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SEPTEMBER 25, 2003

© Copyright 2003 Hewlett-Packard Development Company, L.P
All rights reserved. Do not use without written permission from HP.

Thank you very much.

It really is great to be back here in Houston, and especially on the occasion of this Fourth Annual Technology Forum.

Now, those of you who may have seen me speak last summer in Houston know that while I am coming today from California, and reside in California – that I actually am a Texan. I was born in Texas. I spent many summers here in Texas. I actually come from a long line of farmers, and ranchers, and Texas preachers. We had a little bit of cattle in our family, a little bit of oil – emphasis on the word ‘little’. My father was born and raised in Calvert, Texas, where I spent many of my summers, and my dad taught at the University of Texas Law School.

As a transplanted Californian, I must say that when we look at our Governor's race, about the only other place we can look to for entertainment that even comes close is this state and the redistricting debacle. And when you're a Californian, you know every time you see a crowd this big, you just assume people are running for Governor; and no, I am not. But who knows? There may be a day when I can come to Texas and say, ‘Our governor can bench-press your governor;’…or, maybe not.

All kidding aside about bench-pressing, I think this is a city that knows a thing or two about heavy lifting. The thing that I have always loved about Houston is every time you go through good times, you come out better; and every time you go through bad times, you come out even stronger.

The great writer Wallace Stegner once described this land as “the native home of hope,” and I think that describes Houston extremely well. This is truly a place where people believe that if they work together, everything is possible. It is also why at HP, we really like to think of Houston as our second home. Of course for two decades, Compaq was a vital part of the Houston community, and I know that when our merger was announced two years ago, there were many in the community who feared that Houston would no longer be important to HP.

Last summer, I came to Houston and said that among other things, if the people of Houston hear nothing else, hear this: the name may be changing on the Compaq building, and the letterhead may be different, but we aren’t about to leave. Compaq was a vital part of this community and HP will always be a vital part of this community as well. That was the commitment I made, and since last August, we have been working hard to deliver on that commitment.

With more than 9,000 employees here in Houston, we feel privileged to be an important part of the community. Houston is actually our single largest site anywhere in the world. We are now a company of about 140,000 employees in 176 countries around the world, and Houston is our single largest site. I'm also pleased that we could recently announce that we would be moving another 475 jobs into Houston from some of our manufacturing locations in Roseville, California.

When we moved those positions from California to Houston, we offered employees the opportunity to move with the job, and we had about 161 employees from California who made the decision to come to Houston. I ran into one of them this morning while I was talking with our employees at the Houston campus, and asked her how it was going. She said, “It's going great. I love it here.”

And of course, it is no accident that we would choose to not only have this be our largest, single location anywhere in the world, or that we would choose to remain a vital part of the community here, or that we would choose to move jobs from California to Houston, or that the woman I spoke to would feel like her move was going great. None of that is an accident, because when you combine an educated and inclusive community, and good research institutions, and an active business community, and energetic local officials, and an attractive investment climate – what you have are all the elements that lend themselves to an entrepreneurial culture and innovative success. And that is exactly what we find here in Houston.

It is also no accident that some of our leading technology is developed here, or that Houston alone holds nearly a third of HP's entire patent portfolio. By the way, that's significant…HP today generates five patents every working day. We have increased our rate of invention by 350 percent in the last couple years. Innovation is incredibly important to us; it is our life's blood. We are a technology company, but this city owns nearly a third of all of those patents, so it is a source of great innovation and invention. And we are pleased to play a role in helping to create the next generation of innovators and inventors here in Houston.

I'm pleased to say that one year after announcing a new relationship between HP and the Houston Independent School District, today, every single teacher here either uses one of our laptops or is attached to one of our servers, and an increasing number of students are taking our technology into the classroom.

Now, for too many years, it was too easy to assume that just because some young people didn't have the same opportunities as someone else, that they didn't have talent. And I think what the Houston Technology Center and others are hoping to prove is that those ugly assumptions are wrong.

Not only does every single person have potential inside them, but of course, the right teachers married to the right technology can help unlock that potential and take this community to places it has never been before.

That is why we are such strong believers in the work that HTC's Emerging Markets Development Group is doing to help nurture those ideas, and to help in particular women-owned and minority-owned businesses to take root and grow.

