HP Strategic Analysis

Keep Aggressive: Go Horizontally & Vertically

Presented to : Dr. Tamas Koplyay

MGP708QA Strategy Formulation in High-tech and Project Management Setting

Nov. 27, 2008 University du Quebec en Outaouais

Team Members
Arman Matti Florentina Macovei Jian ni Chen Rami Alsaqqa Sahar Kamaly

Agenda

Background Information (HP & IT Industry) Market Dynamics Corporate Profile Strategic Fits Recommendations

Importance of Corporate Strategy

Without Without a strategy the organization is like a ship without a rudder, going around in circles.
Quote Joel Ross and Michael Kami

Strategy is managements game plan to: Attract and please customers Stake out a market position Conduct operations Compete successfully Achieve organizational objectives

HP Background

HP Background
Hewlett-Packard Company (HP) is well known as a technology solutions provider to consumer, businesses and institutions globally. HP was founded in 1939 in a garage building, where two college friends, Bill Hewlett and Dave Packard created a development lab and manufacturing facility for their innovative electronics products. Corporate headquarters is in Palo Alto, California. HP is a global provider of personal systems, imaging and printing products, and technology solutions. The company is the largest player in the inkjet printer and laser printer market. Hewlett-Packard is one of the major companies in the enterprise storage and servers market. The company is also one of market leaders in the global PC market. Hewlett-Packard generates revenues primarily through seven business divisions: personal systems group, imaging and printing group, enterprise storage and HP services , HP financial services , software and corporate investments. The USA is the company's largest geographic market, accounted for 33.4% of the total revenues in fiscal 2007.

Non-US operations accounted for 66.6% of the total segment revenues in the fiscal year 2007.

Market share Hewlett-Packard is the market leader in distributed performance and availability management software market. The company also led the industry in thin client unit shipments with approximately 34% market share. Strong market position in various market segments enhances the brand image of the company and provides economies of scale in procurement.

HP financial positioning Worlds largest IT companies- Revenue totaling $113.1 billion at the end of July 2008 and 325,000 employees Hewlett-Packards long-term debt ratio stood at 0.1 for the fiscal year ended October 2007 compared with IBMs long-term debt ratio of 0.22 for fiscal year ended December 2006. Hewlett-Packard had cash and cash equivalent of $13,293 million compared to IBMs $8,023 million for fiscal year ended December 2007. Strong financial position provides the company the flexibility of expanding its geographical coverage and product portfolio by acquisition.

HP Mission, Vision and Values

Mission: Create, Solve and Vision:
Market Leadership Continuous growth Higher profits
Reach customers

Values:

Trust and respect

Speed and agility Meaningful Innovation Integrity Efficiency

Mission: Create competitive advantage by optimizing availability, performance and operational efficiency , solve their business problems Vision: Hewlett once said that the HP Way was a core ideology . . . [that] includes a deep respect for the individual, a dedication to affordable quality and reliability, a commitment to community responsibility, and a view that the company exists to make technical contributions for the advancement and welfare of humanity. Trust and respect for customers and employees culture of inclusion Speed and agility - resourceful, adaptable and achieve results faster Meaningful Innovation invest in useful and significant technology Integrity open, honest and direct in dealings Achievements, contribution, results through teamwork - provide efficiency to customers Strategy deals with a companys competitive initiatives and business approaches and Business Model -- Concerns more if the revenues and costs flowing from the strategy demonstrate that the business is profitable and viable Before you formulate a strategy the organization need to have a clear Mission, Vision and Values. A mission statement focuses on current business activities -- who we are and what we do Current product and service offerings Customer needs being served Technological and business capabilities

A strategic vision concerns a firms future business path -- where we are going Markets to be pursued Future technology-product-customer focus Kind of company that management is trying to create

Corporate Profile
HP -- The Technology Solutions Provider
HP: founded in 1939, California. IPO : November 1957 Leading global provider Continuous growth Largest global IT company Market Advantage: leaders in some business segments

Leading global provider in computing, imaging solutions and services for business and home services, Market leader in printers and low-end servers, but trails Dell in PCs and IBM in services Growing large size corporation with : more than 700 suppliers, 400 contract manufacturing sites worldwide, 500 partners including leading software pioneers, network service providers, and business, process specialists . Market Advantage leader in providing mission-critical services and support across all operating systems and to IT infrastructure, including storage, system software, and the network. HP is a technology company that operates in more than 170 countries around the world. HP provides infrastructure and business offerings from handheld devices to some of the world's most powerful supercomputer installations (Itanium) Company offer consumers a comprehensive portfolio with a wide range of products and services from digital photography to digital entertainment and from computing to home printing. In 1959 HP becomes a global company by establishes a European marketing organization in Geneva, Switzerland, and a manufacturing plant in Boeblingen, Germany. From this base, HP steadily expands its European operations.

In 1962 HP enter the Fortune 500 US companies at number 460 and continues to climb reaching number 11 in 2004 and 2008 remain at number 14 HP Overall Positioning Number 1 - globally in the inkjet, all-in-one and single-function printers, mono and color laser printers, scanners, print servers and ink and laser supplies Number 1 -globally in desktop PCs and notebooks, Number 2 - globally in Pocket PCs and workstations - The company is the second largest entity in the servers market behind International Business Machines (IBM), with its server range extending from low-end systems to highend systems. Number 1 - globally in blade, x86, Windows, Linux, UNIX and high-end UNIX servers Number 10 - globally and Number 1 in the U.S. in Environment, Social Impact Ratings by The Economist Number 22 - in the Accountability Rating, the first global index that evaluates how well the world's 100 largest companies account for their impact on society and the environment Listed on all four FTSE4Good Index lists U.S., Global, UK and Europe which rate the performance of companies meeting globally recognized corporate responsibility standards Source: IDC Q1 2008 for all categories except large-format printing, print servers and supplies for which source is HP. ** Refers to factory revenue. Source: IDC Q1 2008.

Company profile - Revenues

Revenue Comparison ($ millions)
$140,000 $120,000 $100,000 $80,000 $60,000 $40 000 $40,000 $20,000 $0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

HP IBM DELL

Note: For IBM and DELL, Revenues available only for 3 quarters

1.

HP: a leading global provider of computing and imaging solutions and services -- is focused on making technology and its benefits accessible to all. HP had total revenue from continuing operations of $48.8 billion in its 2000 fiscal year Before the merger with Compaq in 2000, HP focus on computers, Imaging and printing services. Compaq core business was in computer, enterprise technology and solutions. Apparently, HP wanted to expand its business territory to Enterprise after its acquisition with Compaq. Looking at the Revenue graph HP doubled it's enterprise business revenues in 2002, the same year after finishing the marriage with Compaq. Compaq: Founded in 1982, Compaq Computer Corporation (Compaq) and was a leading global provider of enterprise technology and solutions. Compaq designs, develops, manufactures and markets hardware, software, solutions and services, including industry-leading enterprise computing solutions, fault-tolerant businesscritical solutions, communication products, and desktop and portable personal computers that are sold in more than 200 countries. From the graph continuous revenues growth except in 2001 when Compaq was acquired and first year of merger the revenue were not so great also due to crisis in high tech and low demand. Applying different strategies over the years the HP maintained the second place after the IBM up to year 2007 when HP revenues 104,286 millions versus 98,786 millions IBM revenues.

2.

3.

4.

5.

HP 4 Core Business Segments

Technology Solutions Group (TSG) S G SG) Personal Systems Group ( (PSG) Imaging and Printing Group (IPG) HP Financial Services (HPFS)

Business Segment Revenues (2008)

PSG 35% TSG 38%

IPG 25%

HPFS 2%

1. Technology Solutions Group (TSG): represent 38% of the total Revenue subgroups: Enterprise Storage and Servers (ESS) Enterprise I ndustry st andard se rvers, S torage, B systems usiness critical

HP Se rvers ( HPS) with Technology se rvices, Consulting and integration HP software

Outsourcing se rvices,

2. Personal Systems Group (PSG) with 35% of the Total Revenues focusing on Notebook PCs, Desktop PCs, Workstations and Handhelds 3. Imaging and Printing Group (IPG) 25% of t he t otal Revenues - Supplies, C ommercial ha rdware , C onsumer hardware 4. HP Financial Services (HPFS) - 2% of total revenues

HP Products & Services

Services
Technology Consulting & Integration IT management & Outsourcing Software Solutions BTO Software Solutions Supports

Hardware
Server Storage N t k Network

Imaging and Printing Hardware

Printers Digital Presses Scanners Digital Cameras Cartridge & Paper

IPG Solutions
Photo Kiosks Printing-related media Online photo services publishing & graphics printing solutions

IPG PSG

HPFS &
Leasing Financing

Others

HPF S

TSG

PC Related Products
Digital Entertainment Center LCD flat-panel TV DVD writers

Financial management services

Utility programs Asset recovery services

PCs Desktops Laptops Workstations Handhelds

RW drives HD DVD

HP Products & Services

Data extracted from HP Quarter Report 2008 (Q1-Q4) IPG- Imaging and Printing Group PSG Personal System Group HPFS- HP Financial Services TSG - Technology Solutions Group BTO: Business Technology Optimization Hewlett-Packard has high brand equity. The company is one of the leading brands in the technology sector along with Microsoft, IBM and Intel. HewlettPackard figured in The 100 Top Brands 2008 of Business Week magazine.

Data extracted from HP Quarter Report 2008 (Q1-Q4)

HP History Line
1939 HP founded 2000 Agilent divestiture g Changed CEO 2002 HP-Compaq merger Acquired q Indigo 2004 Digital entertainment strategy announced Won Corporate p Innovation Award 2006 Acquired Voodoo PC Acquired q Mercury 2008 Acquired EDS Acquired Lefthand Stated several horizontal cooperation

Opened Indian Revolution imaging & R&D lab printing projection technology released

1999 Agilent spin off

2001 New business unit - HP Services Announced new 64-bit platform

2003 Unveiled Enterprise strategy Initiated Small medium business market Imaging & printing simplify-technology Acquired 5 companies

2005 Changed CEO Acquired 2 companies to expand Imaging & printing China R&D lab established

2007 Expanding R&D center strategy 7 acquisitions completed Advocated Green IT

HP: The technology solutions provider 1938 - Stanford University graduates Bill Hewlett and Dave Packard collaborate on the company's first product, an audio oscillator, in a Palo Alto garage. 1939: Hewlett and Packard formalize their partnership on Jan. 1, 1939, deciding the company's name with a coin toss. 1940: HP moves from the garage behind Hewlett and Packard's house to rented buildings in Palo Alto. The start of World War II brings increased U.S. government orders for electronic instruments. Revenues at year-end total $34,396. 1957: HP goes public on Nov. 6 for $16 per share. 1999: Agilent Technologies - spun off as a new company (a public subsidiary) from the existing HP organization. HP named Carleton (Carly) S. Fiorina as President and CEO The first Windows CE pocket-size PC with a color screen has been introduced. HP began a new brand campaign based on a single concept: invent. (Print and television ads focus on the company's history of invention and innovation.) HP revenue: $42 billion. HP employees: 84,400. 2001 Created a new business unit (HP Services). The new organization includes IT consulting, outsourcing, support, education and solutions deployment.

