amounts have been adjusted to reflect this split.
Net revenue was $13.3 billion, compared with $11.4 billion in last year's
fourth quarter. EPS for the quarter was 41 cents on a diluted basis,(1)
excluding investment and divestiture gains and losses, the effects of stock
appreciation rights and balance sheet translation, and restructuring
expenses. Including these items, diluted EPS on a reported basis was 45
cents per share on approximately 2.05 billion shares of common stock and
equivalents outstanding. This compares with diluted EPS of 36 cents in the
same period last year(2).
"We are pleased that revenue growth is accelerating, but very disappointed
that we missed our EPS growth target this quarter due to the confluence of
a number of issues that we now understand and are urgently addressing. I
accept full responsibility for the shortfall," said Carly Fiorina, HP
chairman, president and chief executive officer.
"Issues that reduced profitability included margin pressures, adverse
currency effects, higher-than-expected expenses, and business mix. The good
news is that our business is healthy, demand is strong, and we are making
good progress against our strategic objectives as we continue the hard work
of reinventing hp. We are determined to succeed and are not backing away
from our growth targets," Fiorina said.
HP also announced it has terminated discussions with PricewaterhouseCoopers
(PwC) regarding the potential acquisition of its consulting business.
Fiorina said, "We are disappointed that we have not been able to reach a
mutually acceptable agreement to acquire PwC's consulting business. This is
a high-quality operation, and we believe the strategic logic underlying
this acquisition is compelling. However, given the current market
environment, we are no longer confident that we can satisfy our value
creation and employee retention objectives -- and I am unwilling to subject
the HP organization to the continuing distraction of pursuing this
acquisition any further. We remain committed to aggressively growing our
consulting capabilities, organically and possibly by acquisition, and are
open to other business arrangements to achieve our goals."
Business Summary
Net revenue in the United States was $6.0 billion, an increase of 13% from
the year-ago quarter. Revenue from outside the U.S. rose 20% (26% in local
currency) to $7.3 billion. In Europe, revenue was $4.5 billion, an increase
of 15% (27% in local currency). In Asia Pacific, revenue was $1.9 billion,
an increase of 36% (34% in local currency). In Latin America, revenue
increased 11% to $0.6 billion.
Imaging and Printing Systems
The imaging and printing systems segment -- laser and inkjet printing, and
imaging devices and associated supplies -- grew 6% in revenue year over
year (9% in local currency) against a very strong quarter last year.
Internet printing and a migration to color are driving strategy and growth.
Strong sales of supplies, scanners, all-in-one (AiO) products, and consumer
imaging devices, as well as overall strength in Europe and Asia, partially
offset softness in the U.S. business printing market and continuing price
erosion in inkjet printers.
Nearly 12 million printing and scanning devices were shipped during the
quarter. HP's color LaserJet market share continues to grow and new
products began shipping in October. Imaging revenues grew 31% over the year-
ago period, driven by strong performances in all product lines: AiOs up
31%, scanners up 12% and digital cameras and printers up 137%. AiO units
were up 53% and PhotoSmart printer units were up 208%. Supplies revenues
grew 15% against a strong quarter last year.
Operating margin was 13.4%, up from 13.2% last year.
Computing Systems
The computing systems segment -- a broad range of Internet infrastructure
systems and solutions for businesses and consumers, including workstations,
desktops, notebooks, mobile devices, UNIX(R) and PC servers, storage and
software solutions -- grew 29% in revenue year over year (32% in local
currency) with strong performances across all product categories.
UNIX server revenues rose 23% year over year, with orders up 43%, driven by
excellent performance in low- and mid-range servers. Superdome, HP's new
high-end server introduced this quarter, is achieving stronger-than-
expected market acceptance, and volume shipments remain on schedule for
January. NetServer revenues were up 20%. Enterprise storage revenues were
up 40% with the HP Surestore E Disk Array XP512, HP's flagship enterprise
storage product, up 90% in revenues with strong backlog. Software revenues
(excluding VeriFone) were up 18%, but down sequentially with strong order
backlog at the end of the quarter. OpenView revenues were up 29% with
orders up 60%. PC revenues were up 40%, with home PC revenues up 62%,
notebooks up 164%, workstations up 11%, and commercial desktops up 8%.
Operating margin was 3.7%, up from 3.2% last year, but down sequentially
from 7.3% in the third quarter primarily due to margin pressures, higher
expenses and mix changes.
IT Services
The IT services segment -- hardware and software services, along with
mission-critical, outsourcing, consulting and customer financing services --
grew 15% in revenue year over year (18% in local currency). HP's
consulting business achieved in 46% revenue growth, with substantial new
hires broadening and deepening the organization's capabilities.
Operating margin was 7.4%, essentially flat with 7.5% last year.
Costs and Expenses
Cost of goods sold this quarter was 72.5% of net revenue, up from 71.3% in
the year-ago period. Expenses grew 15%. After adjusting for currency,
expense growth was 17%. Operating expenses, as reported, were 20.3% of net
revenue. This compares with 20.7% in the comparable period last year.
