HP employees get mammoth bonus

LET THE MEMOS FLY thick and heavy. In case you missed it, HP had a good Q4, and it announced the numbers last week. While my antennae have not stopped twitching, there is reason for rank and file HPers to rejoice, you get a bonus. The numbers don't lie, but the spinning won't stop. The whopping 1.2% you get is 1.2% of your second half salary, or .6% of your total earnings.

Please stop the spinning people, just call slightly more than half a percent half a percent, even $600 per $100,000 would seem a little more honest. Either way, congrats on a good quarter, and the memo is reproduced below, without editing. µ

To: All HP Employees
From: Carly Fiorina
Re: Q4, FY04 Performance Review

In addition to the text transcript below, employees may access a video replay of Carly Fiorina's Q4, FY04 performance review message. Go to hpNOW for more information: < http://hpnow.hp.com/news/earnings/q4fy04/ >.

Hello.

Yesterday, we released our fourth-quarter results. Since many of you have already reviewed the details of our Q4 results on the @hp portal and in the media, I'm not going to repeat all the numbers. But for those of you who haven't yet studied them, I encourage you to do so. They reflect a lot of hard work and a lot of satisfied customers. Working together, we overcame the execution problems that hurt us in Q3.

SOLID NUMBERS, GREAT PROGRESS
Here are some of the highlights. We delivered solid revenue growth of 8 percent year-over-year, and achieved record revenues in every business and every region. This growth, combined with excellent expense management, drove an increase in non-GAAP earnings per share of 14 percent, and GAAP earnings per share of 32 percent.

On a full-year basis, total revenue grew $7 billion (US) -- 9 percent year-over-year -- to $80 billion. We generated a record $5 billion in profit and achieved our most balanced segment performance to date. We also continued to generate strong cash flow from operations, which enabled us to make strategic acquisitions in software and services, and repurchase $3.3 billion worth of our shares.

In addition to executing our current business, we strengthened our competitive position during the quarter as well with significant new offerings in storage, blade servers, imaging and printing, and digital entertainment.

We continued to make substantial investments in our direct sales capabilities, with overall volume direct revenue up 25 percent for the full year.

We made good progress on a customer-segment basis, with full-year revenue up 14 percent in our corporate accounts, and public sector contract wins in excess of $1 billion for the year. In the small- and medium-business (SMB) market, we regained the No. 1 position in the Americas SMB server market in the second calendar quarter, and that allowed us to further extend our worldwide lead by almost 1.5 points. And, finally, we improved TCE significantly in every segment.

Thank you for all the hard work -- and the teamwork -- that made our success possible.

READY TO LEAD
This success didn't happen by accident. It happened because we made deliberate choices to build a company and portfolio unlike any other. We have entered an era now in which all analog content and every physical process will become digital, mobile, virtual and personal. We see it beginning all around us -- from photography and music, to healthcare and education.

HP's unique opportunity is to be a leader and an innovator in this new age. Our job is to drive this transformation. We have the people. We have the portfolio. We have the strategy. In so many ways, we are now ready to lead.

But to fulfill our true potential and become the world's leading technology company, we now need to leverage all that we have built, and we need to focus on three things: collaboration, discipline and confidence.

COLLABORATION
First, let's talk about collaboration. When we collaborate well across boundaries, we succeed in the marketplace. When we fail to collaborate effectively, we don't. For example, our third quarter fell short, but not because we weren't working hard. We all worked very hard in Q3. Our results fell short because we failed to collaborate in a few key areas. When we fixed those specific issues in Q4 through better collaboration, we saw dramatic improvements.

Another example: When we collaborate and provide our customers with solutions -- not just standalone products -- our gross margin improves. And improving gross margin, through effective collaboration to leverage our portfolio, is one of our top priorities in '05.

DISCIPLINE
Second, discipline. Our value proposition of high tech, low cost, best TCE demands it.

We must continue to accelerate innovation, and improve our product quality and customer service, and achieve world- class cost structures -- hiring people in critical areas and reducing, relocating or retraining where necessary.

When we decide what we are going to do, we need to do it quickly and effectively -- whether we are working as an individual, as a team, or as an $80-billion company.

All of our constituencies -- customers, shareholders, analysts, partners -- all want to see disciplined execution, quarter after quarter. With our most recent Q4 performance, we demonstrated the capacity to learn from our mistakes and showed excellent discipline in managing expenses.

CONFIDENCE
Third, confidence. We have earned the right to be confident. Not arrogant, but confident. Of course, we will always have problems to solve and improvements to make. But confidence doesn't require perfection.

Think about our competitors for a moment. The only real advantage IBM and Dell have right now is confidence. They don't have better people. They don't have better products. They don't have a better strategy. They face problems and challenges of their own. But they do have confidence, and confidence wins.

Now, think about our customers. When they buy from us, they are placing their confidence in us. We need to place that same confidence in ourselves and in each other. We must embody and convey the confidence to compete, to grow and to lead.

COMPANY PERFORMANCE BONUS
I'd like now to talk about our Company Performance Bonus, or CPB. In the simplest terms, the CPB is awarded for meeting companywide ASPIRE goals that include revenue, profit and customer metrics measuring product quality, customer satisfaction for support and service, and order fulfillment.

Despite a strong finish to the fiscal year, our Q3 performance hurt us and we did not meet the second-half thresholds required to trigger a bonus. That said, in recognition of your hard work and the real progress we have made on so many fronts, I have requested -- and the board has approved -- a one-time discretionary payment for CPB- and PFR-eligible employees.

The CPB payment will total 1.2 percent of your second-half salary in 2004, and will be paid according to regularly scheduled local payroll dates. In the United States, the payout will be processed with your December 15 paycheck.

PROMISING FUTURE
Together we have faced challenges, we have overcome them and we are a stronger team for it. We should all feel proud of our progress in 2004 and optimistic about the year ahead. We'll talk more about our 2005 priorities at our All-Employee Meeting on December 14.

Thank you once again for your hard work and for your commitment, for a good fourth quarter and for continuing to build the world's leading technology company. Now let's collaborate effectively, execute with discipline and lead with confidence.

Carly

Forward-Looking Statements This press release contains forward-looking statements that involve risks and uncertainties, and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP and its consolidated subsidiaries may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any projections of earnings, revenue, margins, synergies or other financial items; any statements of the plans, strategies, and objectives of management for future operations, including the execution of restructuring plans and remediation of execution issues; any statements concerning the expected development, performance or rankings of products or services; any statements regarding future economic conditions or performance; statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include macroeconomic and geopolitical trends and events; performance of contracts by suppliers, customers and partners; the development, performance and market acceptance of products and services; employee management issues; the challenge of managing asset levels, including inventory; the difficulty of aligning expense levels with revenue changes; the possibility that proposed contracts may not be entered into or ultimately performed on the terms currently contemplated or at all; information technology systems risks and other risks that are described from time to time in HP's Securities and Exchange Commission reports, including but not limited to the risks described in HP's Quarterly Report on Form 10-Q for the period ended July 31, 2004 and other reports filed after HP's Annual Report on Form 10-K for the fiscal year ended October 31, 2003. HP assumes no obligation and does not intend to update these forward-looking statements.