HP and Intel cooperated and announced a new technology product -- Itanium (the platform for next-generation 64-bit computing) HP and Compaq announced a definitive merger agreement to create an $87 billion global technology leader. HP revenue: 45.2 billion. HP employees: 88,000. 2002: HP opened the research Labs in India; Completed the acquisition of Indigo Acquisition impacts: The acquisition extends HP's printing systems portfolio beyond inkjet and LaserJet technology into a third high-speed color print technology - offset-quality digital press solutions and services for short-run, personalized business communications.) results: HP announced its largest consumer product rollout

HP and Compaq officially merged Merged Impacts: lead global provider of products, technologies, solutions and services to consumers and businesses. Business scope span IT infrastructure, personal computing and access devices, global services and imaging and printing

HP introduced its first tablet PC (collaborated with Compaq) HP revenue: 56.6 billion. HP employees: 141,000. 2003: The value proposition changed to high tech, low cost and the best total customer experience. Adapted Enterprise strategy to help businesses manage change and get more from their IT investments. (New services, software, solutions and enterprise reference architecture designed to help companies measure, architect and manage change by creating a tighter linkage between business and IT.) Simplified technology radically to help people "enjoy more" Impact: extends HP's leadership in imaging, printing and home computing into the fast-growing digital photography and entertainment markets)

Initiated the Smart Office that tailored support services to serve small and mediumsized business (SMB) market. 2005: Changed CEO: Mark Hurd was named the CEO and president of HP. HP acquired online photo service company Snapfish.

HP announced a breakthrough printing platform (fastest home and office photo printing devices) HP shipped the millionth x86 processor-based ProLiant server (, which was initiated the first shipment in 1993) HP acquired Scitex Vision and expanded its printing market to industrial professional field. (Scitex Vision was a market leader in wide and super-wide format printers for signage and industrial applications such as billboards, banners, street advertising and packaging.) HP establishes a research lab in China.( for more lab history, please refer to HISTORY AND MILESTONES SUPPLEMENTAL section hereinafter) Created the Halo Collaboration Studio, which enabled remote teams to work together in a setting so life-like that participants feel as though they are in the same room. 2006: CEO Mark Hurd was named as chairman of the board. HP acquired VoodooPC, a high-end gaming PC provider HP acquires Mercury Interactive Corp., (A software company, its core product was WinRunner), which was the subsidiary of HP for business technology optimization (BTO). Fortune 500 Ranking: 14 HP revenue: $91.6 billion. HP employees: 156,000. 2008: HP's 2008 Fortune 500 ranking: No. 14 HP's revenue for the four fiscal quarters ended July 31, 2008: $113.1 billion. HP Announces Strategy to Bridge Gap Between Content Creation and Publishing (Jan) Cooperated horizontally: ProCurve Networking by HP Strengthens Network Security Through Integration with Microsoft NAP Technology (Apr) MySpace (Microsoft) and HP to Unlock Online Content Through the Power Of Print HP Acquired LeftHand Networks to Extend Leadership in Storage and Virtualization Solutions (Oct) Announced a new relationship with U.K.- based Timsons Ltd., the worlds largest book press manufacturer, to develop a digital inkjet system for short- and medium-run book production. (Oct)

HP and Foxconn Expand PC Business in Russia (May) Completed $13.9 billion acquisition of EDS, and started integration sequence with HP Service. (EDS was a $22 billion-plus global technology services, outsourcing and consulting leader that pioneered the IT outsourcing industry.)

Signed a definitive agreement to acquire Colubris Networks Inc.,to Expand HP ProCurves Wireless Technology (Aug) (http://www.hp.com/hpinfo/newsroom/press/2008/080811b.html?jumpid=reg_R1002_ USEN) Colubris is a Waltham, Mass.-based, privately-held global provider of intelligent wireless networks for enterprises and service providers. (Aug) HP plans to integrate Colubris extensive product line into its ProCurve Networking product portfolio. This will expand HP ProCurves reach into vertical markets such as hospitality, transportation, healthcare, manufacturing, service provider and education. It will simplify operations and achieve lower total cost of ownership for their storage-area network (SAN) environments

HP Unveils Innovative Large-format Printing Solutions (Oct) HP Makes Big Investment in Consumer Tech Support - the aim of which is to enable people to get faster, more effective help with the HP technology products in their homes. (Feb) HP Introduces Servers, storage arrays, Customer Management Portfolio to Reduce Costs for Midsize Businesses Offered New Web Solutions, business/ marketing solutions and workshops (HP and SCORE Host Nationwide Wellness Workshops) for small organizations to reduce costs, : For enterprises: Announced a software and hardware storage virtualization solution that enabled enterprises to improve productivity. (Nov)

HP 4 Major Strategies
($ millions)
$140,000
$118,364 $104,286

$120,000 $ , $100,000 $80,000

$56,588 $73,061 $79,905 $91,658

$86,696

$60,000 $40,000 $20,000

$2,678 $3,104 $39,330 $42,371

$48,870

$45,226

7-company Acquisitions R&D center expanding

$3,561

$0 -$20,000

$624

-$923

$2,539

$3,497

$2,398

$6,198

$7,264

$8,329

Revenues

Net Incomes

Strategy 1: Corporation Restructuring Strategy HP spun off Agilent and focused on PC, imaging and printing market.

Strategy 2: Merger Strategy (Horizontal) Case: HP Compaq merger in 2002.

Strategy 3: Acquisition Strategy ( Horizontal ) Case: Snapfish and other 11 imaging and printing companies acquisitions (from 2002 to 2008).

Strategy 4: Acquisition Strategy (Horizontal and Vertical) Case: EDS acquisition (2008). Strategy - Focusing in things that HP can make a difference 2005- Organization starts focusing in their core fundamentals. To be competitive, being able to go to the marketplace and compete, and simplifying their organization, HP will get their cost structure inline by focusing in leveraging the core assets. HP is in the server business, storage business and in the management software business markets that have large growth potential. To be a leader in those markets HP has to take care of customers services. Average per year HP ships 50 million printers, over 30 million PCs and a couple of million industry standard servers.

Customer Centric -. HP focused on getting a price-competitive product, created value added for the customer, making sure that product is delivered in time and offers good quality. The HP goes to market by looking at the customer on a "segment of one" basis understanding their service history, requirements for present and future giving organization an opportunity to cross-sell and the ability to understand what their total satisfaction with HP. To improve customer experience, HP focuses on the importance of understanding the entire experience and relationship that a customer has. On the Enterprise Storage area HP continue to push on lowering the cost of computing, leverage industry standards and continue to drive down the cost of computing, In the years to come HP is focusing in integration of management software, storage management software, security and the ability to drive and manage that enterprise remotely Printing Imaging Business: For HP the printing-imaging business is a pretty strong business that organization can compete well in the market place. Organization will invest in R&D to increase the number of printed pages. HP Services- organization is going to be very focused on the services business in IT technology that will increase HP products sale. The services business is an important business to HP since many organizations today start to look at outsourcing their business. HP is a strong partnering company and we'll partner for some of those solutions to make sure they support their customer.

Revenue Trend per Segment

Revenue Trend of HP Business Segments
$50 000 $50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $ $20,000 $15,000 $10,000 $5,000 $0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

TSG PSG IPG

HPFS

TSG The r evenues o f TSG (Technology S olution Group) i ncreased al most 9 t imes from 1998 to 2008 . A veragely, i t had 28 % r evenue i ncrease per y ear. Its increasing rate was rank number 1 amongst 4 business segments in HP. The TSG Revenues started to soar since 2001, after HP merged Compaq, from 2001 to 2002, the increasing rate of PSG group soared to 169% on a yearly basis. The nex t hi ghest i ncreasing rate occu rred i n 2002 to 2003 fiscal y ear, which r eached 38% . After 2003 , the i ncreasing sp eed slow dow n t o 8% (maximum 12%/ year). In 2008, after HP acquired EDS, the TSG revenues started to climb again, the increasing rate reached 19%/year. Both the merger and acquisition strategies proved that HP made the right choice.

PSG Besides TSG, P SG i s the se cond co ntributor t o t he t otal r evenues in HP. Averagely, PSG has 11% increasing rate/ year from 1998 to 2008. from 2001 to 2002 t wo fiscal y ears, a fter H P m erged C ompaq, i ts revenues continued dropping for 2 years, which can be understandable, because during that time, the IT industry is going through an economy winter. Most of the companies who sold PCs had t heir revenues dropped dur ing t hat period. B ut t he bou nced bac k numbers from 2002 to 2008 fiscal year illustrate that for a long run, this marriage is worthy.

IPG Among three business segments, IPG is the group that keeps the lowest growth since 2001. A lthough H P ac quired Indigo(2002), sn apfish ( 2005) a nd o ther 10 companies from 2002 to 2008 , and it launched over hundreds o f products, it seems that i t w as lack of some l ucky from t he i maging and p rinting market. Maybe this group expand too fast horizontally, it need some vertical strategies, we will verify our assumption in the following models and SPACE analysis.

 Background Information (HP & IT Industry) Market Dynamics Corporate Profile Strategic St t i Fits Fit Recommendations

Positioning Map PCs

Quality High

Price Low g High

Low

Competitors (PC) HP competes directly with Dell, Toshiba and Acer in terms of price and quality. Other competitors such Lenovo and specially Apple have their niche, as it can be seen from the diagram their prices are higher. HP (market share 18.9%) Dell (market share 16.4%) Acer ( market share 9.5%) Lenovo (market share 7.9%) Toshiba (market share 4.5%) Apple (market share 3.5%)

Reference: http://www.businessweek.com/investor/content/oct2008/pi2008106_ 002546.htm

Positioning Map Imaging & printing

Quality

Price Low g High

Low

Key takeaways from this slide: Prices of al l m ajor competitors ar e a l ittle h igher than H P, however in t erms o f quality HP is third among competitors. They are still considered strong in imaging and printing business and they offer all in one products.

Reference http://www.businessweek.com/investor/content/oct2008/pi2008106_002546.htm http://www.hp.com/sbso/expert/competitive.html

BCG Advantage Matrix

Many

Differentiation

Few Small Large

Size of Advantage Economy of Scale

Key takeaways: HP has economy o f s cale and a re i n sa me quadrant as D ell and IBM ( Sun i s behind these three companies). Lenovo and Apple on other hand are different as they are in niche markets focusing more on differentiation than economy of scale.

