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CARLY FIORINA
ORACLE APPSWORLD
SAN DIEGO, CALIFORNIA
APRIL 8, 2002
"HP AND ORACLE: ALLIES FOR CUSTOMER SUCCESS"

© Copyright 2002 Hewlett-Packard Development Company, L.P
All rights reserved. Do not use without written permission from HP.

Thank you, Mark, and good morning everyone.

I'm hoping the size of this crowd is a signal that enterprise IT spending is going to pick up sooner rather than later, right? Or maybe it means that Oracle really is at the center of the universe? Oh, no, sorry, that was Larry!

Actually, I suspect the reason you're here, the reason you'll get on a plane and fly to San Diego and spend the next four days inside a dark conference center, is because you need to figure out how to get more out of your IT investments in an environment where you're being told to do more with less.

You're here because you want it to be easier to integrate new web-based technologies and processes with your existing computing infrastructure. You're here because you want more help addressing issues related to manageability and interoperability. You're here because it should be easier to get real-time access to customer data. You're here because you would really rather have solutions to your technology challenges, not the latest killer app or the newest hot box.

The good news is, for the first time in the history of this industry, you are driving the technology agenda. You are in charge. We're listening to you, rather than talking at you.

The shift I'm talking about - the one that puts you, the customer, in charge - is a tectonic shift. It is an inexorable shift. It's as big and important a shift in this industry as the one from vertically integrated centralized computing to the decentralized, distributed, networked computing world. And its impact on the future of this industry will be as sweeping.

This is the first industry gathering I've addressed since HP's shareowners met to vote on our merger with Compaq, and what is remarkable to me is that in all of the countless column inches written about this merger, a few more inches that I would have cared to have read, the one story that never made it into the headlines - maybe because it wasn't sizzling enough, or maybe because as an industry we're afraid to acknowledge it -- is the transfer of power to the customer. In a corporate drama that's rife with power struggles - this is the one that started it all.

Because when the HP board of directors went about the task of evaluating strategic alternatives for HP we looked at the technology advances underway. We looked at how customer requirements are changing. And we put all of that in the context of the competitive field that we play on. The questions we asked ourselves were these:

  • What does the future hold for technology companies that specialize in point products when customers want end-to-end, integrated solutions?
  • What happens to technology companies whose growth depends on proprietary architectures in an era where open, industry standards-based architectures will give customers the choice, flexibility and cost leverage they want?
  • What does the future hold for technology companies whose business models are tuned to the heady 40 percent to 60 percent growth rates of the 90s at a time when growth isn't expected to climb back to the levels of the good old days, ever?
  • Where will the innovation in this industry come from as companies come to grips with the massive business model and strategic shifts these changing market dynamics require?
  • What challenges and opportunities do all of these changes create for HP? What kind of technology company do we want to be? What kind of company are we truly capable of being?

The fact is, when you listen to what customers really want, and you accept the fact that customers are driving the direction of the technology industry, and you think about the implications of all that, that all of this has on the way the industry is currently structured - it's a sobering wake-up call.

In a recent white paper on "Commoditization, Standards and the Enterprise," the Sageza Group does a good job describing the hard questions and the transition this industry faces. According to Sageza, the wide availability of low-cost commodity components will bring an ever-increasing amount of computational, network and storage capability at ever-decreasing price points to most any enterprise. These hardware platforms - combined with current and emerging software standards - will provide the foundation for a new generation of network applications. Software standards will be the key.

This is all very good news for customers it means life is going to get easier. But it has very big implications for the technology industry.

Currently, commoditization is happening at the processor level. The fact is, a vast majority of mainstream computing needs can and will increasingly be met by Intel's 32- and 64-bit architecture solutions.

Sageza's paper goes on to say that historically, enterprise applications were homegrown or heavily customized implementations of vertically integrated software solutions. But the shift to distributed computing has changed the nature of applications. Web sites and web-based applications now offer functionality that was previously the domain of monolithic applications.

