KEY POINTS:
Inventiveness has always been part of the Hewlett-Packard mythology. It all began in a garage in Palo Alto, California, where in 1938 Bill Hewlett and Dave Packard, graduates in electrical engineering from Stanford University, made their first test and measurement instrument, an audio oscillator.
In 1940 they moved
out of the garage into a building a few kilometres away and, about a decade after going into business, they had cracked the US$1 million annual sales mark with about 40 different products.
The garage, in the heart of what is now called Silicon Valley, has been restored and practically turned into a shrine. It's such a successful symbol of inventiveness that high-tech companies that have come along in HP's wake like to make a thing of their garages too.
Steve Jobs and Steve Wozniak, Apple's founders, built their first computer in a garage in Los Altos, a 15-minute drive from HP's; and Google's founders, Sergey Brin and Larry Page, served garage time in Menlo Park, a few minutes from where Hewlett and Packard started out.
All three companies today have market capitalisations of about US$100 billion - give or take a few billion as Wall St convulses - showing garages to be fertile commercial ground. And they're also fertile for invention.
Measured in terms of patents, HP is one of the world's most inventive companies. Since 1976, it has been granted more than 19,000 US patents, to Apple's 2123 and 10-year-old Google's 113 (remembering that Google's inventiveness is in the software realm).
HP boss Carly Fiorina could therefore, with some justification, in 1999 launch a brand campaign around the word "invent". The idea, she said, was to take the company back to its roots.
She must have been using the word in a different sense from HP's founders. First, she sold the very part of the business - test and measurement - in which its roots were deepest.
Then, in May 2002, she bought PC company Compaq, making HP the proud owner of a manufacturer of commodity laptop, desktop and server computers, product categories in which there's next to no room left for innovation. In 2005, Fiorina left the company under a cloud.
Despite the merger going ahead in the face of staunch resistance from Bill Hewlett's son Walter, business analysts now hail the Compaq deal as a success. HP is today the IT industry's biggest revenue earner, with sales last year of US$104.3 billion ($186.8 billion), versus the US$98.8 billion of former market leader IBM.
More important than revenue, though, is profit. The Compaq deal still didn't land HP the kind of high-margin IT services business that boosts IBM. Even with its lower revenue, IBM made about US$3 billion more in profit last year than HP.
In August, however, things changed again. HP finalised the acquisition of Electronic Data Systems (EDS), to create a combined IT services business of US$38 billion, to IBM's US$54 billion. HP-EDS total revenue is projected to be in the region of US$130 billion, leaving IBM more than US$30 billion adrift.
Even so, in the short term at least, IBM remains the profit leader. EDS will add about US$1 billion to HP's bottom line, so IBM is still about US$2 billion clear.
As HP absorbs EDS, however, the business can be expected to become more efficient, says analyst Ullrich Loeffler, at market watcher IDC. That means layoffs. HP has already signalled that 7.5 per cent, or about 24,000, of its workers will go.
In New Zealand, the company isn't saying how many jobs are on the line. The local HP-EDS workforce is about 3300, and the combined companies' sales are just short of $1 billion. That's significantly more than the next biggest earner, IBM, which Loeffler says made $381 million in its last financial year.
The biggest impact locally of the merger, Loeffler reckons, is that it propels HP into the outsourcing market, which means providing customers with computing, application and business processing services. As profits are squeezed on sales of hardware, canny acquisitions are keeping HP at the top of the revenue table.
In the technical inventiveness stakes, though, things are different. HP might like to claim that mantle for itself, but IBM has better grounds. HP's 19,000 US patents since 1976 pale alongside IBM's 51,220.
In each of the past five years, IBM has been granted more patents than any other company and continues to rack them up at a rate of about two to one.
Surely IBM can concoct a marketing slogan around that.
"More inventive", maybe.
BUSINESS HERALD / IDC TECH POLL
In the current economic climate, what impact do you foresee on your personal spending on technology items (including gadgets)?
I expect it will increase - 10%
I expect it will decrease - 34%
It will not be impacted - 55%
This week's question: In the current economic climate, do you believe that your IT environment offers your business a competitive advantage?
To give your view, go to www.idc.com/nz