ETOP
Factor Regulatory egu ato y Competitive External Alliance Internal Alliance Entrepreneurial Info Highway Financial Social Impact 6 6 7 3 3 8 7 7 Importance 3 8 7 5 5 8 6 5 Opportunity 18 8 48 49 15 15 64 42 35 Threat

Key takeaways: The four important opportunity factors in ETOP for HP are competitiveness, external alliance, info highway, and financial. In terms of competitiveness, t here ar e many c ompetitors i n the m arket and i t would hav e si gnificant i mpact on H P. They ar e st rong a mong co mpetitors i n many segments of their business. They are leaders in PC market (19% market share) and al so co mpete i n p rinters and se rvers. I t is important f or t hem to maintain this competitiveness and try to distinguish themselves from others. In terms of external alliance, it is important to have strong alliance with suppliers, distributors, etc and the impact on HP business is high as well. In terms of Info Highway, the internal and external communication flow is important to H P. They hav e su pplier r elationship, st rong l ogistics and internal systems that focus on economy of scale. They need to maintain that to be leaders in IT market. In terms o f financials, t hey a re strong as well. T he ac quisitions of o ther companies have helped t hem, and they need t o m ake sm art a cquisitions to continue their financial stability. --------------------------------------------------------

Extra Information: Regulatory Competitive Holds strong market position, one of the leading IT companies (PC, printers, etc). Intense competition. External Alliance Strong, long-term, proven. Internal Alliance alliance between the segments, 4 groups (package selling) Entrepreneurial mature company, less entrepreneurial Info H ighway Internet ( internal and ex ternal communication, su ppliers and logistics, financials) Financial HP has strong financials in recent years. It has reduced it is long term debt from $4,494 million in 2003 to $4,997 million in 2007. Social Social responsibilities (internal and external), being fit with environment.

Product Life Cycle Marketing/Strategy

Effectiveness (externat focus) Market Position
ESS HP Services HP Financial & Software

IPG

PSG

Efficiency (Internal focus) Operations

Product Differentiation Market Pull Product development (customers)

Market Development Market Push Focus Customers, Competitors

Market Maintenance and defense Market Expansion

Market Checkmate

Cost Leadership (Customers, Competitors, Suppliers)

Strategies/Marketing
Product / service emphasis Product / Production based

Focus on Efficiency
Locked in Production / service emphasis Production based

Hp i s a technology co mpany that i s competing in a mainly i n the mature market. Their products in t he TS G\ HPS a nd I PG s egments, mostly hav e sh ort l ife cycles, and always evolve. for HP to keep up with the innovations, they acquire companies to lower risk compared to developing new products, to have a faster way to enter and compete in the current market, and to have a quicker means to new capabilities As well t hey i nvest i n their R&D global l abs to realize new cu tting ed ge innovations.

(If half of HPs printing revenues were in the consumer market that would put 45% of HPs revenues in the co nsumer se gment.) And w here IBM now makes m ore t han half of its revenue from software and services, HP makes 80% of its revenues selling hardware and (printing) supplies. TSG: Server market facts: HP grew blade revenue 59.2%, year over year, gaining 6.2 points of revenue market share while IBM lost 7.6 points of revenue share to fall to 24.8%, more than 28 points behind HP. HP is the number 1 su pplier of Itanium based systems based on w orldwide unit volume and worldwide factory revenue. (ESS - HP growth was based only on the Compaq merger and other acquisitions in 2005)

IPG: In laser printers, HP holds a 55% worldwide market share as of the first quarter of 2007, acco rding t o research f irm I DC, f ar surpassing t he 10% share o f secondranked Samsung. In inkjet machines, too, HP's share is 45%, compared with second-place Canon (CAJ), which holds a 26% share.

PSG (personal systems group) : Hewlett-Packard remained the t op se ller o f P Cs i n t he w orldwide m arket, sh ipping almost 14.8 million PCs and grabbing 18.4 percent of the worldwide market. Overall, HP saw a 15.1 percent year-on-year growth in worldwide PC shipments. According to Gartner HP remains the largest seller of PCs worldwide, although Dell is tops in the U.S. and Acer is gaining ground.

HPS: With i ts acquisition of EDS in 2008 HP st rategy is t o grow i ts on dem andinfrastructure (outsourcing)

HP S ervices - This segment was slowly growing due to the Compaq merger and other acquisitions such as Intria, Extrem logic, Triation, Synstar, and others in 2006 and 2007. HPs Services market ( 62% cu stomer su pport, 20% co nsulting a nd sy stems integration, 18% managed services) is continuing to grow; customer support revenue is up 9%, consulting and integration up 8%, and managed services up 50%.

Comments: HP 4 segments were staidly growing by mostly acquisition : In the TSG, PSG the biggest acquisition was the Compaq . During t2004 ,The PSG and I PG so me or ganic growth w as achieved. 2 006 and 2007. Actually, r evenues decline i n 2004, t he onl y y ear where no acq uisitions related to this segment w ere made.

Signs of Maturity: Cost leadership: have economy of scale, where it was able to lower its prices (by bringing uni t c ost dow n), and hav e hi gh v olumes. S ince 2005 , H P has demonstrated its ability to improve profitability by focusing on costs.

It has currently 4 main business segments (Horizontal integration), and throughout t he y ears from 2001 t ill now i t acq uired l ots of companies i n t he various segments. It strategy is to buy competitors and expand its market share way. (it buy market space). They are focused on being more efficient (cutting cost more then competitors). Knocking competition down (Compaq, EDS) They are no longer compete with smaller companies in the market, and compete in the global market as well side by side with IBM. They want t o l ead a complete service so lutions to their mid and big si ze companies. They adopting the One-Stop Shops: In other words, HP thinks want to ov ercome i ts o f se parating out sourcing nee ds and sp reading them acr oss vendors. HP seeks to be the first one-stop shop for outsourcing. They have a st able growth, in a sh ake out market (buy smaller companies), and in a Push market as they are dealing with Early to late majority (depends on segment).

Product Life Cycle Competitions

No Competition

Increasing Stable

Increasing unstable

Equilibrium stable

Decreasing unstable

Market Share Importance Basis of Competitive Strength

Core Competencies

Core Capabilities Client base stable Maximum Scope Scale Synergy Sales Client base unstable Decreasing State High Barriers

Client Relations

Client base unstable

Competitor Pressure
Low asset base Speed Span Structure Sales Low Barriers

Economy of S

HP was viewed as an innovative technology (core competency) information technology company doing business in over 170 countries worldwide. HP comes second to IBM as largest computer company in the world. HP now is trying to move to be more efficient, and competitive:

In Services: Providing i ts se rvices through Data ce nters centralized del ivery w ith su bstantial hardware co mponents ( Blade se rvers). This i s to replace co mpanies I T su pport s taff which are required to maintain local servers (old) . HP has lots of storage and ne twork expertise w hich is more adv antage ov er I BM t hat hand t his over t o someone el se t o manage i t. B y buy ing E DS i s trying t o compete w ith I BM G lobal services. ( biggest competitor) Others: A ccenture LLP , CapGemini/ Ernst & Y oung an d PricewaterhouseCoopers LLP.

Imaging and Printing systems: The markets for printer hardware and i ts supplies are highly competitive, especially the pricing and i nnovations. K ey co mpetitors in this segment i nclude Xerox C orporation, Lexmark International Group Inc., S eiko E pson C orporation, S ony Corporation o f America (Sony) and Canon USA inc. The segment has been a strong profit area for HP, representing about 27% of fiscal 2007 revenue but 41% of earnings from operations. Printers and imaging solutions are another prime area for HP, where it competes against the likes of Canon, Xerox, and Lexmark). The segment has been a strong profit area for HP, representing about 27% of fiscal 2007 revenue but 41% of earnings from operations.

In personal computers: The co mpany i s a top c ompetitor i n se veral key I T markets. It hol ds a l eading market share o f abou t 18 .9% It co mpetes w ith rivals Dell(16.4% second-quarter 2008 m arket share), Acer (9.5%), Lenovo (7.9%), Toshiba (4.5%), and Apple(3.5%) in the PC arena.

ESG: EMC Corporation in storage space. In an overall server market worth about $54.4 billion in 2007, HP is a close second to rival IBM. W ith about a 28.3% market share of worldwide server factory revenue for 2007 (Dell, Sun Microsystems). Market leader IBM had 31.9% share in 2007, and Dell (11.3%) and Sun Microsystems (10.8%) vied for third place. HP is well positioned to gain share in the future because it is prominent in the large and fast-growing "volume server" market, whereas IBM has strengths in higher-end markets that might see less rapid growth. In Finance: largest competitor is again IBM Global Financing. Offers leasing, financing, utility programs and asse t r ecovery se rvices, financial asse t m anagement se rvices for l arge global and Enterprise customers. It also provides specialized financial services to small and offers leasing, financing, utility programs and asset recovery services, financial asset management services for large global and enterprise customers. It also provides specialized financial se rvices to s mall and medium si zed busi nesses, a nd educa tional and governmental entities medium sized businesses, and educational and governmental entities. Strategy to obtain bigger market share and growth: HP will become stronger competitor by the partnership and alliance at the end of 2006 with Microsoft for a three-year joint marketing alliance, in creating solutions portfolio which are focused on the area of messaging & unified communications, collaboration & C ontent M anagement, busi ness intelligence. S oftware and Hardware will be pushed globally by both their adjacent partners. Another par tnership i s between H P, M S, and Yahoo i n cl oud computing: The idea is that large-scale computing tasks, can be handled as efficiently, if not more so in the cloud meaning by thousands of Internet-connected servers stationed in dat a ce nters ar ound the w orld. I nstead o f s pending truckloads o f cash for servers and the space t o house t hem and the personnel to run and maintain them, why not lease the capacity you need from providers in the cloud who can give you what need, add or subtract more quickly based on your needs HPs Prith Banerjee, head of HP Labs said that HP believes that the marketplace is entering an era called Everything as a Service.

Product Life Cycle & Financial

Effectiveness (externat focus) Market Position

Revenues ROE Cash Flow ROA

Net Profit

Lines of Credit

Growth Funding

Cash Flow

Financial Reserves

Capital Structure

Reinvestment of Cash Flow

Investment Increase

Since Apr. 1, 2005, has demonstrated its ability to improve profitability by focusing on costs. Fo r i nstance, H P's return on e quity w ent from abou t 6 .4% i n fiscal 2005 (October), to about 19.0% in fiscal 2007. The company is among the largest IT companies, with fiscal 2007 r evenues of $104 billion t hat w e est imate will g row or ganically an d by acq uisition t o $11 9 bi llion for fiscal 2008. Hp is following a st rategy of repurchases. They announced the will be sp ending up to $8 billion on a major stock re-purchasing campaign; the company has about 2.5 billion shares outstanding. This in attempt to control fluctuations in its share price. Paying Dividends to it stakeholders. Their stock price is relatively stable.

