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  • madchinaman
    Lee S. Ting http://engr.oregonstate.edu/oregonstater/fame/2001/ece/TingLeeS.html (BS 1965) After graduating, Lee Ting joined Hewlett-Packard as a development
    Message 1 of 1 , Apr 3, 2004
      Lee S. Ting

      (BS 1965) After graduating, Lee Ting joined Hewlett-Packard as a
      development engineer. He completed graduate work in electrical
      engineering at Stanford University and later returned to Stanford to
      complete their Executive Program in 1994. In 1970, Ting moved to
      Taiwan as a General Manager and held several positions of increasing
      responsibility with HP in the Far East before retiring as Vice
      President and Managing Director of Geographic Operations in 1999. In
      this position, Ting managed three major organizations: HP Asia
      Pacific, Europe, and the Americas. In 1989, he took a two-year leave
      from HP to join the venture capital firm Hambrecht and Quist, where
      he served as Senior Vice President and led their expansion into
      Asia. He is now active as a venture capitalist in California


      Hewlett-Packard Company

      3000 Hanover St.
      Palo Alto, CA 94304
      Tel: 650-857-1501
      Fax: 650-857-7299
      VP: Lee S. Ting 丁力生
      NYSE: HWP
      Computer & Semiconductor Items


      A point of view on Hewlett-Packard Company (HPQ) July 2003
      (Also available in PDF format)

      Lee S. Ting
      Private Equity – WR Hambrecht + Co

      Lee Ting has over 35 years experience in the high-tech industry
      spanning start-ups, established companies like Hewlett-Packard and
      the investment bank Hambrecht & Quist. Lee is a graduate of Oregon
      State University with a Bachelor of Science in Electronic

      A year has passed since the controversial merger between Hewlett-
      Packard "HP" and Compaq was initiated. The results to-date have been
      better than the skeptics and the opponents of the merger predicted.
      This was most evident in the cost savings area where HP has already
      reached $3.5B in annualized savings versus its forecast of $2.5B in
      2004. The company did well in constructing a detailed merger
      process, and then executing it with diligence and decisiveness. This
      accomplishment was especially significant in an environment where
      revenue growth had stagnated due to the overall economic slowdown,
      and in particular, the market recession in the IT sector.

      The critics of the merger point to the lack of revenue growth as
      proof that the merger was ill conceived. It is true that a mega-
      merger cannot be justified and sustained solely on cost reductions.
      It has to prove that the merged resources and collective product
      offerings are stronger and more competitive than the sum of the two
      companies operating independently. From a product and technology
      portfolio perspective, the new HP is better positioned in the
      market. Compaq brought strength in desktop PC, handheld devices,
      storage, high end servers, consulting and services, and the direct
      selling model to better compete with Dell. The resulting company did
      move quickly to sort out the product overlaps and eliminated the
      weaker ones regardless of which side they came from. This allowed
      them to avoid protracted internal debates and uncertainties for
      their customers. It has also contributed to their ability to align
      the organizations quickly and achieve the cost reductions ahead of

      It is true that HP has shown little revenue growth during the past
      four quarters. However, that was true of the overall IT market
      sector, especially in the enterprise area. Telecoms have and should
      remain weak due to overcapacity, pricing deflation, and a lack of
      significant new revenue sources. The same was true for the other
      sectors of the technology industry, but some are beginning to emerge
      from it, albeit at a slow pace. IT spending should pick up as
      companies invest again to get more productive use of their
      technology, to refresh their technology infrastructure, and to
      implement new business models driven by new technology. For HP, the
      test is whether or not it will be able to grow its revenues when
      that happens, and more importantly, whether it can gain market share
      against its key competitors – IBM and Dell.

      Key Competitors
      The number one competitor in HP's view is IBM. Emotionally, being
      number two to IBM is a good reason to gain on IBM, but the challenge
      is significant. IBMŒs business has shifted its revenue and profit
      growth during the past decade from a dependence on hardware, to
      solutions/services. It was recognition of the fact that as customers
      move away from proprietary systems, (which was IBM's
      differentiation), towards open standards, hardware was becoming more
      of a commodity, which favors low cost producers. IBM was not one of
      them. In addition, commodity buyers do not have strong loyalty to
      their suppliers. However, solutions and services carry unique
      characteristics and values from the supplier to the customer, and
      therefore, they are differentiators against competitors. They
      support higher margins and have higher growth prospects because
      customers will depend on suppliers to provide complete solutions,
      ongoing support, and an increased trend towards outsourced
      management of their IT. To support a solution-selling model, IBM has
      chosen to invest heavily in software, not the packaged applications,
      but primarily middleware upon which the applications sit. This was
      an important strategic decision, because having control of the
      middleware made it easier for IBM to manage the integration of the
      third party applications. It is more effective to deliver solutions
      working with one major outside party than two outside parties.
      Recent evidence of IBM reinforcing this direction was the
      acquisition of the Price Waterhouse consulting business and the
      selling of its storage business.