The fact is, the business cycle no longer supports specialized or custom-built hardware and software to meet business computing needs. Companies have to be able to adapt their infrastructures much more rapidly and deploy systems and applications as soon as they're needed. The performance and cost advantage of high-volume commodity components and emerging standards-based software has become too compelling.

Now don't get me wrong, I'm not suggesting that the vast majority of the products we develop and manufacture as an industry are commoditizing. There continues to be enormous opportunity for innovation and differentiation in this industry. There is a big difference between commodity components - like cables, disk drives, memory chips and now CPUs - and commodity products.

The point is, that we as hardware vendors, we have the opportunity to redirect the resources we have historically poured into CPU advances toward innovation in other places. It's the reason we worked with Intel to co-develop the Itanium Processor Family. Every major hardware vendor, with the exception of Sun, and now increasingly the major software players, including Oracle, is planning significant development work based on this new chipset. Prior to the merger, HP and Compaq had both announced plans to use Itanium across our high-end computing platforms.

The need for new kinds of applications and the underlying computing infrastructure to support it - thousands of servers and storage devices and many thousands of client devices - won't go away. In fact, IDC and many other experts predict the next wave of investment in enterprise infrastructure will begin later this year and will extend for several years as existing IT infrastructure is transformed into Internet computing infrastructure.

The new challenge and opportunity that hardware vendors face, in particular, is where next to add value and As we see it, there are a couple of different ways:

First, over time, as it becomes less and less about the individual ingredients - the servers, the storage, the PCs, the printers -, it will be the recipe or the solutions that drive differentiation and value-add.

Second, while the opportunity to innovate and differentiate at the processor level is going away, the opportunity to add value to hardware at higher levels - particularly at the software layer - is alive and well.

Which brings me to our merger with Compaq. How do we strengthen the ingredients of our portfolio and become a better solutions provider by combining with Compaq, and what specific assets does the merger bring in terms of hardware differentiation, including through value-added software?

First, it enables us to address many of the shortcomings and gaps in our respective computing portfolios. While Compaq is sub-scale in UNIX servers, HP holds the No. 2 market-share position. But Compaq brings their highly coveted TruCluster clustering software capabilities to this combination. In fact, it was Larry Ellison who first told me what a big advantage this would be for HP.

On the very high end of the server market, HP's Superdome and Compaq's Himalaya offerings will each play an important role in the data center, particularly for exceedingly large corporate databases that are many hundreds of gigabytes in size, and for handling large and complex "backend" online transaction processing. Himalaya, in particular, is the backbone of the world's leading stock exchanges where fault-tolerant computing is required.

And while HP is sub-scale in Intel-based servers, Compaq has the industry's leading Intel server franchise.

Clearly, we think it's important to be leaders in both the value and the volume segments of the server market because virtually all of our customers have both. That is the reality of their computing environment. In our view, being a solutions provider means being a leader in Windows, UNIX, and Linux platforms.

In the service arena, when it comes to software value-add, we intend to differentiate by being the best platforms for the deployment of the new generation of web-based applications and services. Because customers want freedom of choice, we intend to leverage both the Microsoft .Net and the J2EE web services software architectures and frameworks in the places where they make the most sense for customers.

In storage, Compaq is the leading provider of storage systems in the world on a revenue basis. Their StorageWorks product line, acquired with Digital, is strong in the mid-range storage market. And Compaq has made significant investments in the area of storage area networking by adding capabilities to enable storage resource management, data replication and virtualization while maintaining its strong commitment to open standards.

Meanwhile, HP has made great progress in our own storage offerings in recent years, particularly in high-end storage array systems. We've invested heavily in storage management and virtualization software for distributed and centralized storage systems. Together with Compaq, we have a very powerful storage offering - the industry's best storage line-up - differentiated by value-added software.

In the software arena specifically, HP's focus and strength has been and continues to be in management software. Our OpenView system and services management framework will play an important role in tying together systems - including storage systems - from HP and Compaq, as well as from other major system vendors. As a result, the combined HP/Compaq will have a significant advantage in managing the mixed-vendor environments that dominate the IT infrastructure in large corporations around the world.

