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Tuesday, 13 February, 2001, 16:42 GMT
Hewlett-Packard re-invents itself
David Packard (left) and William R. Hewlett pictured in 1944 when Bill was home on leave from the service (WWII).
Dave Packard and Bill Hewlett, the firm's founders
By BBC News Online's Steve Schifferes in Silicon Valley

Hewlett-Packard is the company that created Silicon Valley.

It was founded in 1939 by two Stanford graduate students, David Packard and Bill Hewlett, in a garage in Palo Alto.

It has a history of innovation, with its engineers inventing everything from the pocket calculator to the first ink-jet printers, to hand-held computers.

And it has grown to be a corporation with nearly $50bn in sales and 90,000 employees worldwide - 13,000 at its sprawling corporate headquarters located just south of the Stanford University campus.

But now, under its new chief executive Carly Fiorina, the company it facing its toughest challenge yet - to re-invent itself.

Carly Fiorina wants to radically restructure the company, eliminating the decentralised and collaborative structures created by the founders.

Instead she wants to focus on just four divisions - two developing its key products, computers and printers, and two for its business and retail customers - in order to boost profits and sales by 15% to 20% a year.

It is a radical vision, and one made more difficult by the rapid economic slowdown.

Ms Fiorina was one of the chief executives who met President-elect Bush at an economic summit in December, and warned him of the sharp decline in sales and orders.

Carly Fiorina, CEO, Hewlett Packard
Carly Fiorina wants to radically restructure the company.

Now company strategy vice-president John Brennan told the BBC that it would not be "immune" to the effects of that downturn.

That slowdown will be reflected in Hewlett-Packard's results which are out on Thursday, and makes it harder for the company to reach its ambitious growth targets.

And it could be reflected in the company's share price, which has already plummeted by nearly half, from $68 to $34, since the high-tech boom cooled.

Fear of eclipse

Hewlett-Packard's radical shake-up is driven by the fear that, without sharpening its competitive edge, it could "slowly decline into mediocrity and irrelevance" where it could not fund its R&D investment, according to Mr Brennan.

Mr Brennan, a former management consultant who has been with the company for nine months, saw the speed of change in the industry at first hand when he briefly worked in a start-up company.

He says the company must learn to adapt, and refocus on branding and marketing as well as its traditional engineering emphasis on invention.

He wants HP to be the market leader in all its major sectors, from printers to personal computers to the servers that are used by companies.

But he admits that the change has not been easy, especially for a company with a previous history of success.

Critics of the new management plan say that the new structure could lead to less, not more coordination, after separating sales from product development.

And they worry that the new management structure places too many burdens on Ms Fiorina herself.

Company could slowly decline into mediocrity and irrelevance.

John Brennan, Strategy vice-president, Hewlett-Packard

HP's plan to expand into e-business solutions was thwarted by their failed bid to buy PricewaterhouseCoopers' consulting arm - but the company still sees its future growth coming from software.

This is especially targeted at areas such as networking systems which allow different devices to talk to each other - a crowded market where no clear leader has yet emerged.

Bold visions

HP is still investing $2.7bn each year in research and development, and in Hewlett-Packard Labs chief scientist R. Stanley Williams is working on a radical new way to make computer chips, growing molecules just a few atoms thick to make switches and wires.

Sitting in one of HP's many cubicles, and dressed informally, Mr Williams explains that this nanotechnology could replace the silicon chip in ten years time when it reaches its physical limits and cannot be made faster.

The scientists have also found a way to avoid the problem of defects by making the chips correct themselves.

They say that they have now built a 16 bit microprocessor- the equivalent in power to 1970s computers - using the new technology.

In the spirit of invention that is at the heart of Silicon Valley's success, HP is also sharing some of this technology with other companies like Motorola and Siemens, betting that spreading the technology will create a market for the product sooner.

It is a sign of the company's commitment to a very long-term future.

World visions

But HP also has another bold vision - to market its computers and other products to the four billion people in the developing world who lack access to the internet.

The company plans to sell or donate $1bn worth of products this year to poor countries through its world e-inclusion initiative, and is trying to find local partners in 1000 villages worldwide.

It already has telecentre projects in Costa Rica and Bangladesh, where it is working with the Grameen bank that makes low-cost loans to villagers.

Ms Fiorina is a member of the task force set up by the G8 Summit last year to try and bridge the digital divide, and she firmly believes that future growth opportunities for the IT industry lie in the developing world.

There is no doubt that Hewlett-Packard still aspires to be a progressive and innovative company with a long-term vision.

But it will be the success or failure in implementing its short-term restructuring - in an increasingly difficult economic climate - that will determine whether it gets to chance to put those long-term visions into practice.

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