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Hewlett-Packard

Abstract

Silicon Valley’s origin story has an address: 367 Addison Avenue, Palo Alto, the one-car garage where Stanford graduates Bill Hewlett and Dave Packard, nudged together by professor Fred Terman, formalized a partnership on January 1, 1939 with $538 and settled the company name by coin toss. HP built the Valley’s first great company and its most imitated culture (the HP Way) then lived long enough to become a cautionary tale: from precision instruments to computers to calculators to printers, then a two-decade slide through a bitter merger, a boardroom spying scandal, a serially fired CEO bench, an $8.8 billion acquisition write-off, and a 2015 split into two companies neither of which builds anything Bill and Dave would recognize. The garage is a California Historical Landmark: “Birthplace of Silicon Valley.” What was born there outlived the company that built it.

HP HQ Palo Alto
Hewlett-Packard’s headquarters in Palo Alto. Image: LPS.1, CC0, via Wikimedia Commons.

The Garage and the Coin Toss

Fred Terman, Stanford’s radio-engineering professor and the impresario of what became Silicon Valley, made a project of keeping his best students from fleeing Depression-era California for East Coast jobs. Two of them (William Hewlett and David Packard) set up shop in the garage behind Packard’s rented house. On January 1, 1939 they formalized the partnership with $538 in pooled capital; a coin toss decided the name order, and Hewlett won: Hewlett-Packard.

Their first successful product, the HP 200A audio oscillator, was classic HP: a precision instrument at a disruptive price (a resistance-tuned design using a light bulb for stabilization, Hewlett’s Stanford thesis work). Its first famous customer was Walt Disney: a Disney sound engineer bought eight 200B oscillators at $71.50 each to test the pioneering Fantasound stereo system for Fantasia (1940). First-year profit: $1,563.

The HP Way

For its first three decades HP was a test-and-measurement instruments company, oscillators, voltmeters, signal generators, the unglamorous equipment on every engineer’s bench. What made it famous was how it was run. The HP Way meant profit sharing for all employees, catastrophic-illness coverage decades before it was normal, promotion from within, engineers trusted with open equipment cabinets, and management by wandering around, Packard’s term for executives learning by walking the lab floor. In the 1970 downturn HP famously avoided layoffs with the “nine-day fortnight”: everyone, founders included, took the same 10% cut. Generations of Valley founders (the ex-HP engineers who seeded hundreds of companies, Steve Wozniak most famously among them) treated the HP Way as the reference implementation of how a technology company should treat technical people.

The company went public in 1957. Packard later served as U.S. Deputy Secretary of Defense (1969–71); the founders’ foundations (Hewlett, Packard) became two of America’s largest philanthropies.

Computers by the Back Door

HP entered computing sideways, and named things cautiously to avoid frightening its instrument customers:

  • HP 2116A (1966): HP’s first computer, sold as an “instrumentation controller.”
  • HP 9100A (1968) (a programmable desktop machine marketed as a calculator; HP’s own advertisement in Science called it a “personal computer”) one of the first uses of the term in print, a decade before the PC era.
  • HP-35 (1972), the first handheld scientific calculator, built because Hewlett wanted the 9100A to fit his shirt pocket. At $395 it killed the slide rule within a few years, an entire century-old engineering culture retired by one product (see Before the Computer: Mechanical Calculation).
  • The HP 3000 minicomputer line (from 1972) ran business workloads for decades alongside DEC’s machines, and HP’s PA-RISC processors (from 1986) made it a serious architecture house (see RISC vs. CISC).

The most consequential computer HP built was one it declined. Steve Wozniak, an HP calculator engineer, dutifully offered his employer the design that became the Apple I, and HP turned him down five times, releasing him to found Apple (see Fun Fact: Wozniak Offered Apple to HP).

The Printer Annuity

In 1984 HP shipped both its first inkjet and the LaserJet, the desktop laser printer (Canon engine, HP everything else) that became the standard output device of office computing and, with PostScript-era page description, a pillar of desktop publishing. Printers gave HP the most durable business model it ever found: the razor-and-blades economics of ink, among the most profitable liquids ever sold. For the next forty years, whatever happened to HP’s computer ambitions, ink paid the bills, and slowly redefined the company around its least Hewlett-and-Packard-like business.

The Long Unraveling

  • 1999: HP spins off its founding soul: the instruments business leaves as Agilent Technologies. Carly Fiorina arrives as CEO, the first outsider to run HP.
  • 2002 (Fiorina pushes the $25B Compaq merger through a proxy war against Walter Hewlett, the co-founder’s son) the HP Way’s establishment fighting the company’s own board, and losing narrowly. The merger made HP the world’s largest PC maker (a title it held from 2007 until Lenovo passed it in 2013) but never produced the promised profits; Fiorina was forced out in 2005.
  • 2006, the pretexting scandal: HP’s board, hunting press leaks, hired investigators who impersonated directors and journalists to obtain their phone records. Chairwoman Patricia Dunn resigned under criminal charges (later dropped); the affair became a corporate-governance case study.
  • 2010: CEO Mark Hurd, who had restored profits by cutting deep, resigned over an expenses-and-conduct scandal and walked across the street to Oracle.
  • 2010–2011: HP bought Palm for $1.2B to get webOS, shipped the TouchPad tablet, and killed it after 49 days on the market (see Dead End: Palm and the PDA).
  • 2011–2012: CEO Léo Apotheker bought the British software firm Autonomy for $11.1B; a year later HP wrote off $8.8B, alleging accounting fraud. The saga ran for over a decade: founder Mike Lynch was extradited, acquitted by a US jury in June 2024, and died two months later when his yacht sank off Sicily. Apotheker lasted eleven months as CEO.
  • 2015, under Meg Whitman, HP split: HP Inc. (PCs and printers) and Hewlett Packard Enterprise (servers, storage, services). The Itanium server line it had co-developed with Intel was by then a well-documented casualty (see Dead End: Intel Itanium).

⚠️ Dead End: The HP Way Itself

The technology survived; the culture is the casualty worth an autopsy. The HP Way rested on a compact (employment security, profit sharing, engineer autonomy) that assumed patient owners and product cycles measured in decades. From 1999 on, every chapter cut against it: an outsider CEO recruited for showmanship, a merger fought against the founding family, tens of thousands of layoffs under Hurd, a board that spied on itself. Each step was defensible quarter by quarter; the sum destroyed the company’s one inimitable asset. The lesson is not nostalgia (instruments-era HP could not have survived unchanged into the commodity-PC age) but specificity: culture is capital, it can be spent, and HP spent it without ever finding a business that earned as much as the culture had. Meanwhile the idea born in the garage (Terman’s model of university-fed, engineer-run startup companies) became the operating system of the Valley itself. The garage at 367 Addison Avenue was designated California Historical Landmark No. 976 in 1987: “Birthplace of Silicon Valley.” It commemorates the founding, not the corporation.

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