The Associated Press

SAN JOSE, Calif. - David Packard, who co-founded electronics pioneer Hewlett-Packard Co., and built it into a billion-dollar company with a philosophy of encouraging employee creativity, died yesterday. He was 83.

Packard died of pneumonia at Stanford University Medical Center, where he had been since March 16. His children were with him when he died shortly after 11 a.m., said company spokeswoman Mary Lou Simmermacher.

Packard and William Hewlett founded their company in 1938 with a borrowed $538 in a rented garage, building it into Silicon Valley's largest employer with 100,000 workers and more than $31 billion in revenues last year.

Packard retired from active management in 1978, but remained the company's chairman until 1993.

Hewlett, in a brief statement, called his partner's death ''a loss to the the company and to the country that he loved so well.''

The two appeared together in January at Stanford University to hear a speech given by Microsoft Corp. Chairman Bill Gates.

''I admired him,'' Gates said Tuesday. ''What he and Bill Hewlett did is amazing. They built a company that really weathered change.''

Packard was one of the most respected executives in American business. He and Hewlett were renowned not only for their company's success but for their widely imitated management style, which fostered innovation, high-quality products and loyal employees.

Hewlett-Packard chief executive officer Lew Platt said, ''We've lost a friend and a great leader who will be missed immensely, but with our eye to the future, we'll do what Dave would want us to do - to build on what he and Bill Hewlett began in 1939.''

Individually, Packard was credited with being the company's dynamic manager, thinking strategically and making tough decisions.

Packard had a middle-class upbringing in Pueblo, Colo., where he was born in 1912. He studied electrical engineering - and met Hewlett - at Stanford University, then the cradle of the electronics industry.

They both graduated in 1934 and decided to start their company four years later, going to work in the garage of the house rented by Packard and his wife, Lucile Salter Packard.

''We weren't interested in the idea of making any money. Our idea was if you couldn't find a job, you'd make one for yourself,'' Packard recalled years later. ''Our first several years we made 25 cents an hour.''

The company, its name decided by a coin toss, produced a variety of electronic products. Its first success was Hewlett's audio oscillator, a device to test sound equipment. Walt Disney bought eight for the film ''Fantasia.''

The company grew quickly after World War II, later expanding from electronic and scientific instruments to calculators, printers and computers.

When HP went public in 1957, Packard wrote down the management beliefs he and Hewlett shared - a philosophy that scorned strict hierarchy and formality, encouraged individual creativity and fostered respect and trust of employees.

It became known as the ''HP Way'' and served as a model for other companies. Its cornerstone was caring for people, admirers say.

''He encouraged everybody. He would go around, and if anybody had any squawk, he wanted to hear them. He would encourage employees to speak out,'' longtime friend David Minge Brown said in an oral history for the HP archive.

Hewlett was the shirt-sleeved engineering brains of HP, delighting in working on new products in the laboratory. Packard relished other aspects of the business and was HP's energetic decision maker.

His renown as an administrator was a key reason for his appointment as deputy secretary of defense during the first Nixon administration. In the mid-1980s he headed President Reagan's Blue Ribbon Commission on Defense Management.

Packard is survived by three daughters and a son. His wife died in 1987.