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Restoring HP to Its Original Condition

Stumbling corporations trying to regain their footing often turn to their past: They invite a retired chairman to resume the reins, reissue a vintage product or christen a factory after a revered founder.

Something like that is undoubtedly behind Hewlett-Packard Co.'s renovation of the rented Palo Alto garage in which its founders, William R. Hewlett and David Packard, assembled HP’s first product, an audio oscillator, in 1939.

HP purchased the legendary property at 367 Addison Ave. in 2000 and launched a project to restore it to its 1939 condition last year. On Tuesday, the company held a ribbon-cutting ceremony to mark its completion. The corporate archivist, Anna Mancini, has been giving interviews on the rehab for several months, and a documentary video is posted on the HP website. Except for a few tours this weekend, however, the property won’t be open to the public. (It’s on a residential street.)

For HP, this project is loaded with subtext. Although the renovation began under former Chairwoman and Chief Executive Carly Fiorina, it’s hard to avoid feeling that Tuesday’s ceremony was designed partially to leave behind the Fiorina era, which began with great fanfare in 1999 and ended with her ignominious ouster in February, and to certify the succession as CEO of the rather less exhaustingly glamorous Mark Hurd.

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Under Fiorina, HP’s very survival came into question, as did its devotion to the core principles codified by Packard in his 1995 memoirs as “the HP Way.” In a nutshell, the HP Way exalted teamwork, individual initiative and employee dignity. Its corollaries included rock-ribbed integrity, corporate social responsibility and a reliance on innovative engineering.

The company’s diverse product lines started with industrial instrumentation and included such inventions as the first hand-held scientific calculator, the HP-35, which rendered the slide rule obsolete overnight. It entered the computer business with only equivocal success, but it’s made a mint in printers and imaging.

That success in printers, however, is a mixed blessing.

The category, which includes consumables like ink and toner, has accounted for less than one-third of HP’s sales in recent years but nearly 70% of its operating earnings.

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Yet the market’s growth is slowing, even as lower-priced competitors flood the supply chain.

Meanwhile, third-party suppliers are hacking away at HP’s franchise in ink cartridges.

As for the PC, it’s a commodity product in which innovation today comes mainly from software -- not one of HP’s traditional strengths.

Nevertheless, Fiorina doubled down on the PC bet through her controversial, polarizing and ultimately pointless 2002 acquisition of Compaq Computer Corp.

Fiorina was the antithesis of HP’s self-effacing, pragmatic founders. She paid lip service to the HP Way, but employees came to doubt that she truly internalized it.

She expanded the corporate jet fleet and seemed to trail clouds of consultants wherever she went.

Her predecessors believed in precise measurement and rigorous financial accuracy; she delivered wildly optimistic growth forecasts that wrecked HP’s reputation on Wall Street.

By the time she was forced to lay off more than 10,000 workers in the teeth of the 2000 high-tech crash, she had lost credibility with the rank and file, too.

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Yet the founders had never ruled out harsh prescriptions for corporate survival like layoffs, wage cuts or divestitures.

It’s part of HP lore that the founders averted a 10% layoff during a 1970 downturn by asking every employee to work nine days out of 10 for six months; but it’s generally overlooked that, as Packard observed in his book, this short-term tactic didn’t mean HP was committed to “providing absolute tenure for our people.” Indeed, in the early ‘90s HP stringently downsized, mostly through buyouts and early retirements similar to those imposed at other corporations.

Fiorina’s layoffs, while certainly larger and possibly harsher than those that came before, were a response to a dramatically changed marketplace and perhaps weren’t as much of a violation of the HP Way as her detractors suggested. (Packard died in 1996 and Hewlett in 2001.)

Hurd, a former CEO of NCR Corp., has now inherited the task of setting the company firmly back on the HP Way. He began his tenure with a record round of 15,300 layoffs, but paired that with bonuses for the survivors to shore up morale. He also sheltered the company’s $3.5-billion research and development operation from the cuts.

Financial results are looking up. Profits improved across the board in the fourth quarter ended Oct. 31, with even the long-suffering personal computer segment showing an improved operating margin of 2.8%. (Printing and imaging was still the margin champ, at 13.2%.) Under Hurd, HP shares, which lost roughly half their value under Fiorina, have advanced nearly 50% from the trough.

Watching this company’s progress is sure to be a fascinating exercise. HP operates in several businesses where differentiating oneself is difficult and margins are narrowing.

But the company is one of high tech’s sterling names and retains a reputation for quality; as I’ve written before, my house is filled with HP products, including a 12-year-old laser printer that churns out flawless prints for less than a penny per page.

If renovating an ancient garage signals the company’s modern revitalization, that can only be a good thing.

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Golden State appears every Monday and Thursday. You can reach Michael Hiltzik at golden.state@latimes.com and view his weblog at latimes.com/goldenstateblog.


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