HP in all of our legacies has always believed that giving back to the community is part of our responsibility; it is part of who we are. I had a great opportunity this morning to talk to about 250 of our employees here who give of their time and their passion to give back to the community, and I had breakfast with them because I wanted to thank them, and I wanted to thank you, as well. Because I think giving back to communities, making a positive difference in communities, reaching out and engaging those who are underprivileged or under-served or under-accessed is not just the right thing to do. It's not just a good thing to do. It's not just something that makes our hearts feel better. It is a smart business thing to do.

We are a technology company. Innovation is our life's blood. And today, when we look out in the world, we see that only 10% of the world can buy our products. We see that unless we educate and excite more minorities and more women around the possibilities of technology, and get them engaged in science and engineering, that we will not have enough qualified engineers to do the work that we need to do here to continue to help our company grow.

In other words, giving back to the community and reaching out, and helping create opportunities through the power and possibility of technology for those who are underprivileged, or under-accessed, or under-served is a smart business thing to do because those same people some day will be our customers…our partners…our employees. It is one of the reasons why I am actually sad that my schedule today didn't allow me to be here tomorrow for the Houston Small Business 100. This is being sponsored by the Houston Business Journal, and whose publisher, I understand – John Beddow – is a member of the HTC Advisory Board. I'm sorry because it's a great cause and a great event, and I'm sorry as well because I always get energized when I meet with young entrepreneurs with great ideas.

The willingness to take risks is what makes our economy grow, and as the CEO of a technology company that happens to be the world's largest, and the leading technology company for small and medium businesses, I think we have an opportunity to partner with these young entrepreneurs to provide solutions to help make their dreams come true and to gain a lot and learn a lot in the process.

Like the HTC, like the Houston Business Journal – at HP, we believe that part of our job as a technology company during an age in which knowledge and information can make all the difference, part of our job is to use our expertise and to use our technology to unlock the potential that exists in every single person.

A year ago, I told this community that we were bringing what we called an i-community here to Houston. We have these i-communities in places around the world – from East Baltimore, to East Palo Alto, to South Africa, to India. These are concentrated efforts to help develop opportunities and unlock potential, particularly in underprivileged or under-accessed or under-served communities.

And basically, the idea behind these i-communities is rather than just writing a check, we put our own people on the ground to work in these communities, helping community leaders set their own goals, set their own benchmarks and their own priorities, and then bringing – in addition to our money and our technology – bringing our management skills to bear, as well as our resources to help the community meet their goals.

In East Palo Alto, for example, we helped develop a small business incubator that has so far started more than 30 businesses, created more than 120 local jobs, and generated a million dollars in new revenue for the local community.

A year ago, when we announced that we were bringing an i-community here to Houston, we also announced that we were searching for the right group to partner with, because one of the things that we've found in working in these communities is that you first have to become a part of the community. It is a concentrated and dedicated team effort, as opposed to just throwing money and technology at the problem, and therefore, picking the right partners we learned is critically important to the success of these i-communities.

We have found the right partner. We've decided to partner with the Fifth Ward Community Redevelopment Corporation, which is a group that I know is well-known to all of you here today. And over the next three years, we will be investing $3 million to use technology to catalyze change and to create new businesses, and right now, I'd like to introduce you to two people who are here today representing the i-community: Harold Price and David Wood. We're delighted to have formed a great partnership and look very much forward to our work in the i-communities.

One of the things we've also learned is we think we not only help make a difference in communities, but our people absolutely get totally jazzed about what they're doing.

Now, one thing that we also believe at HP is that great organizations are defined not simply by their capabilities, but by their character. For communities that take the responsibility upon themselves to provide such a great atmosphere for business, we believe we have responsibilities in turn – particularly for companies like HP that have the kind of global reach and global resources that we have. And so, even while we are sponsoring the i-community and a number of related education and technology initiatives, we're also going to do so while continuing to meet more than $2 million in other commitments to this community, including our sponsorship of the Houston Marathon the week before the Super Bowl next year. That ought to be an exciting month or two, as well as the touring exhibit of the New York Museum of Modern Art, which will be stopping in Houston as its first stop and only U.S. city on the tour.

We believe that supporting initiatives that promote creativity and sponsor a sense of community are important in making our country more successful.

I don't know how many of you have seen our advertisements – hopefully, many of you – but you will notice that we have a phrase at the end of those advertisements, which is: “everything is possible.” And for me, and for us at HP, that is much more than a marketing slogan; I actually believe that. Not that everything is easy…not that everything happens right away…not that hard things don't require hard work and sacrifice, and yes, some setbacks, but when people work together focused on a common goal, enabled and empowered by the right tools – everything actually is possible. And I think the work that the HTC and so many of you do in the community helps prove that that's the case every single day.

