New York, November 28, 2012 -- Moody's Investors Service lowered the long term credit ratings of Hewlett-Packard (HP), including the senior unsecured rating to Baa1 from A3. The Prime-2 short term rating is affirmed. This concludes a review initiated October 4, 2012. The outlook is negative.

RATINGS RATIONALE

The new rating reflect our expectations that "although HP will maintain strong to leading positions in a number of product areas, the company's credit profile will remain weaker than previously expected over the intermediate term," said Moody's senior vice president, Richard Lane.

The negative rating outlook reflects our concerns about HP's ability to contend with the significant competitive, secular and execution challenges facing the company. A "broad portion of HP's portfolio, including PC's, some enterprise servers, printers, and services, representing over 75% of revenue, will face slow to no growth prospects over the coming years," said Lane. The ability to restore growth and profitability has sufficient uncertainty that we believe event risk in the form of more shareholder friendly actions or portfolio repositioning could develop, which would pressure the company's credit ratings.

Key drivers to the projected credit profile include "company-specific execution challenges in services and software, secular shifts in PCs and printing, competitive pressures throughout its broad portfolio, as well as a cautious demand environment," said Lane. As a result, we expect HP's revenue will decline 5% next year while operating margins approximate 7% as compared to a nearly 9.8% historical average prior to 2012 (using Moody's standard adjustments). We also anticipate free cash flow (post dividends) of approximately $4 billion next year, down from our prior expectations of $6 billion to $7 billion, driven by restructuring related cash outflows and overall weaker operating performance.

We believe HP will remain committed to reducing gross debt over the intermediate term after having reduced debt by $2.2 billion in 2012. We anticipate HP will repay at least half of its debt maturities over the next few years. In fiscal 2013, debt maturities total $5.5 billion with $1.5 billion due in March, $1.75 billion in May and $1.1 billion in each of August and September. HP has $4.9 billion and $3.2 billion of debt maturities in 2014 and 2015. Assuming HP repays approximately half of its debt maturities and refinances the rest, we project HP's adjusted debt to EBITDA, estimated at 2.0x at October 2012, will approximate 1.9x at the end of 2013 and potentially 1.6x by 2015.

Ratings lowered include:

senior unsecured rating to Baa1 from A3

subordinated rating to (P)Baa2 from (P)Baa1

preferred rating to (P)Baa3 from (P)Baa2

Rating outlook negative

We expect HP's acquisition activity will be minimal over the next few years as management focuses more on internal research and development over acquisitions, where HP has demonstrated a poor track record. While the less acquisitive posture reduces event risk, this approach also raises the potential that HP could lose some competitive ground against peers who have more flexibility to get to market faster with products and technology offerings via acquisition.

HP maintains a solid liquidity profile. At the end of October 2012, HP had $11.3 billion of cash and equivalents and we expect HP will maintain cash balances in excess of $8 billion. While a significant portion of this cash is held offshore, the company has tax efficient access to material amounts of this cash. We project about $4 billion of free cash flow in 2013, with the first half being weaker than the second half due to some seasonality and heavier restructuring cash outflows (primarily headcount).

The company maintains solid alternate liquidity to support outstanding commercial paper ($574 million at July 2012) in the form of a $4.5 billion bank facility maturing February 2015 and a $3.0 billion bank facility maturing March 2017. Both have one financial covenant under which HP has ample room, and no need to represent as to no material adverse change.

HP's ratings are unlikely to be raised over the next year. The rating could be stabilized over the 12 to 18 months if the company demonstrates consistent execution and progress in restoring sustainable profitability throughout its portfolio. Longer term, the ratings could be raised if the company: (1) demonstrates steady organic revenue growth; (2) is likely to sustain EBIT margins above 9%; and (3) adheres to its conservative financial practices which include maintaining significant liquidity and a modestly leveraged balance sheet such that adjusted debt to EBITDA were below 1.5x on a sustained basis.

HP's ratings could be lowered if the company (1) maintains adjusted debt to EBITDA above 2.0x; (2) EBIT margins fall below 6% for an extended period of time; or (3) deviates from our expectations of conservative financial practices.

For further information, please see www.moodys.com.

Hewlett-Packard, headquartered in Palo Alto, California, with $120 billion in revenue for the twelve months ended October 2012, is the world's largest technology firm by revenue that designs, manufactures, and services computing and imaging systems and provides information technology and consulting services.

The principal methodology used in rating Hewlett Packard was the Global Technology Hardware Industry Methodology published in September 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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Richard J. Lane Senior Vice President Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Robert Jankowitz Associate Managing Director Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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