© 2007 Hewlett-Packard Development Company, L.P.The information contained herein is subject to change without notice

Richard WalkerVice President& General ManagerConsumer PC BusinessUnit

Discussion

• A little HP history• A changing world• PC market characteristics• HP position• HP operating model• Conclusions• Q&A

A little HP history

• Incorporated in 1939• Established European HQ 1959,

Germany as center for Europeanmanufacturing operations

• By 1969 international business was30% of total sales

• 1980 signed MOU with China govt.led to JV in 1985

• Significant investments in China,India and Brazil

• 2006 $92B revenue, internationalsales account for 56% revenue

Jack Welch 1987

“The winners in these global games(business) will be those who can puttogether the world’s best in design,manufacturing, research, execution,and marketing on the largest scale.Rarely are all of these elements foundin one country or on one continent.”

”Evolving Industrial Alliances”, The Bridge,1987Source: W.F.Miller professor emeritus Stanford University

An interesting world

“The world has arrived at a rarestrategic inflection point where nearlyhalf its population living in China, India,Russia and Brazil have been integratedinto the global market economy, manyof them highly educated workers, whocan do just about any job in the world.”

Craig Barrett, IntelJanuary 2004

Source: Tom Peters

Asia to dominate global population

Population in 2005: 6.5BForecast for 2010: 6.8BForecast for 2015: 7.2B

Global population (millions)

© canalys.com ltd.Source: CIA World Factbook and UN world population prospects

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Africa

Asia

Europe

Latin A

meric

a

North A

meric

a

2005 2010 2015

2005 20152010

HP investment drivers

• Market access• Competitiveness• Global footprint and

sources of supply to getthe best value for HP’sbusinesses

• Capitalizing on highgrowth / emergingmarkets

PC market characteristics• Aggressive competition

• Global and local• Speed really does matter

• Time to market with new products• Meeting market cycles• Rapid new designs• Inventory turns

• Unrelenting cost pressure• Lower and lower ASP’s• Material and non material costs

• Partner choice is critical• Must be world class in execution• Must be low cost producer• Must meet commitments

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

HP Acer Dell FSC Toshiba Lenovo Packard

Bell

Apple Medion Sony

Q4 2005 Q4 2006

Top 10 vendors by unitsshipped

#1worldwide

Unit market share

Note: NEC consumer PC shipments shown as “Packard Bell” for comparisonSource: Canalys estimates, PC Analysis EMEA, January 2007

Our journey to date

($800)

($700)

($600)

($500)

($400)

($300)

($200)

($100)

$0

$100

$200

$300

$400

$500

$600

$700

$800

FY01 FY02 FY03 FY04 FY05

(dolla

rs

in

mill

ions)

(8.0%)

(7.0%)

(6.0%)

(5.0%)

(4.0%)

(3.0%)

(2.0%)

(1.0%)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

OP

% o

f Rev

enue

FY06

• $30B revenue

• $1.2B operating profit

• 3.9% revenue

Q107

• $8.7B revenue

• $414M operating profit

• 4.7% revenue

$1.5B operatingprofit turnaroundsince FY02

Operating model

continuous operational transformation

Sources ofsupply

HP Managed

• processors

• operating systems

• graphics

• memory

• panels

Partner Managed

• commodities

• components

Manufacturing

Partners

• global factory footprint

• world class

logistics

• system design

• NPI engineering

• system integration

• system test

• QA

• OBA

logistics

Truck

Boat

Air

HP regionalhubs

customs

PartnerA

PartnerB

PartnerC

PartnerD

PartnerE

Retailers

Resellers

Distributors

forward &reverselogistics

Execution for distinct market/customer cycles : consumers,commercial

Supply base is global

Memory

Memory

Processors

GraphicsChipsets

Hard drives

Optical drives

LCD PanelsLCD Panels

OperatingSystems

SecuritySoftware

Manufacturing

Hard drives

HP Managed

Partner Managed

Managing costs is critical

$30B

Revenue $1.2BOperating

Profit

$28.8B

Cost

• direct labor

• material costs, manufacturing / supply chain costs

• logistics costs (forward & reverse), warranty/support

• non material costs: channel costs, marketing / promotion costs etc

FY06

Operating modelinitiatives are

focused on this

….but it’s not about labor arbitrage

End to end value chain

$28.8B cost opportunity

Sources ofsupply

HP Managed

• processors

• operating systems

• graphics

• memory

• panels

Partner Managed

• commodities

• components

Manufacturing

Partners

• global factory footprint

• world class

logistics

• system design

• NPI engineering

• system integration

• system test

• QA

• OBA

logistics

Truck

Boat

Air

HP regionalhubs

customs

PartnerA

PartnerB

PartnerC

PartnerD

PartnerE

Retailers

Resellers

Distributors

forward &reverselogistics

Execution for distinct market/customer cycles : consumers,commercial

Emotions run high

“The White House supports off-shoring of jobs,saying that that’s good for our country. Well,

you tell that to the nine million Americans whoare out of work”.

ex-US SenatorTom Daschle

Competitiveness

“It’s vital for America that we maintain leadershipin the industries of the 21st century – computer

technology, space technology and biotechnology.To lead in those industries, we have to think

everyday about our competitiveness”

FormerFormer

HP CEO

Carly Fiorina

Our business reality…

It’s not…“out-sourcing”“off-shoring“near-shoring”“in-sourcing”

but…”best- sourcing”

Tom Peters

Conclusions• We face strong global and local

competitors

• Globalization has always been part ofHP’s DNA

• Constant need to assess operationalefficiency

• Partnerships and who we select arecritical

• The most efficient end to endecosystem wins

All this translates to customer advantage

Simple &easy to use

Availablewherecustomersexpect usto be

Broad productportfolio

Meaningfulinnovation

Q&A