Now, let me talk just for a couple of minutes about our business, which is part of the reason we're able to do all these things. It's no secret that this has been a tough couple years for the economies of this country and around the world, and that it's been a tough couple of years for IT in particular. And I think there is a tendency for a lot of people to look at what's gone on in the information technology industry and to make one of two assumptions...

Some people assume that IT is dead, that it doesn't matter, that innovation is gone, that there is no room for innovation in the technology industry, or that innovation and IT are irrelevant. I really don't want to dig a Texas-based competitor, but we actually think innovation does matter tremendously to technology, and I'm pleased to note that it was not the University of Texas, but rather the Harvard Business Review that wrote an article recently saying that IT doesn't matter and innovation is dead – because we believe innovation matters tremendously, and technology is far from dead. But there are also people that believe that when the economy comes back, technology spending is just going to snap back and everything is going to be the way it was before the economic downturn began, and I think that is equally wrong.

What we see happening in technology today is a fundamental change in what customers require of technology, and this fundamental change is happening because technology is more important, not less important. And, therefore, customers aren't willing to make the same kinds of compromises they used to make.

Example: When I talk to CEOs today or CIOs of companies, large and small, what they will tell me is: ‘You know what? I actually do need it all. I need lower total cost of ownership. I need quality. I need reliability. I need flexibility. I need security. I need innovation. I actually do need it all. I can't trade off any more between innovation and price, or innovation and security. I have to have all those things together. I have to have speed, flexibility, and quality and reliability.’

If you think about the problems that our nation faces, problems like healthcare – those problems will be solved over time in large measure because of the application of technology, but the technology that gets applied to an industry like healthcare has to deliver it all. It can't simply be a science experiment or a killer app. In other words, it has to be technology that truly is innovative and leading edge, and utterly reliable and high quality, and utterly secure – because now of course, peoples' lives depend upon it. And because technology is more important to business and life, and because customers are willing therefore, to compromise less, the bar has gone up and it is harder for companies to get over.

Customers also tell us something else about technology – whether they are CEOs, or CIOs, or consumers – they tell us that technology is still too complex; that things don't work together the way they should; that there is still too much that stands between what they want to achieve, and what the technology allows them to achieve. They want technologies to work together. And so, two years ago, we concluded that in order to get up over that higher bar of what customers really want, in order to lead in this new era when technology is at the core of business and life, in order to be the leading technology company in the world – which is our ambition – and to meet those uncompromising requirements of our customers, that we had to build a bigger, stronger company. And we think we are well on our way to do that.

Now, there were a couple things we said we had to do in order to build that bigger, stronger, better company. One, as I mentioned already, was to accelerate our rate of innovation, because invention is our life's blood, and that's why we're proud that we generate five patents a day. We are proud that we have introduced more new products in the last 12 months than in any other comparable 12-month period in our combined companies' histories. Just as an example, in August you may have noticed that we introduced one hundred and fifty-eight new products into the consumer space in a single day. So, the ability to accelerate that rate of innovation, the ability to sustain $4 billion of annual R&D spend, is incredibly important. So that was one thing we knew we got by putting this company together.

Another thing we knew we had an opportunity to do was fundamentally improve our cost structure. In an era where technology is core, customers must have consistently and constantly improving total cost of ownership, and so I believe a cost structure is a competitive weapon or a competitive vulnerability – there is no in-between. Our cost structure needs to continue to be a competitive weapon.

We said when we originally announced the merger two years ago that we would take $2.5 billion out of our cost structure by 2004. We took $3.5 billion out within 12 months, and that is being translated into savings for our customers with ever more competitive prices and improving profitability for our shareowners.
So, innovation, high tech, a competitive cost structure, low cost…We also, of course, vastly improved our competitive position. We are number one or number two in virtually every category in which we compete, whether it is imaging and printing, or personal systems – from PCs to handhelds, or servers, or storage, or network management software or professional services. We are also the leading consumer technology company in the world today. We are the leading small and medium business technology company in the world today, and a $36 billion enterprise technology company today.