Asset Management
Return on assets for the quarter was 10.5% compared with 9.8% in the
comparable quarter last year. Inventory was 11.7% of revenue compared with
11.5% in last year's fourth fiscal quarter. Trade receivables were 13.1% of
revenue compared with 14.1% in the prior year period. Net property, plant
and equipment was 9.2% of revenue compared with 10.2% in the year-ago
quarter.
Full-year Review
Net revenue increased 15% to $48.8 billion. Net revenue in the United
States rose 14% to $21.6 billion, while revenue from outside the United
States increased 16% to $27.2 billion.
Net earnings from continuing operations were $3.6 billion, an increase of
15%, compared with $3.1 billion in fiscal 1999. Net earnings per share were
$1.73 on a diluted basis, up 16% from $1.49 last year.
Outlook for FY 2001
For the 2001 fiscal year ending Oct. 31, 2001, HP expects to achieve
revenue growth in the range of 15 to 17%, compared to 15% in FY 2000. Gross
margin percentage in FY 2001 is expected to be in the range of 27.5 to
28.5%, compared to 28.5% in FY 2000, with improvements beginning in the 2nd
quarter. Total operating expenses in FY 2001 are expected to be
approximately 10 to 12% above FY 2000. Tax rate is expected to remain
constant at approximately 23%.
The forward-looking statements in this Outlook are based on current
expectations and are subject to risks, uncertainties and assumptions
described under the sub-heading "Forward-Looking Statements." Actual
results may differ materially from the expectations expressed above. These
statements do not include the potential impact of any mergers, acquisitions
or other business combinations that may be completed after Oct. 31, 2000.
HP will be discussing its fourth quarter results and its 2001 outlook on a
conference call today, beginning at 6 a.m. (PST). A live Webcast of the
conference call will be available at
http://www.hp.com/hpinfo/investor/quarters/2000/q4webcast.html. A replay of
the Webcast will be available at the same Web site shortly after the call
and will remain available through 4:30 p.m. PST on Nov. 22, 2000.
The rise of Silicon Valley
Hewlett-Packard was Silicon Valley's first large firm and due to its
success one of the area's most admired electronics firms.
While HP was important for the initial growth of the area and at first was
based on electronic devices, the actual Silicon Valley fever was launched
in the mid-1950s with Shockley and Fairchild, and other semiconductor
firms, and went on to the microelectronics revolution and the development
of the first PCs in the mid-1970s, continuing till today.
Invention of the transistor
One major event was crucial for this whole development. It was the
invention of the transistor that revolutionized the world of electronics.
By the 1940s, the switching units in computers were mechanical relays,
which were then replaced by vacuum tubes. But these vacuum tubes soon
turned out to have some critical disadvantages, which impeded the further
progress in computing technology. In contrast, transistors were much
better. They could perform everything the vacuum tubes did, but "required
much less current, did not generate as much heat, and were much smaller")
than vacuum tubes.
The use of vacuum tubes, which could not be made as small as transistors,
had meant that the computers were very large and drew a lot of power. For
example the famous American ENIAC, built in 1946 and consisting of more
than 18,000 vacuum tubes, had a total weight of 30 tons, filled a whole
room of 500 square meters and consumed 150 KW per hour. The breathtaking
development in computers can be seen, when comparing the ENIAC with today's
laptops which are portable with about 5 kg, are battery driven and run some
100,000 times faster.)
This development was launched by the transistor (short for "transfer
resistance") invention in 1947 by William Shockley and his colleagues John
Bardeen and Walter Brattain. This "major invention of the century") was
made at the Bell Labs in Murray Hill, New Jersey, which are the "R&D arm of
the American Telephone and Telegraph Company (AT&T).") And in 1956, the
three scientists received the Nobel Prize in Physics for their invention
that had "more significance than the mere obsolescence of another bit of
technology.")
The transistor is a "switch - or, more precisely, an electronic "gate,"
opening and closing to allow the passage of current.") Transistors are
solid-state and are based on semiconductors such as silicon. The crystals
of these elements show properties, which are between those of conductors
and insulators, so they are called semiconductors. The peculiarity of
semiconductor crystals is that they can be made "to act as a conductor for
electrical current passing through it in one direction") only, by adding
impurities or "doping" them - for instance, "adding small amounts of boron
of phosphorus.")
Shockley Semiconductor
In 1955, William Shockley, co-inventor of the transistor, decided to start
his own company, Shockley Semiconductor, to build transistors, after
leaving the Bell Labs. The new firm was seated in Palo Alto in Santa Clara
County, California, where he had grown up. Shockley man aged to hire eight
of the best scientists from the East Coast, who were attracted by his
scientific reputation. These talented young men - "the cream of electronics
research" - represented the "greatest collection of electronics genius ever
assembled". Their names were: Julius Blank, Victor Grinich, Eugene Kleiner,
Jean Hoerni, Jay Last, Gordon Moore, Robert Noyce and Sheldon Roberts.)
