How Did Hewlett Packard Lose Its Way?

Back in 1963 I started reading Fortune magazine.  My father subscribed to the publication and I found that many of its articles on companies, management, and technology were interesting.  I was not your usual teenager for I read a very wide range of books, magazines, and other publications.  And I remember reading about Hewlett Packard back then although I cannot place the exact year.  Some of you might know the story of how HP was started in a garage in Sunnyvale or Palo Alto (I don’t remember which and it really does not matter) by two engineers.  They were making analog meters and such.  that means amp-meters, voltage meters, and the like.  The electronics industry needed a source of accurate gauges and HP was on of the companies that could deliver the equipment that was needed.  When I worked for the phone company in switching I used HP oscilloscopes and voltage meters often.  They were the Cadalliac of test equipment and cost as much.  Well, that was Old School, as some might say.

Unfortunately the world was becoming digital and while HP tried to keep up with that brave new world, other companies brought their talent to the market.  I remember that one Canadian company produced superior test equipment for IP based networks and HP was far behind in that market.  And then we had the debacle of HP entering the micro computer business.  You know, back in 1977 there were some dozen or more computer makers in the mini and micro market.  How many of you remember Altos or Commodore?  And let us not forget all the chip manufacturers and their ALUs, CPUs, and memory chips.  A dozen, maybe two dozen?  Markets eventually shake out the also rans and the incompetent.  And a bit of heavy handed restraint of trade derails the rest.  Intel and Motorola were the last CPU makers standing if one did not count SUN’s SPARC chips.  What happened to HP?

Ah, good question.  They still made good test equipment but their products were always over priced.  Once the digital age was upon us they started to become obsolete.  You see, as good as they had been they were stuck in the past.  The merger with Compaq was little more than the last gasp effort to hang on to the future.  HP was the dream stock of Warren Buffet.  It had that deep moat in the old industry.  HP believed in proprietary software and erected fences around its products.  That strategy only works when one is the market leader.  In the computer industry they weren’t the leaders.  More than that, erecting a wall around your products tends to fence out the innovation needed for future success.  And, like Apple, they forgot that consumer electronics eventually become commodities.  It also works the same way for business electronics.  HP forgot that so much of their old electronic products market was based on making commodities.  A few million or so amp meters, galvanometers, voltage meters, and etc, are priced based on products that have become commodities.  Quality is nice but price is king.

So where is HP now?  They are trying to sell Compaq and HP personal computers, a few servers, and software services.  It is a commodity market just as much as smartphones have become commodities.  The failure at HP has little to do with corporate vision or management personality.  It has everything to do with a lack of reality of the market.  Maybe HP needs to get out of the commodity business and back to the innovation business.  Market saturation reduces product margins and the higher the saturation the lower the margin.  As a company, HP is dead, a losing cause.  Time to start looking for new markets, new inventions, new ways of competing.  Software has become generic as has hardware.  Mathematics may point the way to the future.  The design of computers that can perform simultaneous equations would be of greater value in the future.  Software that can link 64 or 128 or 512 or even greater numbers of  computers together is the next generation of computing.  If HP wants to survive and grow then this is the future.

Afterword:  Companies have a useful life.  Some drag on long after their useful life has ended.  IBM is one of those companies as it HP.  Even Unions have useful lives and most have outgrown their rational for life.  The sad part is that so many refuse to believe the very truth that confronts them.  To everything there is a season, to every life there is a purpose, and to everything there is an end.  Turn, turn, turn.


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