By combining with Compaq, we significantly improve the core ingredients in our portfolio. We're adding new value-added software capabilities, in many cases, on top of our hardware offerings. The improvements in our portfolio, we think, make us a stronger overall solutions provider.

But in addition to better ingredients, we've also improved our solutions-delivery capability - the folks who mix the ingredients based on our customer's recipe. By joining forces we double our service and support capacity in the area of mission-critical infrastructure design, and multi-vendor support and outsourcing. We will be able to put more than 65,000 IT consulting, support and operations professionals at our customers' disposal around the world. We become the industry's third largest IT services provider - behind IBM and EDS.

And the services business itself is moving beyond people-intensive consulting kind of engagements as some businesses simply turn to outside providers to manage their infrastructure environments. Outsourcing has been one of the fastest growing segments of HP's business during recent quarters. We even see greater opportunities to serve customers through a new generation of managed services in the utility-computing realm - where everything from applications to computer power to storage are used and paid for on a pay-for-use basis over the Net.

All told, we believe this is a merger of like businesses coming together - a merger of consolidation, not diversification, and, make no mistake, this industry will consolidate. HP and Compaq are in the same businesses, we understand each other, we speak the same language. This is a merger that creates market leadership. This is a merger that will allow us to be a total solutions provider for our customers at the very center of our industry.

We've talked about how this merger improves the various ingredients in our portfolio. We've talked about how it improves our solutions-delivery capability through increased services capacity and know how. Another important benefit we think is that it significantly increases the size of our customer base. As a result, our platforms become a broader, more exciting target for application developers and partners.

Which brings me to the HP-Oracle alliance.

We have a 15-year collaboration with Oracle that includes joint research and development and the co-development of technologies and services. The two companies worked together over nearly five years to create the Oracle9i database with Real Application Clusters.

And more recently, we were delighted with Oracle's commitment to the Itanium Processor Family and the prerelease of the Oracle9i Enterprise Edition for HP-UX on Itanium for developers.

Today, more than 70 percent of our Superdome, high-end UNIX server wins include Oracle software. In fact, more than 70 percent of our HP-UX customers as a whole run Oracle applications. As we look at growing our services outsourcing business, we're finding that 95 percent of our outsourcing customers use Oracle solutions.

We take this partnership so seriously that we not only cooperate to produce value for customers, we use each other's products.

HP has built and developed the world's largest Oracle CRM (customer relationship management) implementation to give our sales force a 360-degree view of our customers and improve our level of support.

Two and a half years ago, HP made a commitment to differentiate by focusing on what we call the total customer experience and optimizing every point of interaction through the entire customer life cycle. In 1999, we started a CRM project to present one face to the customer and dramatically improve the nature of our customer interactions.

We merged 26 ERP (enterprise resource planning) implementations and 200 regional applications into one CRM system. Our goal is to generate over $1.1 billion in incremental revenue over three years while saving $100 million due to operational efficiencies, which will reduce our transactional selling costs by 25 percent.

Now, when I saw those numbers, I made a note to call Larry and tell him that we deserve one of his famous billboards on Highway 101 in Silicon Valley.

Oracle CRM software is developed, tuned and tested on HP servers, which ensures tight integration as well as higher performance. Oracle also runs its corporate CRM and ERP systems on our infrastructure. To better jointly serve customers, we linked our sales operations and lead tracking systems surrounding mutual CRM opportunities.

Today, we are also announcing that HP is Oracle's preferred infrastructure services provider for the Oracle CRM FastForward Flows application. This software works with HP's Rapid IT for Oracle CRM offering, which adds consulting and infrastructure to help you get started with your solution in 90 days or less. HP created the Rapid IT solution because of what we learned from our own Oracle CRM deployment.

Oracle and HP both keenly recognize that the objective is to produce the fastest implementation result with the highest assurance for our customers. It gets back to recognizing that you want more than a killer app or a hot box.