But however brilliant Shockley was, who was called a "marvelous intuitive
problem solver" and a "tremendous generator of ideas" by Robert Noyce, it
soon turned out that he was "hard as hell to work with", as his style was
"oppressive" and he "didn't have trust and faith in other individuals.")
When Shockley refused the suggestions of his eight engineers who wanted to
concentrate on silicon transistors, while their boss pursued research on
four-layer diodes, they decided to quit and start their own firm in 1957.
Within several months Shockley had to shut down his firm, since he had lost
his engineers, whom he called traitors and they are now known as "the
Traitorous Eight".
Although Shockley was not very successful with his firm in Palo Alto, he
"deserves credit for starting the entrepreneurial chain-reaction that
launched the semiconductor industry in Silicon Valley,") since he had
brought together excellent scientists there like Robert Noyce without whom
there might never have been a Silicon Valley on the San Francisco Peninsula
at all. Or as M. Malone calls it, "Shockley put the last stone in place in
the construction of Silicon Valley.")
The father of one of those young men who left Shockley had contacts to a
New York investment firm, which sent a young executive named Arthur Rock to
secure financing for their new enterprise. Rock asked a lot of companies,
if they were interested in backing this project, but has not been
successful so far. The concept of investing money in new technology
ventures was largely unknown then, and indeed the term "venture capital"
itself wouldn't be coined until 1965") - by Arthur Rock, who should become
Silicon Valley's first and most famous venture capitalist later on.
Finally, due to Rock's efforts, the "Traitorous Eight" managed to obtain
financial support from industrialist Sherman Fairchild to start Fairchild
Semiconductor in 1957.
Fairchild Semiconductor was developed by Shockley's firm, and as the "still
existing granddaddy of them all") has itself spawned scores of other
companies in Silicon Valley: Most semiconductor firms' roots can be traced
back to Fairchild. The most famous ones of them are National Semiconductor,
Intel, Advanced Micro Devices (AMD); and many well-known Valley leaders
have worked at Fairchild, e.g. Charlie Sporck (National Semiconductor),
Jerry Sanders (AMD's founder), Jean Hoerni, and last but not least Robert
Noyce, who is considered the "Mayor of Silicon Valley") due to his
overwhelming success.
Robert Noyce was born in southwestern Iowa in 1927. His father was a
preacher in the Congregational Church and thus was "perpetually on the move
to new congregations, his family in tow.") When the Noyces decided to stay
at the college town of Grinnell, Iowa, for a longer period of time after
many years of moving, this place meant stability in young Bob's life and
thus would become his first and only real home, which he would later regard
as important for his eventual success.
After high school, Robert studied at Grinnell College. His physics
professor had been in contact with John Bardeen (one of the three inventors
of the transistor) and obtained two of the first transistors in 1948, which
he presented his students, including Bob Noyce. This aroused young Robert's
interest in semiconductors and transistors, which made him try to learn
everything he could get about this fascinating field of solid-state
physics.
Having graduated from Grinnell College he continued his studies at "the
premier school of science on the East Coast, MIT,") where he met famous
scientists like Shockley. He received his doctorate, and decided to work at
Philco until 1955, when he was invited by William Shockley to join a new
firm named "Shockley Semiconductor" in Santa Clara County - together with
seven other splendid scientists.
When the so-called "Shockley Eight" started a new venture with Fairchild
Semiconductor, Robert Noyce began "his own transformation from engineer to
business manager:") He was chosen to lead the new company as he seemed the
best to do this job.
Fairchild Semiconductor focused on building a marketable silicon transistor
applying a new manufacturing process called "mesa". Despite being the
smallest company in electronics business then, it attracted public
attention, particularly in 1958, when "Big Blue" - as dominant IBM is
nicknamed - ordered the "first-ever mesa silicon transistors") for memory
drivers in its computers.
This order contributed to the early success of Fairchild Semiconductor, and
indicated the beginning of a long relationship between IBM and Silicon
Valley.
Importance of military funding
Before switching over to the events at Intel, the aspect of military
funding is to be dealt with, since it has played an important role in the
early days of Silicon Valley.
During World War II, after the Japanese attack at Pearl Harbor in 1942, a
great deal of the U.S. military forces and of the military production was
moved to California. Within a few years, California - formerly an
agricultural state - became a booming industrial state and the military
center of the USA.)
After the war, in the time of the Cold War and the arms race, the Korean
conflict, the "missile gap" and the space program, the Pentagon kept
ordering high-technology products from the armament factories in
California. Many companies established R&D departments and production
facilities in Santa Clara County near Stanford University, which provided
them with bright engineers and scientists, and were largely supported by
the Pentagon's demand for electronic high-tech products.
Examples for such firms are FMC, GTE, Varian Associates, Westinghouse, and
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