1976 – Hewlett Speeches

Box 3, Folder 26 – General Speeches


February 24, 1976 – Shareholders Meeting, Palo Alto, CA


2/24/76,  Typed copy of Hewlett’s remarks


Hewlett says HP performance in 1975 can only be considered as fair, although quite good when compared to the electronics industry as a whole. Shipments up 11% to $981 million, pre-tax earnings up 3% to over $148 million. Earnings per share were $3.02, down from $3.08 in 1974.


H runs through a series of overhead slides:


Slide #1.

The first shows the sales growth pattern over the past ten years. He says the slide shows sales growth in the period 1966-1970 was 19%, and for the period 1971-1975 it was 29%. He notes Packard returned to HP in 1971.


Slide #2

Shows growth of profits for the same ten year period. Profits averaged a 9% annual growth for the first five years, and a 20% growth rate for the next five years.


Slide #3

Shows test and measurement business – about 45 of total sales. In the last five years the annual rate of growth was18% for sales and 20% per year for pre-tax earnings.


Slide #4

Data Products is the next largest category group. This is the most rapidly growing area averaging 45 percent growth in sales and 68% growth in pre-tax profit per year. He notes the 3 to 1 rise in profit between 1972 and 1974, showing the impact of the pocket calculators.


Slide #5

The Medical Group, represents about 10% of total sales. Long steady growth in sales, averaging about 31 percent over the last five years. Average annual earnings up 52% during the past five years.


Slide #6

Smallest group – Analytical

Average sales growth 34%, profits grew at 80%/year over past four years.


Slide #7

Shows how inventories grew rapidly between 1971 and 1973. Corrective steps taken that year improved this situation from a high of 30% of sales down to 21 % by 1975.


Slide #8

Accounts receivable. Percent of sales rose from 23% in 1971 to 28% in 1973. Since has dropped to 21%


Slide #9

Shows sharp increase in employment in 1972 and 1973. Static for last two years.


Slide #10

Better asset management. At the end of 1973 HP had a net cash deficit  (cash and cash equivalent less short-term borrowings) of $111 million. By the end of 1975  the net cash position showed a favorable balance of more than $33 million.


Slide #11

R&D expenditures. Averaged about 10.5% of sales prior to 1971. Due to rapid growth during the years 1972-1974 couldn’t keep up the same % to R&D. By 1974 R&D expense fell to 8% of sales, but back up a bit to 9.1 % in 1975.



Box 3, Folder 27 – General Speeches


March 23, 1976 – “The Four Musts of Hewlett-Packard,” Purdue University, West Lafayette, IN

[See also speeches dated April 20, 1977 and May 5, 1980 on this subject]


3/23/76, Typewritten draft of speech


Hewlett says, “There is always a certain advantage in choosing a provocative title – hence ‘The Four Musts of Hewlett-Packard.’ These musts are – you must make a profit, you must make a contribution, you must achieve your objectives through people, and you must give back to the community more than you take out.”


He says these “are an imperative re-statement of the corporate objectives cast into simpler categories. I want to make it clear that these imperatives pertain to Hewlett-Packard, and may or may not be applicable in all respects to other companies.”


Looking at the first imperative regarding profit, Hewlett says “In recent years somehow or other profit has almost become a dirty word. In some people’s mind it is synonymous with profiteering. There is a tremendous lack of understanding in the American public abut the size and role of profit. Let me quote you a few figures that you may or may not have heard before. These figures resulted from a survey by the Opinion research corporation  a few years ago. The following question was asked:

‘As a rough guess, what percent profit on each dollar of sales do you think the average manufacturer makes after taxes?’ The average answer came back a surprising 28% — with some groups ranging as high as 34%, and the lowest estimate around 21 percent. The actual fact is that the average American manufacturer makes only about 4% after taxes on each dollar of sales. Thus, public estimation of profit was seven times higher than reality. It is not surprising that with this point of view of profit, there has been an increasing tendency to ask business to accept greater operating costs without any offset from price increase.”