Our longstanding relationship with Oracle is based on trust, which means we're comfortable sharing and transferring knowledge and experience. And we have a long history of working effectively together on big installations. We understand that seamless integration of hardware and software components is essential so that you can meet your time-to-revenue goals.

And so let mention just a few of the projects we've worked on together to provide some context:

  • Online retailing giant Amazon implemented HP Superdome servers, storage and support services with Oracle database solutions to help it better manage current and future growth. As a result, the company was able to handle two-and-a-half times the number of queries as it had a year earlier, and saw a 20 percent improvement in response time to queries.
  • Best Buy, the $18 billion dollar consumer electronics retailer, had a need to completely retool its legacy financial, inventory and supply chain applications. It selected Oracle applications and open systems from HP to replace its mainframe-based solutions. The result was a scalable, stable environment that is ideal for both current and future needs.
  • Continental Airlines had two systems in need of overhaul - its systems operations coordination center, which was moving off a mainframe and needed to add new functionality for improved access capabilities, and its flight profitability system, which needed to migrate to a client/server environment and upgraded to improve its usefulness as a competitive tool. The HP and Oracle solution paid for itself in the first year of operation, and the reliability helped the airline provide better service to customers and save time and money.

In each case, Oracle brought the business applications, and HP brought the infrastructure components and a highly skilled services organization to help build, manage and operate the solution.

HP's Superdome team won't forgive me if I don't mention the fact that when it comes to Oracle databases and applications, Superdome leads the price-performance curve. HP Superdome TPC-C benchmark performance using Oracle9i is 76 percent faster with a 37 percent better price-performance ratio than IBM's highest published, comparable benchmark. And against Sun, Superdome TPC-H 3 terabyte results with Oracle9i is 66 percent faster and provides a 54 percent better price-performance ratio than published Sun results.

Before I close my remarks this morning, earlier I mentioned HP Rapid IT for Oracle CRM. I'd like to explain briefly what this offering does. Used in combination with Oracle FastForward Flows for CRM, it implements the full environment, from computing platform to application, in a fraction of the time needed for a traditional implementation

The offering includes HP hardware and software along with consulting services to accelerate the implementation. The Rapid IT part is actually a methodology that HP has designed and tailored for a number of computing environments. We identify your needs, plan the infrastructure to meet them, deliver and install the components on the site, and have a production environment in place within 90 days. This allows you to make the move to CRM with both speed and assurance.

So let me close my remarks by circling back to where I started - with the power that now lies in the hands of the customer.

This is no longer a world driven solely by the development of technology; this is a world driven by the democratization of technology. That is what a distributed, networked computing world is all about - the idea that you know your needs best and that you no longer work to find a way to fit your needs into an existing computing system, you now have the freedom to build a system to fit your needs.

Choice, flexibility, interoperability, lower cost of competitive ownership - these are the hallmarks of democracy. The age of globalization has come from this democratization of technology, and the solutions that we've talked about here today are the democratization of the innovation of technology. That's why I don't hesitate to call this a tectonic shift.

In this market, where people are free to shop for the solutions they want and need - and won't be happy until they find them - they will seek out those companies that can deliver exactly what they need. Which means that virtually every technology company will be forced to rethink how and where they add value and how they differentiate themselves. The choice these companies face will be either to narrow their sites and specialize or to expand their capabilities and become an end-to-end solutions provider.

At Hewlett Packard, we knew we could either lead this trend or be swallowed up by it. So we made our choice, and we made it early. By merging with Compaq, we become a market leader in all the essential components of business infrastructure - servers, storage, management software, imaging and printing, personal computers and personal access devices.

We will lead the shift to open, industry standards-based architectures -which is the ultimate expression of the democratization of technology - and in doing so, our offerings will provide better flexibility, better interoperability and the lowest cost of ownership in the industry.

We become the solutions provider that industry analyst Patty Seybold says offers customers something they desperately need: freedom of choice. We put the power in your hands.

