundation.

Richard A. Hackborn
Director since 1992
Mr. Hackborn has served as HP’s Lead Independent Director since September 2006. Previously, Mr. Hackborn served as HP’s Chairman from January 2000 to September 2000. He was HP’s Vice President, Computer Products Organization from 1990 until his retirement in 1993 after a 33-year career with HP.

John H. Hammergren
Director since 2005
Mr. Hammergren has served as Chairman of McKesson Corporation, a healthcare services and information technology company, since July 2002 and as President and Chief Executive Officer of McKesson since April 2001. From July 1999 to April 2001, Mr. Hammergren served as Co-President and Co-Chief Executive Officer of McKesson. Mr. Hammergren is also a director of Nadro, S.A. de C.V. (Mexico) and Verispan LLC.

Mark V. Hurd
Director since 2005
Mr. Hurd has served as Chairman of HP since September 2006 and as Chief Executive Officer, President and a member of the board since April 2005. Prior to that, he served as Chief Executive Officer of NCR Corporation, a technology company, from March 2003 to March 2005 and as President from July 2001 to March 2005. From September 2002 to March 2003, Mr. Hurd was the Chief Operating Officer of NCR, and from July 2000 until March 2003 he was Chief Operating Officer of NCR’s Teradata data-warehousing division.

Joel Z. Hyatt
Director since 2007
Mr. Hyatt has served as the Chief Executive Officer of Current Media, LLC, a cable and satellite television company, since September 2002. From September 1998 to June 2003, Mr. Hyatt was a Lecturer in Entrepreneurship at the Stanford University Graduate School of Business. Previously, Mr. Hyatt was the founder and Chief Executive Officer of Hyatt Legal Plans, Inc., a provider of employer-sponsored group legal plans.

John R. Joyce
Director since 2007
Mr. Joyce has served as a Managing Director at Silver Lake, a private equity firm, since July 2005. Prior to joining Silver Lake, Mr. Joyce spent 30 years with IBM, a global technology firm, serving most recently as Senior Vice President and Group Executive of the IBM Global Services division from May 2004 until July 2005 and Chief Financial Officer of IBM from 1999 until May 2004. Prior to that, Mr. Joyce served in a variety of roles, including President, IBM Asia Pacific, and Vice President and Controller for IBM’s global operations. Mr. Joyce is a member of the Bertelsmann AG Supervisory Board and a director of Gartner, Inc., Avago Technologies Limited and Serena Software, Inc.

Robert L. Ryan
Director since 2004
Mr. Ryan served as Senior Vice President and Chief Financial Officer of Medtronic, Inc., a medical technology company, from 1993 until his retirement in May 2005. He also is a director of UnitedHealth Group Incorporated, General Mills, Inc., The Black and Decker Corporation and Citigroup, Inc.

Lucille S. Salhany
Director since 2002
Ms. Salhany has served as President and Chief Executive Officer of JHMedia, a consulting company, since 1997. Since 2003, she has been a partner and director of Echo Bridge Entertainment, an independent film distribution company. From 1999 to March 2002, she was President and Chief Executive Officer of LifeFX Networks, Inc., which filed for federal bankruptcy protection in May 2002. From 1994 to 1997, Ms. Salhany was the Chief Executive Officer and President of UPN (United Paramount Network), a broadcasting company. From 1993 to 1994, she was Chairman of Fox Broadcasting Company, a national television network, and from 1991 to 1993 she was Chairman of Twentieth Television, a division of Fox Broadcasting Company. Ms. Salhany was a director of Compaq from 1997 until HP’s acquisition of Compaq in May 2002. Ms. Salhany also is a director of Ion Media Networks, Inc.

G. Kennedy Thompson
Director since 2006 Mr.
Thompson has served as Chairman of Wachovia Corporation, a financial services company, since February 2003 and as a director since 1999. He has also served as Chief Executive Officer of Wachovia since 2000 and as President since 1999. Mr. Thompson also is a director of Wachovia Preferred Funding Corp.

Comments (0)

Name

Email

Comment

smaller | bigger

Add Comment