Hewlett moves to talk about the profits at Hewlett-Packard, and what they are used for. First, he says HP is not an average company – its profits are higher than the average –8 ½ % in 1975, and 9 ½ % in 1974.


Where do HP’s  profits go? He says, “Of  the approximate $900 million in profit earned by the company during its life time, about 22% went to employees in profit sharing and other benefits; 38% was paid in income taxes to the state, federal and foreign governments; less than 5% was paid in dividends to the shareholders; and the remainder of about 36% was re-invested in the company to finance its growth.


“The economy of this country is based on the free enterprise system. The life blood of free enterprise is profit, and without profit for any long period of time, the free enterprise system will disappear.”


“Profit is not something that should be put off until tomorrow, it must be made today, and each day thereafter. I know of many companies who were always gambling on the future, but somehow the future never came, and they either failed or had those blowing hopes of the future permanently stunted.”


“Profits should be the primary source of financing company growth.”


Hewlett tells of the problem a few years earlier when “through lack of attention to asset management, and failure to maintain an adequate profit level, we found ourselves on the threshold of reversing a long standing policy through funding our debt by means of long term obligations. By paying much greater attention to inventory levels and accounts receivables…we were able to reverse these trends, such that at the end of last year, we showed a favorable balance of about $46 million.”


Speaking of the next must, must make a contribution, Hewlett says they are not talking about giving money away. “We are talking,” he says, “about a technical break-through, a conceptual innovation, a better way of solving a problem, i.e., a contribution to the science of measurement computation….This implies we must spend more than the average on our R&D program, and indeed we do. Traditionally averaging around 10% of sales, this makes us a higher-than-ordinary cost company in our fields. It says we should not compete in areas where low and lower production costs are the sole measure of success. This may sound like a contradiction in view of the high competition now prevalent in the pocket calculator field, but we will have a few ideas on how to make our brand of calculator more valuable to the user.”


But when is a contribution a contribution? Hewlett says this is not an easy question to answer. “Much of our R&D effort goes into supporting existing additional product lines. Typically, in the instrumentation field a given design concept has a fairly long life expectancy, 5 to 8 years. Therefore we have ample time to plan a next generation and to incorporate into it the most advanced thinking. We have very little cosmetic face lifting….What is needed is a spark of an idea of how to do the job in a better way. I have often called this ‘engineering of opportunity’ – with this you get directly down to the problem of building a device without worrying too much about inventing a new technique as well.”


“Behind all this discussion of contribution is lurking the customer, who is the person we are trying to serve. If you are solving a real problem for him, and you are solving it at the right price, he will buy your product and will be willing  to allow you to make a profit on it. If you don’t achieve this, he will not buy it – it’s just as simple as that.


Hewlett talks about the period of time  before they were in the “big ticket items such as computers.” Back when their sales were some 250 million dollars a year, the average order was around $1000,  or about 200,000 orders per year.  “Because we had a limited customer base,” he says, “this meant that we went back to the same customer time and time again. It was essential therefore, that we solve his needs on an honest basis. It did us no good to sell him a bill of goods, for we would not be welcomed back….The customer must be happy with his product after he has purchased it. This requires that we maintain effective after-sales support; good parts availability; reasonably quick recalibration service if desired, and as we have grown, these items have continued to be a very basic part of our operations.


“If one now looks back to our corporate objectives, you can recognize specifically the objective on profit. The objective on growth is partially covered under the heading of profit, for this is the source of funds to pay for growth, and partially under contributions – for our product line will grow from these new innovative thoughts. Our field of interest is sufficiently defined under contributions, and obviously that objective, pertaining to our responsibility to customers, is also to be found there.”



Box 3, Folder 28 – General Speeches


May 27, 1976 – Chamber of Commerce, Corvallis, OR


5/27/76, Outline of thoughts  for talk, handwritten by Hewlett


After some introductory  remarks concerning HP’s products, and the corporate objectives, Hewlett says he wants to talk about a question he is sure is of great concern to this organization, as it is to him — “The subject of current trends in government and its affect on the economy of the private sector.”