Notes: Cash f low: How much cash the company is generating from its operation. It is calculated from the net profit and from the cash inflows from the balance sheet. When acco unt receivable decr ease t his will g enerated cash to t he co mpany, account receivable is getting better. can be helpful in financing its capital expenditures. ROA: Efficiency of assets and how much revenue they are generating ROE: Return on the shareholder equity. The higher it is the more likely dividends the shareholders will get. Net Profit or Loss Margin HPs revenues are divided between the consumer and business markets.

Product Life Cycle

Intro Growth Maturity
Cash Flow Profit Investment

Decline

Sales

# of Competitors Product Barriers to entry Barriers to exit Price elasticity FC/ VC ratio Experience Curve Effect Economy of scale

Low Low High (patents) Low Inelastic Low Large Few

Increasing Increasing (product Variant)

Decreasing (tech. Diffusion) Increasing More elastic Increasing

Decreasing (shakeout) High (mkt segment) Increasing (capital needs) High (invested Cap.) Segment inelasticity only High Decreasing High

Low (mkt exit) Decreasing (mkt exit) High(high capital, low margins) Decreasing (Cap. Assets erosion) Very elastic Decreasing Few High

Very High
Increasing (capital intensity)

This is a copy from Mr. Tom Koplyay and David Goldsimith slide (July 1998) The t ext in Red g ive a q uick glance a t w here H P and i ts S egments are on the Product Li fe C ycle cu rve. This would hi ghlight where t hey ar e i s reflected i n P rice elasticity, Experience, Economy of Scale, Barriers to Entry and Exit, Competition.

Porters 5 Forces
NEW Entrants

Suppliers

Competitors

Buyers

Substitutes

Competitive rivalry

Technology sol ution groups ( TSG): servers, so ftware, s torage and services Medium HP (133,000 more servers than Dell, 410,000 more than IBM) Intense competition (IBM, Sun Microsystems, Dell and Fujitsu Siemens Computers) This market currently has medium internal rivalry, but as other companies enter, the rivalry will increase. Hp has an advantage in this market In 2008 HP shipped over 133,000 more servers than #2 Dell. Moreover, H P sh ipped over 410, 000 more se rvers than #3 I BM and 7 .4 times as many as #4 Sun. The server m arket co ntinues to show promising signs; t he co mpetitive rivalry in the server market has become intense. Some of the competitors in this market are; HP, IBM, Sun Microsystems, Dell and Fuj itsu Siemens Computers

Personal system group (PSG): PCs and Workstations High Competition Major Competitors ( Dell, IBM, Apple, etc) Brand Image low switching costs Market p rice for p cs has gone dow n due t o high co mpetition i n t he market causing the p rofit m argin t o decr ease. C ompetitors su ch as del l and I BM continue to i nvest i n R&D. M ajor co mpetitors in t he market hav e a w ell established brand image in the market.

Imaging and printing group (IPG): medium/low HPs key strengths (Product depth, market reach, post-sales support) Competitors: Xerox, Heidelberger, Konica, Lexmark, Pitney Bowes, SHARP High barrier to entry (R&D) Economies of scale

One o f H Ps major co mpetitor i n the i maging and pr inting i s Canon. However, hp seems to have an advantage over Canon in this market. HP has three key strengths in the imaging and printing market: a) b) c) product depth, reach in the market, Post-sales support.

Some of HPs competition (e.g. Canon) is pricing their products at prices lower than HPs. Thus, HP should take its competitors seriously. Some of hps competitors like Canon have a st rong presence in the home segment because of its entry-level printers that are priced low. Canon is focusing on B&C Class cities where purchases are happening. In 2005, hp toped imaging and printing market I the Middle East HP. (24% growth in Commercial Imaging & Printing Group, 13% growth for IPG total hardware w hereas Supplies Hardware growth was 28% for t he Middle East region). Overall sa les i n the I maging and P rinting Group a t H P M iddle E ast delivered year-on-year growth of 19%.

Some o f the o ther co mpetitors i n the p rinting and i maging market a re; Xerox, Heidelberger, Konica, Lexmark, Pitney Bowes, SHARP

Threat of Substitutes

Technology solution groups (TSG): servers, software, storage and services Low Few substitutes Web hosting ( low cost, tech support, low switching costs, easy to manage)

The w eb host ing busi ness might be t he bi ggest t hreat o f su bstitute f or t he server products.. The adv antages of w eb host ing i nclude l ow co st, t ech-support, easy t o manage and low switching costs. In addition, the advanced personal computer might be another biggest threat to the server product

Personal System Group (PSG): medium Substitutes that exist in the market are portable computer devices, advanced phones such as iphones, blackberries, i-touch from apple, etc

Imaging and Printing Group (IPG): Medium Some of the available substitutes that exist are Computers, portable computer devices, Phones (such as iphones, blackberry phones) Data s torage dev ices (data and i mage storage devices such as flash memory sticks, CDs, external hard drives, etc)

Threat of New Entrants

Technology solution groups (TSG): servers, software, storage and services Low High Capital requirements for R&D, techniques, distribution channels IBM ($171 million in system and technology for server product in 2005

The threat of entrants for the server market is low because of the enormous costs on t he R &D, relevant su pport pr oducts and services, m anufacturing and the distribution. For example, IBM spent nearly $171 million in system and technology for server product in 2005, (Annual Report,2006) and IBM spent over $1 billion in the Linux operating system in 2001.(Shankland, 2002) This was only the barrier on the cost, there were other barriers like technique, distribution channels etc.

Personal System Group (PSG): medium High Economies of Scale Profit Margin on PCs decreasing

Extremely high start up costs well established market copy rights for patents and technologies

The personal computer market is a very well established market with very large companies in it, such as Dell, HP Compaq, and Lenovo. Two o f the m ost i mportant barriers t o entry, w hich ar e ha rd t o ob tain, i nto the personal system market are; (1) First, the start up of such a company requires an enormous capital investment. The large economies of scale and price war in the personal computer market require new f irms to h old a m assive i nvestment t o keep i tself a ctive i n comparing price and technology strength with others.

(2) The giant firms in the P C m arket ar e al l hav ing i ts own co pyright for p atents and technologies which made new entries difficult to follow. The big names either protect them from others or asked the new entries to pay a copy right f ee t o do so . I f t hey don't want t o buy it f rom the exiting f irms, the company needs to invest in Research and Development to develop their own. However, such technology advance requires not only a great capital investment but also a long time period

Imaging and Printing Group (IPG): Medium Capital requirements can be high for small companies High revenues (a single point of share can drive over $50M in revenues). High Brand Image Switching Costs

The barriers to entry for manufacturing are significant. Developing printing engines is an ex pensive pr oposition w hich r equires si gnificant technology ex pertise, intellectual property rights, and huge investments in capital and personnel resources. The po tential rewards can be massive. In an industry where a si ngle point o f share can dr ive ov er $50M i n r evenues, ca pturing sh are and b uilding a n installed base is critical. Barriers to en try for w ell est ablished co mpany ar e not t hat hi gh as they hav e t he capabilities to make massive R&D and technological investments

Power of Buyers

Technology sol ution groups ( TSG): servers, so ftware, s torage and services Medium/high Low switching costs There are many product choices for the buyers, e.g. IBM, HP, Dell etc.

The power of buyers for the server products is somewhat high because the buyer does not co ncentrate to the firm and the switching co sts for the buyers are low. There are many product choices for the buyers, e.g. IBM, HP, Dell etc.

Personal System Group (PSG): medium Buyer volume: Few buyers purchasing large number of computers (i.e.: educational institutions, government department and government owned companies, etc ) Low Switching costs: in many cases where buyers are indifferent between hps products and other pcs offered by competitors price sensitivity: some what high

Power of Suppliers:

Technology sol ution groups ( TSG): servers, so ftware, s torage and services Medium Concentration of suppliers: (low) Differentiation of inputs: (medium)

Intel and A MD, as the t wo b iggest p rocessor pr oviders (monopolies) i n t he w orld, have very strong power on the chip supplying. Although the power of suppliers might be decreased resulting from the competition between these two companies, the wide range of customers and high costs on switching cause the buyers lack of power to bargain with these two giants. However, the power of suppliers for other low technical required material and parts was much lower than the core hardware providers.

Personal System Group (PSG): Low/medium The bar gaining pow er o f su ppliers i n t he pc industry i s low as hp and most o f i ts competitors are vertically integrated. (talk about dells vertical integration)

Conclusion
Although the capital requirements to enter the high-tech market is high, hp must pay close attention to its competitors in the market. Hp has a st rong c ompetitive adv antage i n the i maging and p rinting market as the company invests heavily on R&D which is considered to be one of the most important barriers to entry into this market. Hp also has a competitive advantage in the personal systems market as it has a very well established brand image Hp should pay close attention to some of its competitors in the imaging and printing market. Some of those competitors are; Xerox, Konica, Lexmark, Pitney Bowes, SHARP Hp should continue to compete and innovate especially in the personal systems and the imaging and printing market.

Strategic Map Industry

High

$104.8B Diversification

HP

$98B

IBM

DELL 61.3B Sun $13.9B Xerox $15.9B Lenovo $14.6B High

PSG

Low Low

Heidelberger $3.7B

Competitive Capability Notes: TSG

IPG

Diversification: All the companies (include IBM) show in this chart do not have the power to compete HP in terms of high product/ business diversification. HP is indeed a giant that it is the leader in three major industry sectors (Personal system, imaging and printing and technology solutions.)

In H P, Imaging and P rinting G roup (IPG) is a uni que business segment. T o those I T companies illustrate on this chart, t he i maging a nd pr inting busi ness group cr eated an unbeatable co ndition t hat o ther I T co mpanies could not i mitate i ts st rategy i n a sh ort time. The difference between IBM and HP is that HP needs to find an efficient way to boost both the t echnologies and co nsulting se rvices by sh orten i ts internal ex periencing curves. The relative strategies will be explain in the recommendation section.

Competitive Capability: In TSG, since HP is a new born baby in this field, the capability is weaker than IBM, but stronger than DELL and Sun Microsystem.

Before IBM sold its PSG, HP, IBM and DELL have similar business structures. Now HP just faces only one major competitors left in personal PC market ---- DELL. Because the product quality, s tability, se rvices offering an d co mpany di versification o f H P ar e stronger t han D ELL, which w eakened D ELLs competitive ca pability i n bot h the enterprise market and personal PC market. Since the products from Sun are running under a unique operating system, which means, the pr oducts o f S un a re no t as popul ar t han t hose o f DELL o r H P, an d the co mpany scale resulted in the inferior market condition. Lenovo i s a st rong co mpetitor t o H P i n P C m arket, but since t heir stream m arket o f Lenovo is still in China, it will not be a threat to HP so far. In I maging and pr inting i ndustry, H P ha s two m ajor competitors -- Xerox and Heidelberger. Since both of these companies just focus on one type of customer, HPs broad-bound cl ientele strategy i s st ill w orking w ell w ithout an ov erall ch allenge. B ut i t needs to face and beat its competitors in every market segment. In general, HP has very sound competitive capability and the highest diversification in IT, imaging and p rinting and consulting markets. From this map, the strategy of HP should increase its competitive capability to move to the right hand side. In order to reach that point, HP could increase its capability by using the following strategies: - Acquire some excellent companies - enhance deliverables and efficiencies of each functional department - Rely on the new findings from HP R&D centers.

