From Palo Alto Wiki
The two first set up shop in Palo Alto at 367 Addison Ave. making all sorts of odd electronic gadgets in 1938. The famous HP Garage that first housed Hewlett-Packard Co. still stands, and in August 1988 it was named a state historic landmark.
 Before Hewlett-Packard
In 1934, the two friends graduated with bachelor's degrees in engineering from Stanford University. They vowed to start a business together, but the economic climate was grim. So they followed the advice of Frederick Terman, their mentor and Stanford's world-famous dean of engineering, and went into research to gain time and more expertise.
Hewlett went to Cambridge to study at the Massachusetts Institute of Technology, while Packard accepted a position with General Electric at Schenectady, N.Y., studying vacuum tubes.
By 1936, Hewlett was back at Stanford working with Terman toward a graduate degree in engineering. His thesis project was the resistance-tuned audio oscillator, H-P's future meal ticket.
 Early Days
In 1938, Packard left G.E. and came back to Stanford with his wife, Lucile. Towing a Sears & Roebuck drill press, H-P's first piece of machinery, Packard came into town and settled at the house on Addison. Hewlett moved in with the Packards, living in a 12-by-18-foot cottage next to the garage in the back yard.
Since the two still were students, they relied heavily on Terman, who got Packard a research fellowship at Stanford. Then one day Terman gave them $538 to invest in machinery and arranged for a $l,000 loan. They began to tinker in the garage, spending 50 percent of their time experimenting and 50 percent working for income.
They made a diathermy machine, which provided electric heat treatment, for the Palo Alto Clinic, their first sale. They made a device to monitor bowling alley foul lines, a device to drive a telescope at Lick Observatory and an electronic harmonica tuner.
"If Packard's car was in the garage, it meant they had no orders," Terman is reported to have said. "But if it was out on the street, they had some business and were hard at work soldering, wiring, painting--you name it."
Hewlett perfected his thesis project and marketed it at a meeting of the Institute of Radio Engineers. Walt Disney Studios, on the cutting edge of stereophonic technology, wanted eight of the devices for the production of its film "Fantasia."
That was the first big sale, and turned out to be U.S. patent no. 2,268,872, filed July 11, 1939. In January 1939, the two formed an official partnership. For the year, they made $5,639 in sales, garnering a profit of $1,653.
That money enabled them to leave the garage in 1940 for a new location in a rented building on Page Mill Road. Government contracts for World War II, expansion, and worldwide recognition followed shortly.