      HP has been working to boost its consulting/solutions revenues in
      its enterprise business for some years including its failed
      acquisition of the same PWC unit in 2000. With the merger of Compaq,
      HP has acquired significant assets in these areas, but it still is
      far less than what IBM offers. Future acquisitions in this area are
      likely with potential targets such as EDS and Unisys. In the
      software area, HP has not had good success in the past, with the
      exception of the Open View network management platform. It had good
      technologies but could not turn them into commercial successes due
      to a lack of effective software business management process. Has the
      Compaq merger brought new competence in this area? If not, HP must
      continue to work with multiple partners to deliver complete
      solutions, which can put it at a disadvantage vis-à-vis IBM, which
      has control over more pieces of a total solution. In the IT services
      outsourcing area, HP has made good progress with the recent high
      profile wins of customers such as CIBC, Procter and Gamble, Nokia,
      and others. The question is, at what cost? These are long-term
      contracts; therefore sacrifices made in margins today should carry
      forward for years to come. The good news is that HP has to be taken
      as a serious player in this growing business trend and will be given
      the opportunity to compete for future contracts.

      Dell is a formidable competitor to HP, not only in PCs, but also
      increasingly in other areas including printers, storage, and
      handheld devices. Dell's success grounded in its direct selling
      business model is well proven. Dell's direct model has a 4 to 6
      percentage margin advantage over HP's historical indirect channel
      model. One has to assume that the manufacturing costs are similar
      for similar products, given that the products are based on standard
      hardware and software components and are manufactured by many of the
      same contract manufacturers or ODM's. Both HP and Dell have such
      sufficient large unit volumes that it is questionable that either
      can gain significant cost advantages through higher volumes. So we
      believe HP has no choice but to move more aggressively towards a
      direct model, and the Compaq merger is a catalyst in that effort (as
      Compaq was moving fast in that direction prior to the merger). It is
      a difficult transition for HP, as it has to be very careful not to
      alienate its long-standing channel partners. HP should have a
      viable PC business as the market will want an alternative to Dell,
      so the continuing challenge is how to make it a sustainable profit
      contributor to the company. Dell will be expected to use pricing
      pressure to gain market share globally as long as it enjoys those
      margin advantages.

      Dell has now entered into the low-end printer business with its
      direct model, clearly aimed at challenging HP's major profit
      contributor. Can Dell have the margin advantages that it enjoys in
      PCs in printers and supplies when it has to OEM them from Lexmark or
      others? Probably not now, but it has the resources to become a
      serious competitor over time. However, HP's brand image in printers
      and its commanding global market share in excess of 60% pose a very
      strong line of defense against Dell and other competitors. HP's
      imaging business should continue to do very well under a very
      experienced and seasoned management team.

      HP's Outlook
      It is unlikely that we will see HP create a new multibillion-dollar
      market, (i.e. printers in the 80s), in the coming years. The current
      organizational structure of the company does not support such an out
      of the box initiative. Instead, we believe the company will grow
      based on the following premises:

      Carly Fiorina is a strong believer that the IT industry will
      experience a wave of company consolidations in the coming years, and
      that HP will be one of the leading consolidators. The Compaq merger
      is the first major step in that direction. Therefore, growth by
      acquisitions is a key element of HP's ongoing strategy, and it has
      the financial capability to do so.

      The IT market has reached a state in which customers' expectations
      from vendors are based on the vendor's ability to provide complete
      solutions that enhance their competitiveness to grow revenues and
      profit margins. Therefore, HP will have to invest in the right
      people and technologies while aggressively managing its costs. The
      new management culture in HP is consistent with this approach.
      If the above two assumptions come to fruition, we believe HP will
      regain its standing within the tech sector and that it will be able
      to deliver better than average growth in revenues and profits as the
      global economy emerges from its current state.



      Lee Ting and members of his household have long investment positions
      in the shares of Hewlett-Packard Co. (HPQ).

      Lee Ting is a former employee of Hewlett-Packard Co.

      At the time this report was published, WR Hambrecht + Co made a
      market in the securities of Dell Computer Corp. (DELL).

      WR Hambrecht + Co and/or its affiliates expects to receive or
      intends to seek compensation during the next three months for
      investment banking services from this company, its subsidiaries, or
      affiliates: Hewlett-Packard Co. (HPQ), Dell Computer Corp. (DELL)
      and Nokia (NOK).

      The information contained herein about the companies is based on
      sources believed to be reliable but is neither all-inclusive nor
      guaranteed by WR Hambrecht + Co, LLC (³WRH+Co²). The information
      contained herein relative to WRH+Co's and the author's involvement
      with the issuer is accurate. Any opinions expressed in this report
      reflect our judgment at this time, are subject to change without
      notice, and may differ or be contrary to opinions expressed by other
      business areas or groups of WRH+Co as a result of using different
      assumptions and criteria. WRH+Co does not undertake to advise you of
      changes in its opinion or information. Most of the companies WRH+Co
      follows are emerging growth companies whose securities typically
      involve a higher degree of risk and more volatility than the
      securities of more established companies. The securities discussed
      in this report may be unsuitable for investors depending on their
      specific investment objectives and financial situation and needs.
      This report is not a recommendation that any particular investor
      should purchase or sell any particular security in any amount or at
      all, and is not a solicitation of any offer to purchase or sell from
      or to any particular investor. This report is presented for
      informational purposes only, and is not intended to be a "research
      report". For additional information that may be available on the
      securities mentioned, please contact WRH+Co.

      Copyright 2003, WR Hambrecht + Co. All rights reserved. Member


      Current disclosures can be obtained by calling the toll-free
      telephone number listed below or by writing to the address listed

      WR Hambrecht + Co
      Compliance Department
      539 Bryant Street Suite 100
      San Francisco, CA 94107
      1 (877) 828-5200
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