We think we have more to offer than IBM precisely because we offer choice - particularly when it comes to Windows and Intel technology in the enterprise. We think we have more to offer than Sun, because Sun is a vertically-integrated, propriety vendor with a business model turned to hyper-growth. As Sageza recently noted, in a world that continue its migration toward standardized computing technologies, Sun's species appears to be increasingly endangered or significantly separated from the mainstream.

Now, to those who ask: can we execute this merger, I don't have just one reason to believe that we can - I have 1,000 reasons to believe that we can.

Over the past seven months, more than 1,000 men and women from HP and Compaq - some of whom you see behind me in this photo - have been working around the clock to make the right decisions for the new company.

To date, they have put in nearly a million hours addressing the critical factors for successful merger execution - including defining governance for the new company, ensuring an unyielding focus on customers throughout the pre- and post-close integration process, developing clear product roadmaps, preparing for day one across every level of the company, developing rigorous plans for capturing the cost-savings we have identified and staying in constant communication with employees and stakeholders.

As a result of their efforts, today, the management team is in place. The detailed business plans are drawn up. The product roadmaps are ready. The go-to-market teams are ready to pass go. And the adversity we've faced has brought the two organizations even closer together and created an even more unified and committed team. Proof that a kite rises against the wind, not with it.

So on behalf of the people of the new HP, thank you for your time this morning, and we look forward to proving ourselves against tough odds and building a new kind of technology company - one that we can all be proud of.

Thank you.


FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements that involve risks, uncertainties and assumptions. If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, the results of HP and its consolidated subsidiaries could differ materially from those expressed or implied by such forward-looking statements.

All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including predictions regarding the outcome and certification of the vote on the merger or the closing of the merger; statements regarding future improvement of HP generally or specifically its profitability, earnings, revenues, synergies, accretion or other financial items; statements about the plans, strategies, and objectives of management for future operations, including the execution of integration and restructuring plans; any statements concerning proposed new products, services, developments or industry rankings; statements regarding future economic conditions or performance; statements of belief; and statements of assumptions underlying any of the foregoing.

The risks, uncertainties and assumptions referred to above include the actual certified results of the vote on the proposal to issue shares of HP common stock in connection with the merger; the ability of HP to retain and motivate key employees; the timely development, production and acceptance of products and services and their feature sets; the challenge of managing asset levels, including inventory; the flow of products into third-party distribution channels; the difficulty of keeping expense growth at modest levels while increasing revenues; the challenges of integration and restructuring associated with the merger or other planned acquisitions and the challenges of achieving anticipated synergies; the possibility that the merger or other planned acquisitions may not close or that HP, Compaq or other parties to planned acquisitions may be required to modify some aspects of the acquisition transactions in order to obtain regulatory approvals; the assumption of maintaining revenues on a combined company basis following the close of the merger or other planned acquisitions; and other risks that are described from time to time in HP's Securities and Exchange Commission reports, including but not limited to HP's annual report on Form 10-K, as amended on January 30, 2002, for the fiscal year ended October 31, 2001 and HP's registration statement on Form S-4 filed on February 5, 2002.

HP assumes no obligation and does not intend to update these forward-looking statements.

ADDITIONAL INFORMATION ABOUT THE MERGER AND WHERE TO FIND IT

On February 5, 2002, HP filed a registration statement with the SEC containing a definitive joint proxy statement/prospectus regarding the merger. Investors and security holders of HP and Compaq are urged to read the definitive joint proxy statement/prospectus filed with the SEC on February 5, 2002 and any other relevant materials filed by HP or Compaq with the SEC because they contain, or will contain, important information about HP, Compaq and the merger. The definitive joint proxy statement/prospectus and other relevant materials (when they become available), and any other documents filed by HP or Compaq with the SEC, may be obtained free of charge at the SEC's web site at www.sec.gov. In addition, investors and security holders may obtain free copies of the documents filed with the SEC by HP by contacting HP Investor Relations, 3000 Hanover Street, Palo Alto, California 94304, 650-857-1501. Investors and security holders may obtain free copies of the documents filed with the SEC by Compaq by contacting Compaq Investor Relations, P.O. Box 692000, Houston, Texas 77269-2000, 800-433-2391.

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