Counts PR, Trade Shows as Nonadvertising Expenses

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LOS ANGELES (AdAge.com) -- Hewlett-Packard Co. has slashed ad spending by $1.3 billion -- after the fact. Based on its new definition of advertising, HP now is the most efficient ad spender among top tech companies, beating archrival Dell.
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HP said that 'previously reported advertising expenses included several non-advertising expenses, such as public relations and tradeshow expenses.'

HP restated advertising costs for two recent years, slashing the 2004 expense by $600 million or 33% and 2003 by $700 million or 39%.

HP now says it spent $1.1 billion on worldwide advertising in fiscal ’03 and $1.2 billion in ’04 -- not the $1.8 billion a year it had previously disclosed.

No explanation in 10-K filing
HP included the revised figures, without explanation, in its 10-K annual report for fiscal 2005, which ended Oct. 31. The report listed '05 ad spending of $1.1 billion.

Why the restatement? “After reviewing HP’s reported advertising costs and the categories typically included by peer companies, HP found that previously reported advertising expenses included several non-advertising expenses, such as public relations and tradeshow expenses,” a spokeswoman said in an e-mailed statement to Advertising Age.

“To more accurately reflect our advertising expenses,” she said, “HP updated the advertising classifications to current industry benchmarks and used this in reporting the [2005] advertising expenses in the 10-K. To ensure consistency of reporting, HP provided a restatement of previous year advertising expenses” for 2003 and 2004.

The reclassification did not affect overall expenses and so did not affect net income.

But with the restatement, HP looks like a more efficient advertiser. As originally reported, HP spent 2.46% of revenue on advertising in ’03 and 2.25% in ‘04; the revision cut the figures to 1.5%.

HP in ’05 spent 1.27% of revenue on advertising, lowest of the top four global tech advertisers (Intel Corp., IBM Corp., HP and Microsoft Corp.) -- and lower even than longtime nemesis Dell.

Hammering away at Dell
Dell has boosted spending as rivals hammer away at its market, and its ad spending rate (1.38% of revenue in ‘05) now is only slightly below that of IBM (1.41%). Dell, whose stock sunk this month to its lowest point in three years, moved its U.S. consumer ad account last month to Omnicom Group’s BBDO Worldwide from DDB Worldwide.

The ad restatement lowers HP’s ranking among global tech advertisers, according to a review of 10-K filings. With its original figures, HP spending rocketed from $1.4 billion in ’02 to $1.8 billion in ’03, tying HP with Intel as the world’s biggest tech advertiser. As originally reported, HP ranked second behind Intel in 2004.

After the restatement, HP dropped to third in 2003 and 2004 in reported worldwide ad expenses, behind Intel and IBM and ahead of Microsoft Corp. The same ranking held in 2005.

HP ranked second among tech advertisers in U.S. measured media spending from 2003 to 2005, according to TNS Media Intelligence. It had ’05 measured spending of $508 million. Dell was tops last year with measured spending of $775 million (paid for partly with “Intel Inside” co-op ad money).

A 1993 regulation requires public companies to disclose ad expenses, but companies have leeway as to what to include in the calculation.

HP isn’t the only tech marketer to restate ad spending. Microsoft in 2003 restated ad expenses for fiscal ‘01 and ‘02, slashing its reported ad costs by $480 million. Microsoft at the time said it revised the figures after it “mistakenly” had included some MSN customer-acquisition expenses as advertising costs.

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