“As many of you know, one of our corporate objectives is to be a good citizen in our communities, to solve more problems than we create. We feel that the betterment of our society is not a job for a few – it is a responsibility to be shared by all. This we intend to do.


“The excesses of the 19th century did nothing to allay past suspicions, even though…these were no worse than what was happening in the political sector in the U.S. – remember Tammany Hall and Boss Tweed.


Out of these concerns came the Anti-Trust legislation…which I believe were beneficial in an overall sense.” But Hewlett goes on to say that over the last 15 years there has been a trend to solve social problems at the expense of the productive economy – and he feels this has gone too far.


“One of the results,” he says, “has been the rise in importance and number of independent and appointive boards and commissions. A second has been the rising voice of the ‘so called’ Consumerism.” He says he would like to discuss each of these separately along with the effect of each on the business community.


Hewlett defines the appointive form of government as one that has regulatory power independent of any legislative or executive body. He lists some recently created: Consumer Product Safety Commission, Environmental Protection Agency, Equal Employment Opportunity Commission, Office of Health and Safety.


He says the problems with the appointive form of government are that it is not responsive to the public at large, once started there is no way to get them out of business.


On “Consumerism” Hewlett says he is very much in favor of the consumer’s voice being heard, but at least two problems with this trend have arisen:

“The tendency for a small vociferous minority to exert undue influence, and

The susceptibility of regulatory agencies to react to such pressures.”


Hewlett gives seat belts as an example of the “tyranny of the minority over the majority who did not want all those gadgets.”


Another example he cites was the how an action by the  Consumer Product Safety Commission resulted in at least eight pregnant women undergoing abortions based on misleading information put out by the Commission.


Another problem with these Boards which Hewlett cites is “the pressure they exert to replace anyone on the Board who may have first hand knowledge of the subject, simply because they may be biased.”


Hewlett moves on to the subject of “Corporate morality.”  He says he “thinks many of the cases reported where there has been flagrant, inexcusable, disgraceful, [events], action should be taken to punish the individuals or corporation involved, [but]:


“Need a reference standard, and

There is the danger of exporting our own morality”


“While the government is looking into the matter of morality in the private sector, they should also be looking at themselves as well.


“I know of flagrant cases where in order to assure reelection an official has taken action that clearly was not in the public good.


“It is an axiom that a politician’s first responsibility is to get reelected. Similarly, it is business’ first responsibility to make a profit. But it is clearly understood that such responsibility must be tempered with some respect for the public good. This same tempering should be part and parcel of the responsibility of the politician vis-à-vis his reelection.


Hewlett says he has been only critical thus far and would like to discuss what might be done to start to change the less than satisfactory environment in which the private sector finds itself.


A)   “Reevaluate which of the multiple agencies – Commissions are really needed, are doing a truly useful and important job. Those that do not meet this test should be phased out


B)   “Those that continue should be classified as to who should be truly independent, such as the Federal Reserve Board. The rest should be assigned to a branch of the executive branch to assure responsibility to the electorate.


C)   “Where governing bodies do exist they should be selected from individuals who have first hand knowledge of the subject.


D)   “Codes of ethics should be established for both the private and the public sectors and that should be enforced. None of this ‘legislators protection society’ business.


E)    “Leaks should be stopped, and this means starting at the top.


F)    “Most important of all there should be developed a better understanding between the public and private sectors.

1)    The private sector should understand and learn more about the important role of the politician and how very different it is from his world,

2)    The politician should understand better both the role of the private sector and what makes it tick. In fact I think that in general he has a better understanding of the problems of the private sector than the private sector has of his.


G)   “I feel that there is an encouraging trend in all of these directions but it is just not going to happen by itself, nor is it going to happen overnight.


“We all must become involved in a move toward representative government and mutual understanding and trust between the public and the private sector.


“I would also like to take this opportunity to publicly thank all of our friends here who first brought the advantages of Corvallis to our attention, and their tremendous labors to make our coming a reality.”