Background information: HP: 4 busi ness segments (personal co mputing, i maging and printing, t echnology solution, and financing) IBM: similar business segments as those of HP, and it does not have imaging and printing business Dell: i t j ust focusing on PCs, Lap tops and Workstations. E ven t hough i ts revenues from ent erprise busi ness segments is 2/3 o f that of H Ps TSG, i t ca n not ca tch up with the development speed of HP because HP products have higher quality, stability and capability. Sun M icrosystem: S un has similar b usiness diversification al st ructure as those i n DELL (PCs and Laptops excluded) Xerox: focus on business printing hardware and software, a strong competitor to HP in imaging and printing business section only.

Heidelberger: This company focus on publishing business. Revenues in 2007 (data extracted from 2007 annual reports) TSG: - HP: $37,740 million - IBM: $95,443 million - Dell: $24,137 million

PSG: - HP PCs: $36,409.00 million - Dell: $36,996.00 million

IPG: - HP: $28,465.00 million - Xerox: $17,228.00 million

 Background Information (HP & IT Industry) Market Dynamics Corporate Profile Strategic St t i Fits Fit Recommendations

DuPont Formula
Cost of good sold $104,286M + + + Operating Expenses $16,222M Interest Expenses $289M Tax Expenses $1,913M Sales/ Net Revenues $104,286M _ Total Cost of Expenses $ $97,022M Net Income $7,264M Sales/ Net Revenues Net Profit Margin $6.965%

Cash & Cash Equivalent $11,293M + + + Accounts Receivable $13,420M Inventories $8,033M Market Securities $2,659M

ROA 8.19% Current Assets $47,402M

Sales/ Net Revenues $104,286M Total Assets $94,804M X Total Assets Turnover $110.002%

Property, plant & Equipment $7,798M + Intangible Assets $33,499M

+ Non-Current Assets $41,297M Data extracted from HP Annual Report 2007

Company Financial Profile

Profitability
12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2.50

Liquidity
11.2%
2.00 1.50 1.00

10.5% 7.0% 4.8% 3.3%

2.21

1.00

1.14

1.01

1.28

0.50 0.00

HP

IBM

Dell

Industry S&P 500

in $ thousand $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0

HP

IBM

Dell

Industry

S&P 500

Leverage
700% % 600% 500% 400% 300% 200% 100% 0%

Activity
$859

635%

$606

$693

323% 130% 197.5% 30.3%

$256

$293

HP

IBM

Dell

Industry S&P 500

HP

IBM

Dell

Industry

S&P 500

Profitability: The profitability can be measured by either rate of Net profit margin or ROE. As to the net profit margin rate, HP doubled the rate of industry, higher than Dell, but lower than IBM and S &P 500 i ndex. It demonstrate that, in IT industry, HP has strong capability to earn profits.

Liquidity / quick ratio = (Current Assets Inventory)/Current Liabilities Ideally the acid test ratio will be 1:1, but 0.8:1 is acceptable, with less the business could suffer financial difficulties. Generally, according to the data showed on the histogram, the liquidity capability of IT industry and S&P 500 index are higher than HP. In this case, HP has the ideal quick ratio/ liquidity capability. Comparing to IBM and Dell, IT i ndustry and S &P 50 0, H P has l owest l iquidity ca pability, but i t i s s till acce ptable to investors. Because HP used huge amount of cash to acquire 7 companies in 2007 and was preparing cash flows to acquire EDS in 2008, these business activities would eliminate the amount of current assets, which would eventually lower the rate of liquidity.

Leverage ratio = Total debt / Total Equity The solvency of HP is very strong. HP has lower capacity than that in IT industry, but much better than that of S&P500, IBM and Dell. It turned out that HP has a very healthy financial leverage capability

Activity we used revenues generated by each employee to measure HP activity, which equals Total revenues divided by Number of employees The result from the histogram illustrate that HP was above the average (industry level) and I BM, but l ower t han S &P500 and D ell. S ince Dell i s a y oung an d fast growth company, y oung co mpanies usually hav e hi gher rate o f act ivity t han t he m ature companies, which could keep them surviving, growing, and expanding their market shares. B ut as to t he giants like H P and I BM, t hese mature co mpanies would f ocus more on maintaining their profits, and this can explain why HP and IBM have higher rate of profitability than Dell. Overall, H Ps financial c ondition i s healthy; the co mpany balanced t he degr ee of debt and equity in a reasonable condition. And more importantly, to stockholders or investors, this company can offer you higher profits than immature companies.

Company Financial Profile

Weak Strong

Profitability
Very Low Average Very High

Liquidity
Very tight About right Too much slack

Leverage
Too Much Debt Balanced Too Much Equity

Activity
Too Slow About Right Too Fast

I for Industry, S for S&P500

Over al l, H P financial c apability i s above av erage. Though i ts l iquidity and leverage capacities are lower than industry level, the ratios are still acceptable in terms of the requirements in traditional economy point of view. Comparing to its major competitor -- IBM, the leverage capability and e mployee productivity were m uch better t han those o f IBM. T hough t he p rofitability and liquidity is lower than those of IBM, they were still acceptable. Since HP acquired 7 co mpanies in 2007, which w ill influenced t he degree of Current Assets and Liability am ounts (cash and ca sh e quivalents decreased, i nventory i ncreased) , as well as the decrease of profitability accordingly (operation costs increased at the beginning when new companies joined HP).

Management Effectiveness
HP
90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00%
8.19% 8.65% 10.69% 4.07% 16.46% 17.61% 6.34% 27.06% 18.85% 8.27% 36.59% 78.90%

IBM

Dell

Industry

ROA

ROI

ROE

Although al l H P r atios here w ere abov e I T i ndustry l evels, i t st ill r anked t he l owest comparing to the other two competitors (DELL and IBM). At a glance, it seems that HP should find so me w ays to i mprove t hese numbers t o p rove i ts m anagement effectiveness. But when we associate the profitability and leverage factors we mentioned in the previous slide, we will find that HP had a sound management effectiveness. Why? Following are the reasons: The reason of HP had such a low ROE is that HP had a l arge base of equity than those of IBM and D ELL. These t wo co mpanies sa crificed the bal ance o f debt and e quity to acquire higher ROEs, which would lead to unstable financial conditions. It means their investment activities relied on bi gger proportion of debts or loans than on shareholders equities. The investors should consider such unbalanced financial condition before they decide to buy these stocks as one of their long term investments. Therefore, we do not think the low ROE is a big problem to the smart investors, as long as they can see the business potential, healthy financial status of a company. Although low ROE is not a big issue to HP, HP could increase their ROE to attract more investors by increasing their net profits or reducing the level of costs. (rate of costs: IBM HP is 91.2%, IBM is 85.33%, Dell is 93.74%. )

Source of Data: ROA & R OE: results o f H P, IBM and D ell w ere ca lculated ac cording t o the dat a provided from companies annual reports, Industry data from Reuters. ROI: all data are from Reuters

Porters Value Chain

Primary Activities
Purchased Supplies & Inbound Logistics

Operations

Distribution & Outbound Logistics

Sales & Marketing

Service

Profit Margin

Product R&D, Technology, Systems Development Human Resources Management General Administration

Support Activities

The primary value chain activities:

Inbound Logistics: the receiving and w arehousing of raw materials and their distribution to manufacturing as they are required. HP has the largest supply chain Hps provider base reduced by 70% 90% of direct purchases were concentrated to top 36 suppliers High co llaboration w ith su ppliers to ach ieve co st e ffectiveness and e fficiency i n outbound logistics Operations: t he pr ocesses of transforming i nputs into finished p roducts and services. What hp produces What is hps input transformation process Improvements of operations are done through the use to tools and techniques that allow hp to become more efficient and effective. Some of these are; Six Sigma, lean manufacturing, Theory of Constraints

Outsourcing (another way to achieve cost advantage ) Chairman of the Board and Chief Executive Officer of Hewlett-Packard announced st in D ecember 1 2004 (http://workingsmarter.typepad.com/my_weblog/2004/12/effectiveness_a.html) t hat H-P has had a discipline of outsourcing its manufacturing for 30 years. Now we apply t hat di scipline t o every par t o f our busi ness." H P recognizes that onl y by being m oir efficient a nd m ore e ffective hp c an co mpete i n the m arket (an organizations policy that is considered to be one of the most important drivers of uniqueness/differentiation) Hp outsources m ost of i ts manufacturing t o co ntract producers The co ntract manufacturer buy s the ca se for the monitor from an injection m older, w hich acquires the material used to make the case from a plastics compounder (Geon is an example), which in turn buys the material for the compound from a resin maker.

Outbound Logistics: The warehousing and distribution of finished goods. Spends 2 billion a year on outbound logistics Annually, HP ships roughly 25 million PCs, 43 million printers, 2.5 million handhelds, two million servers, and more than one million disk arrays. Hewlett-Packard Company has the ninth-largest non-military supply ch ain in the world. We ship everything from inkjet cartridges to super computers, says Robert Gifford, vice president, worldwide logistics for the company. " The improvement of their outbound logistics comes as a response to the increasing pressure on hp for fast delivery of their pcs and other final products. Hps distribution centers geographic locations (leads to cost advantage) are selected according to customers needs and in a manner to ensure high efficiency in delivery and co st-effectiveness in their delivery operations. Therefore improving their profitability and increasing the shareholders value (one of the 10 drivers that leads to improvements of value chain activities) Improved customers service ( differentiation due to linkage between outbound logistics and services ) Offering cu stomers (retailers) and di rect cu stomers a num ber o f t ransit-time options enabled hp to managed logistics costs and maintain the customer experience (cost advantage due to

Simplifying the supply chain Marketing & Sales: the identification of customer needs and the generation of sales.