Today, more than one billion people around the people use HP technology every day. That means, if you made a city of all of our customers, it would be 526 times larger than Houston. We are engineers; we are precise – five hundred and twenty-six times… Every day, we process over $30 billion in business over the Web. We are the largest single e-commerce transactor in the world. Think about it – every day, we process $30 billion of business over the Web…

For our customers, if you add all that up, we think we go to market with a value proposition that sets us apart. We think what we deliver is real innovation – real and sustainable innovation – focused at what customers are looking for most, at a price that our customers can afford, with an experience that sets us apart. And when we talk about total customer experience, that's not California language – although it sounds a bit like that – it is actually a very disciplined process that we use inside our business to measure every aspect of the life cycle of our engagement with a customer. We measure it, we manage it, we set improvement goals for it, and we pay ourselves on whether we deliver against those goals. Part of my pay, in addition to part of all of my senior managers' pay, is tied to whether we deliver against our total customer experience improvement goals; so it's a disciplined, serious process for us today.

Let me just spend a minute talking a bit about enterprise, and small and medium business, and consumer, and I'll wrap it up here. I think what I would say about enterprise technology – and for those of you who are operating in fairly large businesses, you know this, but it's a little bit illustrative of what I was saying before – that customers are no longer willing to make tradeoffs.

The '80s were the environment when IT was kind of a cost center. It was in the back room. It needed to be stable. It needed to be high quality. It needed to be reliable, but, frankly, nobody else much paid any attention to it. It had to be back there and working, and the name of the game was stable, quality, reliable.

Then, the '90s was the era of speed and flexibility. This was the era when people threw money at technology and said, ‘I'll spend whatever it takes, but I've got to go fast.’ And of course today, what's happening is customers are saying, as I mentioned earlier, ‘I need stable, and high quality, and reliable, and I need speed and flexibility.’ And what's also happening is that customers are realizing that processes and IT have to be linked together – that you can't make the improvements you need in your business processes without thinking about your technology at the same time and vice versa.

So at HP, we're using our own experiences and the industry's strongest portfolio of products and people and services and world-class partners to help customers get all of their technology on the same page to manage change and to move forward. And we call all of that the Adaptive Enterprise – I'm not going to take you through all those details, you can relax…But, suffice it to say that we used these tools, these disciplines, these methodologies, the software, the products, the people – we used this to pull off the largest merger in the history of the technology industry, and we did it a year ahead of schedule and a billion over plan, and that over plan is a good thing in this case.

And in that process, our tools and disciplines and techniques and technology helped us coordinate over 7,000 applications, and 160,000 employees, and 260,000 email addresses – and get all of that put together as one company interfacing with our customers on day one. By the way, if you do the math, you'll notice that many people had more than one email address, something I find fascinating.

Now, for small and medium size businesses, the challenges are different. Of course, small and medium businesses need a smart office to succeed, and small business owners like the ones all of you are helping to support and nurture, small business owners take risks every day, but one risk they're not willing to take is a risk on their technology. It's got to keep them leading edge, but it's also got to work every time.

And so last week, we announced what we call our Smart Office Initiative, which is a comprehensive and sustained effort across our company to deliver more for small and medium businesses, and to make the entire technology experience – from the purchase of the technology, through the financing of the technology, through the support of the technology – a more reliable, less complicated, and more effective and efficient process. Our efforts build on the potential that we all know is inherent in technology today, but sometimes, the promise and the potential of technology falls short.

And finally, for consumers we know that they're excited about digital technology. But it's also true that consumers tell us it is too complicated, and so we are focused on delivering for our consumer customers what we call simple and rewarding experiences, and that is part of our huge consumer launch in the first week of August that I mentioned earlier with 158 new products; but more importantly, really rewarding as well as simple experiences around and particular digital imaging and digital entertainment.

So, what does all that mean? It means that information technology isn't going anywhere. It means that information technology is going to continue to be central to our lives. In fact, it is becoming more and more core to our lives and our businesses, but, to achieve its potential, information technology has to be easier to use and easier to own and easier to run.

In other words, technology has to work for you, not the other way around. That is what gets me up in the morning; that is what makes me passionate about the company called HP – it’s the opportunity to use technology in a way that makes a difference, that makes a positive difference in peoples' businesses and in peoples' lives and in communities here and all over the world.

We are delighted to be a part of the journey that this city is taking. We feel privileged to be a market leader at a time when technology truly has the potential to improve the ways we all live and work, and when technology has the potential to empower people like never before – people anywhere, no matter where they are, or where they come from, or what their circumstances are – one of the great things about technology is it is a great leveler.

And we are more proud than ever to say that increasingly valuable parts of our journey as a company are happening right in Houston. I think this state and this city – as well as the Greater Houston Partnership and the Houston Technology Center – have proven time and time again that the power to shape the future really is in our hands, that everything really is possible.

Thank you for letting us be such an important part of this community and an important part of your journey.

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