Marketing Environmental practices; Hp has announced ha t it i ntends to cu t dow n i ts carbon di oxide em issions from both HP-Owned and leased facilities by 15% by 2010. (An environmental practice that is used for marketing which reflects the organizational policy that is considered to be a driver of uniqueness/differentiation)

Sales Effective I dentification of cust omers needs lead hp to launch energy efficient products to respond to growing demand for energy efficient products. Theses products range from house appliances to commercial products. The introduction of this type of products lead to an increase the level of sales for hp products Hps out sourcing pr oducts that r anges from application outsourcing, business process outsourcing, infrastructure outsourcing etc) has lead to an increase in this segment o f p roducts b y 27% i n t he se cond quarter i f 2005. The o utsourcing products se gment w as identified a s the fastest growing se gment i n hp. http://www.hp.com/hpinfo/newsroom/press/2005/050629a.html Service: the support of customers after the products and services are sold to them. See outbound logistics for service improvements Online support centers Technical support centers Warranties Business support centers HPs Business-to-business solutions allowing b usiness customers (retailers and wholesalers to better manage their purchases, offers them more flexibility and cost and time savings features.

These primary activities are supported by:

The infrastructure of the firm: organizational structure, control systems, company culture, etc. Highly decentralized company High degree of autonomy being given to individual departments to make their own purchasing decisions and other types of decisions. Human r esource m anagement: e mployee r ecruiting, hi ring, training, dev elopment, an d compensation. Management Style Open-door management policy and MBWA (management by walking around) MBWA manager walking around and chatting with employees to better understand work issues and assess employees performance and work challenges. Lack of management perks Profit results are shared with employees Beer parties for employees

Selection and Placement No placement tests Selection is based on persons fit with the organizations culture

Appraisal Employees are allowed to set personal objectives provided they are compatible with the organizations objectives. Employees will be evaluated according to the extent they m eet their ow n per sonal w ork ob jectives. O bjectives need a su pervisory approval. This helps to create constructive individual behaviours and initiatives and help improve creativity and communications. Appraisals done at the group levels to avoid individual conflicts

Rewards Generous salaries and benefits Transparent salary administration system Egalitarian reward system (Equal rewards) Layoffs are avoided to increase employees loyalty and trust

Training and development One for all, All for one Technology development: technologies to support value-creating activities. Research hps research and development (research labs) Procurement: purchasing inputs such as materials, supplies, and equipment. HP's procurement budget is $67 billion annually Decentralized pr ocurements - Individual business groups within HP m anage t heir own direct materials procurement for spend that is unique to their business. $14.9B for i maging an d pr inting, $11. 5B for personal sy stems and over $10B annually f or technology so lutions. C entral pr ocurement m anages $15 .4 bi llion o f direct sp end across the oper ating units, $13 .2 billion in indirect sp end, and $1.4 billion in logistics procurement.

In the past decade, HP has implemented a number of processes and programs to better manage spend. This includes; Consolidating and outsourcing transactional processing, Building tactical purchasing centers, and creating a distributed workforce of experts for strategic procurement and shared services. The results they hav e ach ieved through these various initiatives have created a "self-funding" investment model that drives accountability and team member to think about actual, bankable cost reduction rather than just negotiated savings.

Porter Value Chain Conclusion:

Hps innovative appr oach i n i mproving the quality and e ffectiveness of i ts primary activities is an important contributing factor to Hps success in the market. Hp realizes that only through innovation and cr eativity it can remain competitive in the market. This is shown in its improved inbound and outbound logistics sales and marketing and after sale services provided to its customers

Company Capability profile

Competitive factors
1. Product Strength, Quality, Uniqueness 2.Customer Loyalty & Satisfaction 3.Market Share 4.Low Selling & Distribution Costs 5.Use of Experience Curve for Pricing 6.Use of Life Cycle of Products 7 Investment in R&D 7.Investment 8.High Barrier to Entry in Competitive Markets 9.Advantage Taken of Market Growth Potential 10.Supplier Strength & Material Availability 11.Customer Concentration 0% 25% 50% 75% 100% Weak Neutral Strong

Key takeaways from Competitive factors: In terms of competitive factors, HP has high quality product and uniqueness. HP has a strong market position in most of its product segments. The company has a leading position in market position in PC (19% market share) followed by Dell (16.4%). HP is also second largest entity in servers market behind IBM. It also is one of the leaders in printers. HP is flat in R&D spending. R&D as a percentage of revenue has declined over the last three years (2005 to 2007 from 4% to 3.5%) comparing to IBM (6.1% to 6.7%). Also, in terms of suppliers strength, there are some monopoly suppliers such as Intel who can control the prices.

Company Capability profile

Technical factors
1.Technical and Manufacturing Skills 2.Resource and Personnel Utilization 3.Level of Technology Used in Products 4.Strength of Patents and Processes 5.Product Effectiveness & Delivery Schedules 6.Value Added to Product 7 Intensity of Labor to Produce Product 7.Intensity 8.Economies of Scale 9.Newness of Plant and Equipment 10.Application of Computer Technology 11.Level of Coordination and Integration 0% 25% 50% 75% 100% Weak Neutral Strong

Key takeaways from Technical factors: It seems that HP is strong in terms of technical factors. Main strengths are economy of s cales and level o f coordination and i ntegration. The co mpany i s mature an d strives towards cost l eadership and v olume pr oduction. A lso, H P ar e st rong i n integration and coordination since the company has acquired many companies and were successful in integrating them with HP (one good example is Compaq).

Company Capability profile

Managerial factors
1.Corporate Image, Social Responsibility 2.Use of Strategic Plans & Analysis 3.Environmental Assessment & Forecasting 4.Speed of Response to Changing Conditions 5.Flexibility of Organizational Structure 6.Management Communication & Control 7 Entrepreneurial Orientation 7.Entrepreneurial 8.Ability to Attractive & Retain Creative People 9.Ability to Meet Changing Technology 10.Ability to Handle Inflation 11.Aggressiveness in Meeting Competition 0% 25% 50% 75% 100% Weak Neutral Strong

Key takeaways from Managerial factors: Strong i n co rporate i mage and so cial r esponsibility su ch as Recycling i ssue: H P achieves its goal of recycling one billion pounds of electronic, which now operate in more t han 40 co untries. I n terms o f busi ness, i t pr ovides customers m ore ene rgyefficient solutions for their data centers. Also HP managers are strong in strategy planning and anal ysis, that is seen by the growth and competition with other major competitors. In terms of employees (attracting and retaining), HP employees move through four to six f unctional areas in the course of their carriers. This cr eates broad knowledge of the co mpany and fosters the kind o f teamwork other co mpanies covet. When i t comes time to promote, managers don't look who is next down the carrier line, they look for the best people. HP i n t erms o f en trepreneurial, they ar e not as strong si nce they ar e a mature company.

Company Capability profile

Financial factors
1. Access to Capital when required 2 Degree of Capacity Utilization 2. 3. Ease of exit from the market 4. Profitability, return on investment 5. Liquidity, available internal funds 6. Degree of Leverage, financial stability 7. Ability to compete on prices 8. Cap investment, capacity to meet demand 9. Stability of costs 10. Ability to sustain effort in cyclic demand 11. Price elasticity of demand 0% 25% 50% 75% 100% Weak Neutral Strong

Key takeaways from Financial factors: In terms of profitability they are strong, HP is second to IBM. The are also strong in cap investment. They have made many acquisitions such Compaq and EDS. Exist from the market is weak since they are a mature company.

Organizational life cycle

Size of Com mpany
Initiation entrepreneurial Formalization Bureaucratic Expansion Divisional Structure Coordination Product Group Participation Matrix structure

Small
D i Dominant t St Style l Structure Environment ROI Mkt Strength typical financial problem Conceptual/ C t l/ Directive Informal Unstable/Simple Very High Very high Capitalization Analytical/ A l ti l/ Behavioural Segmented Stable/ Complex High High Cash flow

Age of company
Directive/ Di ti / Analytical Horizontal Stable/ Simple Medium/Low Medium/ Low Leverage/ Margins Analytical/ A l ti l/ Conceptual Multi-tiered Stable/Complex Medium Medium Low net earnings/ capitalization

mature
Conceptual/ C t l/ Behavioural Multiple unit Complex High High Cost control

Key takeaways from this slide:

Economy of scale Cost leader/strong market position Robust Financials (reduced long term debt) Multiple units and products Matrix structure (Most companies tend to recruit, train and promote people within functional corridors. But HewlettPackard (HP) breaks the walls, creating a carrier network that begins with the recruitment of diverse people in terms of their skills and personality and then promotes horizontally, as well as vertically throughout the company) HP faces i ntense competition from co mpetitors i n many di fferent m arket segments that co uld a ffect their revenue. The c ompany has become a market leader in PC in third and fourth quarter of 2006, with Michael Dell coming back as CEO, Dell is likely to make a push for market leadership.

 Background Information (HP & IT Industry) Market Dynamics Corporate Profile Strategic St t i Fits Fit Recommendations

SWOT Analysis
Big market share Economy of Scale

Horizontal H i t l integration i t ti

Strong Financial fundamentals Cost effective operations Brand recognition Diversification of product

Market expansion Green IT One-stop solutions Fast to markets Partnership Services Offshore operations Lack of elasticity

O T

Restructuring Lack of Focus Maturity within segment (PC) Acquisitions Vs innovation Internal communication, and Performance Flat R&D spending

Economy instability Intense competition Monopoly of suppliers/ customers Decrease in Segment Margins

Strength: HP have big market share Economy of Scale Horizontal integration and Strategy Eliminating of the competitor Financial fundamentals are strong: capital structure, liquidity, operation and profitability. Cost effective offshore operations. Segmentation which help them diversify the risks. Brand recognition

Weaknesses: Restructuring: Layoffs ev ery t ime H P acquire bi g co mpanies and i ts negative i mpact on Employees moral and a nxiety ( uncertainty, l oyalty, bu rned out ) although Return on employees goes up! Customers fears from potential decline in level of quality and services. Integration of new acquisitions may take longer, cost more, and be less effective than planned.

No focus beca use o f the di fferent se gments which m ake t he management and planning difficult. Maturity w ithin a busi ness segment (printing), s low dow n i n i nnovation w hich might translate to less profits. Acquisitions may become substitutes for innovation. Internal C ommunication ( Diversified firms like H P w hich has 4 se gments must process more information of greater diversity which HP lacked sometimes, Scope created by di versification m ay ca use managers t o rely t oo m uch on financial rather than strategic controls to evaluate business units performances) Flat R&D spending compared to competition

Opportunities: Expand i n em erging markets t hat w ill g ive H P a l arger m arket sh are (Different countries are at different stages of economic and technological development, and their consumers have different needs at different times. A company facing tough competition, thin profit margins, and slow sales growth at home may get a f resh start in another country where demand for its product is just beginning to grow) Green computing to be fit with the environment (Data Centers that are focused on l everaging hi gh-density co oling, pow er-reduction desi gn s trategies for customers with reliable, scalable solutions) Outsourcing and v irtualization to HP (help clients to better contribute in this means) Complete solutions: one stop solutions Reducing time to markets (be first in market to introduce new innovative products Servers, printers, services, virtualization) Partnership with big market players (Microsoft, Intel and yahoo) Services when m argins sl ow dow n t o keep cu stomer sa tisfaction and l oyalty. Outsourcing to H P (added V alue t o c ustomers, as customer a re sw itching the risk to HP and getting services on demand) Offshore operations: HP labs in global setting help understand the market dynamics, cl ient needs. R &D G lobalization ( HP l abs work w ith H P's business divisions and cu stomers to a nticipate future t rends and c reate i nnovations that help create next-generation solutions. Focus on creating new technologies for addressing t he I T need s of new cu stomers i n r apidly g rowing g lobal markets where t here a re di stinct t echnological, so cial and eco nomic ch aracteristics. B y understanding t his co ntext deepl y, H P Labs ai ms t o cr eate new and relevant technologies. ) Not enough elasticity in high end products (servers and storage), as if market are slow t hey ca nnot b ring t he p rice dow n ( will not h ave bi g co mpetition HP monopoly in this segment)

Threats: Economy dow n t urn: the r ecession and i ts i mpact on the w hole m arket (The Asia/Pacific P C m arket was impacted by a sl owdown i n C hina, P C g rowth i n Latin America was slow relative to historical levels). Last acquisition investment impact that might have on the financial situation. Intense co mpetition w ith bi g pl ayers in t he di fferent segments ( IBM, D ell, S un, Xerox ) Competitors Vertical integration with distributors and suppliers (monopoly) Decrease in Segment Margins (printers\ hand held devices\ PC)

How Strength can be an opportunity? Or How Strength can translate to threats? Or How Weaknesses can be opportunity or a threat? Having Big market share, economy of scale can be an opportunity to expand in the market, and have a stronger position within competitors With H orizontal i ntegration i s an oppo rtunity for ex pansion by ac quiring m ore companies or competitors. The risk in this that they will miss on investing more in innovations opportunities. Diversification i n t heir di fferent segments give H P an oppor tunity t o be bet ter then competition to provide clients with one s top solution, but in the same token can be a poi nt o f w eakness in se nse that there l ack of i nternal co mmunication and synergy between the business segments. Flat R & D i s a w eakness that w ill pr esent esp ecially with t heir i ntense competition with IBM, Dell, Cannon, IBM Global services Lack of Focu s as they hav e t he di fferent busi ness segments, a gain ca n be an opportunity as they have t he advantage of pr oviding t he one-stop solutions to their customers Brand Recognition is a strength that can be an opportunity, as they have good chance to partner with big players in the market (ex: Microsoft, Intel, Yahoo), but the t hreat he re i s competition ca n hav e a bet ter oppor tunity o f i ntegration w ith suppliers, distributors. Cost effective operations give them leverage to run off shore operations (HP labs) and provide their services globally. Maturity within a segment even though it is a strength as it give them economy of scale and big market share within the segment (IPG and PSG) it is a w eakness in terms that dont have big room to g row, they have to sustain their position in the market for these segments. This would represent a risk or threat with the intense competition as they might come with new innovative, cu tting edge technologies, as well these se gments might at this point have stable or decrease in the segments margins.

Growth Vector
Present Products
Market Penetration

Improved Products
Product variant, imitation

New Products

New Strategies

Product line extension

Market Options s

Existing Market

Imaging and Printing Storage & Servers PCs

Aggressive promotion

Services, Financing, Entertainment Digital Multimedia

Market segmentation

Intensify R&D
Vertical diversification

Server/ Storage for

Expanding Market M k t New Market

Brick countries- Brazil,

Russia Market development

Medium Business

Outsourcing Product differentiation Cloud computing p g testing g

Market extension Conglomerate diversification

Global market

Medical equipment
applications

Existing Strategies

Mobile IP networks

Product Alternatives

A sn apshot o f w here t he co mpany i s and w here i t i s going. It reviews the di fferent product al ternatives available t o a co mpany in r elation t o i ts market op tions. Horizontal move : more difficult because of usage of more resources; Vertical move: less risky; strategies can be improved on upperside and new strategies have to be redesigned i f unde rneath. The l onger, t he m ore co mbination o f ar rows, the more risky it is. Major and secondary markets. 3G: a third generation n etwork standard w hich makes i t pos sible for more e fficient delivery of w ireless data se rvices including i nternet acce ss and t wo way em ails. Applications include videoconferencing and mobile electronic commerce.

Directional Policy Matrix

100%
Diversification Market Segmentation g

PSG

Market Leadership; Innovation

Com mpany Capability

IPG
Phased withdrawal Merger

PSG

TSG

IPG

Maintain position, market penetration

Expansion; Product differentiation

TSG

Divestment

Imitation; Phased withdrawal

Cash Generation

0% 0%
Previous market Existing market

Market Potential

100%

The graph illustrates the same trend from these 3 business groups: (1) All groups are moving towards to the same direction --- the market leadership. (2) They all need to improve their company capabilities. (3) All groups especially IPG and PSG groups need to keep finding new ways of market potentials to improve their leadership in the industry. TSG (Previous position): The co mpany ca pability w as not hi gh, but H P did foresee t hat technology, so ftware, consulting and IT so lutions will hav e at tractive m arket po tential, w hich ev entually resulted i n t he H P-Compaq m erger and E DS a cquisition. A fter merged C ompaq, the revenues of TSG increased about 160%, and a fter acquired EDS, the increasing rate is bigger than that before acquisition. TSG (existing position): TSG sh ould co llaborate seamlessness with E DS t o i ncrease i ts efficiency. I n addi tion, HP needs to enhance the R &D centers function in o rder to switch academic/experimental findings to business u tility, so t hat i t co uld i ncrease the competitive capabilities as we mentioned in strategic map slide.

PSG (Previous position): But HP had stronger capabilities than its competitors in some areas such as its technology, sa les ch annel, se rvices, so lutions, quality and b rand r ecognition, w hich make H P ca n occu py a i deal per centage o f market sh ares in this personal sy stem segment. PSG (existing position): After H P m erged C ompaq, i ts company ca pability i ncreased. N ow t he company had many di rect co mpetitors ( Dell, Lenov o, Fuj ishu, Toshiba, A cer e tc), so t hat t he m arket potential was not in a v ery attractive condition since the profit margin became very lean to manufacturers, but as t o the nu mbers o f P C customers is i ncreasing (which m eans the PSG market is expanding), which might offset the negative impact and might even increase the market potential rate instead. The main strategy to PSG group is to improve the company capability. On one hand, this group should keep focusing on products qualities, innovation, and m arketing strategies; on the other hand, it should lower costs to enlarge its profits by using vertical integration strategies.

IPG (Previous position): IPG had the si milar si tuations as PSG, t he market pot ential w as a l ittle bi t l ower t han PSG. HP had many competitors from different level and business segments. IPG (existing position): The horizontal acquisition strategies (from 2002 to 2008) enhanced the companys entire capability. Although the marketing potential is shrinking, plus more and more substitute products introduced to the market (as we mentioned in porter 5 forces model), the horizontal acquisitions could offset some of the negative impacts and keep HPs market potential moving to a favourable direction. In order to beat its strong competitors like Xerox, Canon and Heidelberger, IPG group need to keep its eyes on the market potentials (main strategy for IPG), which means, it could keep i ts horizontal i ntegration s trategy t o keep ex ploring new m arkets or create innovative pr oducts/ se rvices to t heir cl ients. I n addi tion, t o l ower co sts and t o c reate more environmental friendly/green products are the ways to improve its market share. In order to reach this goal, IPG also could employ the same strategies (vertical integration) as those suggested to PSG.

SPACE TSG Environmental Stability

Technological changes Rate of inflation Demand variability Barriers to entry into market Competitive pressure/rivalry Price elasticity of demand Pressure from substitute products Many High g Large 0 1 2 3 4 5 6 Few 0 1 2 3 4 5 6 Low 0 1 2 3 4 5 6 Small 0 1 2 3 4 5 6 Narrow 0 1 2 3 4 5 6 Many 0 1 2 3 4 5 6 Low 0 1 2 3 4 5 6 Low

Price range of competing products Wide Few High

Elastic 0 1 2 3 4 5 6 Inelastic High

Average = 3.69 Result = - 2.31

SPACE TSG Financial Strength

ROI (Return on investment) Leverage Liquidity Capital required vs available Cash flow Ease of exit from market Risk involved in business Inventory turnover
Low unbalanced unbalanced High Low Difficult Much Slow

0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 balanced 0 1 2 3 4 5 6 Solid 0 1 2 3 4 5 6 Low 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 Easy 0 1 2 3 4 5 6 Little 0 1 2 3 4 5 6 Fast 0 1 2 3 4 5 6 High

Economies of scale & experience Low Average = 3.95

SPACE TSG Industry Strength

Growth potential Profit potential Financial stability Technological Know-how Resource utilization Capital intensity Ease of entry into market Productivity, capacity utilization Other: manufacturers bargaining power Low Low Low Simple Insufficient Low Easy Low Low

0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 Complex 0 1 2 3 4 5 6 Efficient 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 Difficult 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 High

Average = 5.22

SPACE TSG Competitive Advantage

Market Share Product quality Product life cycle Product replacement cycle Customer loyalty Competition capacity utilization Technological know-how Vertical integration Other: speed of new product introductions Small Inferior Late Variable Low Low Low Low Slow

0 1 2 3 4 5 6 Large 0 1 2 3 4 5 6 Superior 0 1 2 3 4 5 6 Early 0 1 2 3 4 5 6 Fixed 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 Fast

Average = 4.33 Result = - 1.67

SPACE Analysis
Status Quo

Financial Strength
6 5

Concentric Diversification C Concentration t ti

Conglomerate Diversification

PSG

3 2 1 0

Diversification

TSG

Competitive Advantage
-6 -5 -4 -3 -2 -1

Vertical Integration

Industry Strength

0 -1

Divestment

-2 -3

IPG

Concentric Merger Conglomerate Merger Turnaround

Liquidation

-4 -5 -6

Retrenchment

Environmental Stability

TSG: The T echnology solution g roup has strongest capabilities amongst t hree business segments. I ts ou tstanding l eadership bene fits from i ts s trong ca pabilities in i ndustry, competition and environmental stability area.

PSG: The Personal system group (PSG) has the highest financial strength, but shortest arrows amongst t hree o f the bu siness groups. The sh ortest ar row r eflects t hat PSG has less strength i n co st l eadership t han t hat i n TSG an d I PG, beca use i t has l owest r ates i n industrial strength, environmental stability and competitive advantage. These three criteria will influence the length of the arrow. Although the l ength o f t he ar row i s shorter, i t d oesnt a ffect i ts cost l eadership i n t he market and its strategy selection at all. Basically, PSG group would share same suggestions from TSG, because HP still has strong competitive advantage and industrial strength than its competitors.

IPG: In Imaging and printing group, none of its criteria are outstanding, which rank this group in the second position in HP. The leadership strength of IPG is between TSG (strongest) and PSG (most fragile), since the arrow direction is the same to PST and similar to TSG.

SPACE Conclusion: In general, H P TSG (Technology S olution G roup) has strong internal ( financial & competitive ability) and external (environmental stability & industry strength) capabilities, which leads HP to Cost leadership position in the market. Since HP was positioned in a very favourable situation, it can choose many strategies that fit its corporate situations. For instance, the Vertical integration is one of the suggestions from the Strategic Options Ring. A s to v ertical i ntegration, ei ther companies merge t heir di rect suppliers/ v endors (such as MOTOROLA cut its suppliers from 10000 to 3000. Another typical example is in oil industry. The oil companies have very deep v ertical structures, from their oil findings (upstream) to end pr oduct manufacturing ( downstream), su ch as ca r manufacturer -Chevron Corp.), or they acquire their competitors to enhance their silo functions(i.e.: HPEDS acquisition case, 2008). This vertical i ntegration finding here matches to our previous findings in P orter value chain analysis: if HP wants to land more clients, gain more sales and earn more profits, internal supports were key factors contribute to the companys success. Considering t he cu rrent si tuations in H P, w e r ecommend al l busi ness se gments ca n select the vertical integration strategy as the primary strategy from now on; but in a long run, w e al so r ecommend t o use ho rizontal i ntegration as a complementary st rategy based on the p revailing co rporate co nditions. S ince t he ho rizontal i ntegration s trategy could guide H P t o a ne w di rection ( new busi ness or market) al ong w ith hu ge m arket potentials, which might bring a sales breakthrough to HP in the future.

Strategic Profile: Design Factors

Sustainability: implement vertically Uniqueness: company portfolio Value added: Enhancement: both strategies could solid HPs position Flexibility: large platform advantages Stability: cost leadership maintain stability Fit: Innovations & vertical supports maintain HP leadership Performance: Sophisticated restructuring plans help Consistency: Vision & value Stretch: Market leader in all business segments
Sustainability: Implement v ertically, su ch as ac quiring co mpanies with new busi ness or new technologies. In addi tion, t o ex ploit and enhance functions of H P l aboratories, t o shorten the period of transferring academic findings to business projects. Uniqueness: The company portfolio has overall competitive advantages over others. Value added: Horizontal acquisitions could bring revenues growth. Vertical acquisition could reduce co sts or i ncrease r evenues because o f applying new t echnologies/ ed ged academic findings. Enhancement: Horizontal acq uisition could not go further without adv anced and i nnovative supports from functional depar tments, and v ertical acq uisition or v ertical t echnical supports could become the supplemental strategy for HP. Vice versa. Both horizontal and vertical strategies will solid HPs market position as a cost leadership. Flexibility: A large platform allows techies to invent new products, enables internal manpower transfer and internal lessons learn. Stability: The cost leadership will keep HP maintaining in a stable market position.

Vertical: reduce costs or increase revenues Horizontal: increase revenues

Fit: Innovations and adv anced t echnical su pports i s nece ssary for H P to maintain i ts cost leadership position in the market.

Performance: After merger or acquisitions, sophisticated restructuring plans should be implemented to improve productivities and employees performance.

Consistency: A long term vision and value setting enables CEO to map out strategies consistent with market trends, company structures and existing company advantages.

Stretch: Become a market leader in all business segments by enhancing vertical functions and expanding new business markets.

Recommendations

Vertical acquisition: maintain leadership Horizontal acquisition: enhance industry strength Cost efficiency Advocate Green IT Intensify corporate financial capability Inter-company synergy

In conclusion and after the model analysis, we think that HP to keep its competitive edge in all its business segments, we recommend that it should: Invest deeper into every segment, to gain more vertical depth, and to maintain its cost leadership Continue with its existing strategy with the Horizontal integration to expand more into their business and gain more strength in the industry and market

(HP beside its horizontal integration (across the business enterprise in all of its locations, needs integration across the value chain and all of its partners to be flexible and efficient) Maintain and i ntensify i ts corporate financial ca pability which w ill enabl e H P t o have bigger power and market position Strengthen and achieve hi gher synergy bet ween i ts business segments which will intensify it competitive advantage and their financial health which will enable HP to have bigger power and market position

Thank you!

Annexes

Annex 1

SPACE Analysis

SPACE TSG Strategy

Status Quo

Financial Strength
6 5

Concentric Diversification Concentration

Conglomerate Diversification

4 3

Diversification

2 1 0 -6 -5 -4 -3 -2 -1 -1 0 1 2 3 4 5 6

Vertical Integration

Competitive Advantage
Divestment

Industry Strength
Concentric Merger

-2 -3 -4

Liquidation

Conglomerate Merger Turnaround

Retrenchment

-5

Environmental Stability

-6

SPACE- PSG Environmental Stability

Technological changes Rate of inflation Demand variability Barriers to entry into market Competitive pressure/rivalry Price elasticity of demand Pressure from substitute products Many g High Large 0 1 2 3 4 5 6 Few 0 1 2 3 4 5 6 Low 0 1 2 3 4 5 6 Small 0 1 2 3 4 5 6 Narrow 0 1 2 3 4 5 6 Many 0 1 2 3 4 5 6 Low 0 1 2 3 4 5 6 Low

Price range of competing products Wide Few High

Elastic 0 1 2 3 4 5 6 Inelastic High

Average = 2.75 Result = - 3.25

SPACE PSG Financial Strength

ROI (Return on investment) Leverage Liquidity Capital required vs available Cash flow Ease of exit from market Risk involved in business Inventory turnover
Low unbalanced unbalanced High Low Difficult Much Slow

0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 balanced 0 1 2 3 4 5 6 Solid 0 1 2 3 4 5 6 Low 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 Easy 0 1 2 3 4 5 6 Little 0 1 2 3 4 5 6 Fast 0 1 2 3 4 5 6 High

Economies of scale & experience Low Average = 4.44

SPACE PSG Industry Strength

Growth potential Profit potential Financial stability Technological Know-how Resource utilization Capital intensity Ease of entry into market Productivity, capacity utilization Other: manufacturers bargaining power Low Low Low Simple Insufficient Low Easy Low Low

0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 Complex 0 1 2 3 4 5 6 Efficient 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 Difficult 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 High

Average = 3.89

SPACE PSG Competitive Advantage

Market Share Product quality Product life cycle Product replacement cycle Customer loyalty Competition capacity utilization Technological know-how Vertical integration Other: speed of new product introductions Small Inferior Late Variable Low Low Low Low Slow

0 1 2 3 4 5 6 Large 0 1 2 3 4 5 6 Superior 0 1 2 3 4 5 6 Early 0 1 2 3 4 5 6 Fixed 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 Fast

Average = 3.89 Result = -2.11

SPACE PSG Strategy

Status Quo

Financial Strength
6 5

Concentric Diversification Concentration

Conglomerate Diversification

4 3

Diversification

2 1

Vertical Integration

Competitive Advantage
Divestment

0 -6 -5 -4 -3 -2 -1 -1 -2 -3 -4 0 1 2 3 4 5 6

Industry Strength
Concentric Merger

Liquidation

Conglomerate Merger Turnaround

Retrenchment

-5 -6

Environmental Stability

SPACE- IPG Environmental Stability

Technological changes Rate of inflation Demand variability Barriers to entry into market Competitive pressure/rivalry Price elasticity of demand Pressure from substitute products Many High g Large 0 1 2 3 4 5 6 Few 0 1 2 3 4 5 6 Low 0 1 2 3 4 5 6 Small 0 1 2 3 4 5 6 Narrow 0 1 2 3 4 5 6 Many 0 1 2 3 4 5 6 Low 0 1 2 3 4 5 6 Low

Price range of competing products Wide Few High

Elastic 0 1 2 3 4 5 6 Inelastic High

Average = 3.625 Result = - 2.375

SPACE IPG Financial Strength

ROI (Return on investment) Leverage Liquidity Capital required vs available Cash flow Ease of exit from market Risk involved in business Inventory turnover
Low unbalanced unbalanced High Low Difficult Much Slow

0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 balanced 0 1 2 3 4 5 6 Solid 0 1 2 3 4 5 6 Low 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 Easy 0 1 2 3 4 5 6 Little 0 1 2 3 4 5 6 Fast 0 1 2 3 4 5 6 High

Economies of scale & experience Low Average = 4.05

SPACE IPG Industry Strength

Growth potential Profit potential Financial stability Technological Know-how Resource utilization Capital intensity Ease of entry into market Productivity, capacity utilization Other: manufacturers bargaining power Low Low Low Simple Insufficient Low Easy Low Low

0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 Complex 0 1 2 3 4 5 6 Efficient 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 Difficult 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 High

Average = 4.33

SPACE IPG Competitive Advantage

Market Share Product quality Product life cycle Product replacement cycle Customer loyalty Competition capacity utilization Technological know-how Vertical integration Other: speed of new product introductions Small Inferior Late Variable Low Low Low Low Slow

0 1 2 3 4 5 6 Large 0 1 2 3 4 5 6 Superior 0 1 2 3 4 5 6 Early 0 1 2 3 4 5 6 Fixed 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 High 0 1 2 3 4 5 6 Fast

Average = 4.22 Result = -1.78

SPACE IPG Strategy

Status Quo

Financial Strength
6 5

Concentric Diversification C Concentration t ti

Conglomerate Diversification

4 3

Diversification

2 1

Vertical Integration

Competitive Advantage
Divestment

0 -6 -5 -4 -3 -2 -1 -1 -2 -3 -4 0 1 2 3 4 5 6

Industry Strength
Concentric Merger

Liquidation

Conglomerate Merger Turnaround

Retrenchment

-5

Environmental Stability

-6

SPACE Overview
Business Segment Vector X-Axile Y-Axile + 3.55 + 1.64 Status Recommendation

TSG

Cost Leadership (strong)

Vertical acquisition Vertical acquisition Vertical acquisition

IPG

+ 2.55

+ 1.68

Cost Leadership (Medium)

PSG

+ 1.78

+ 1.19

Cost Leadership (Weak)

Annex 2 HP Acquisitions (2001-2008)

2008
Enterprise Storage and Servers

2007
Polyserve

2006
Outerbbay

2005

2004

2003

2002

2001
Compaq StorageApps

ApplQ Persist Rlx Technology

HP Services

EDS

Eyp Mission AOME TTP knightsbridge Mac Dermid

Triaton DSG Synstar

Intria Extreme Logic

Software

Tower

Spi Dynamics Mercury Opsware Interactive Bristol Trustgenix Bitfone

Peregrine

Novadigm Consera Trulogica

Talking Blocks Pipebeach Select Access

Bluestone

Personal Systems Group Imaging and Printing Group HP Financial Services

Exstream NUR Macroprinters

Neoware

Voodoo PC

Tablo Logoworks Mac Dermid Colorspan

Silverwire Pixaco

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