A tale of two HPs – HP Inc progress report

SUMMARY:

HPI is clearly benefiting from its independence and ability to ‘stick to the knitting’ of its core businesses, even though there are issues that need addressing.

Dion Weisler

It’s 18 months since Hewlett-Packard brought over 70 years of one of the most successful computer industry brands to an end and split in two – HP Enterprise (HPE) and HP Inc (HPI). So what’s the progress report to date?

There was a significant milestone for HPI in its last set of financials in that it was the first time since 2010 that both of its business segments – printing and personal systems – grew, prtining up 2% and personal systems at 10%. It’s all part of the benefits of being ‘divorced’ from the former HP mothership, says CEO Dion Weisler:

Relatively speaking, printing and personal systems was in better shape than many other parts of the business. So a lot of investment [at HP] went towards building software-defined networking, cloud, storage, all the things in the enterprise side of the business, and printing and personal systems was just kind of delivering a lot of cash to be able to make those adjustments at a more macro level for the company. Now you fast forward to where we are today, we wake up every day, we think about printing and personal systems, it’s all we do.

That said, there are areas of the market that show little or no signs of life, he concedes, most notably the consumer printing market in which he argues the best result is likely to be slowing down the decline rather than returning to profitability.

The way to do that is through innovations that will appeal to customers who may not even have experienced printing at all. Weisler points to mobile devices as a case in point:

Many millennials have got their mobile phones and lots of photos that are trapped in those phones and they’ve actually never even printed. What we’ve been focused on there is to understand these big mega trends and figure out, through product innovation and customer insights, how we can make that printing experience relevant in the modern world that we live in today.

So you can now control your printer through your mobile phone, very easy connections through modern applications to be able to print both on iOS and within Google and generally making that segment more fun. We’re using vibrant colors, changing the footprint. Then we’re creating entirely new categories like Sprocket, which is a mobile printer that you can fit in your pocket that talks to your mobile phone and enables you to printout photos directly from your phones. So we’re doing many things there to reduce the glide slope of decline and to make printing more relevant.

Commercial

More successful is the commercial printing business opportunity, although here too there is a need for innovation and rethinking, says Weisler. This includes shaking off traditional metrics, such as the number of pages sold out of paper mills, which is on the decline:

You’ve got much more capable machines now that are able to print full duplex, so the actual printing volume might not necessarily be going down. And I would say that like all things, tiny companies live on a spectrum, there are companies and industries that are very heavy printers and there are those companies that are on a lighter sides. There are companies that are looking to take out printing as a part of the workflow.

For many companies, there’s a need to review print strategies and practices, says Weisler:

We would walk into these companies and we would introduce initiatives like tap-to-print, so that you only printi what you need, because in many case, users would sit inside the cubicle or their offices and as they print, they’ve never gone and fetched those pages. One, it presents a security concern and two, it’s wastage.

A major challenge remains the need to keep the technology refreshed to prevent the rise of clone rivals who undercut HPI:

We operate in a competitive environment. There are certain non-original HP supplies that are perfectly legal and there are others that are perfectly illegal. And we will very aggressively pursue those that are illegal because we don’t believe that’s in the best interest of our customers. If a customer buys a counterfeited HP non-original cartridge, in my mind that’s about the worst thing we can ever happen to a customer because they paid good money for all of the technology that we’ve built into our product and it’s been in some way compromised by that illegal activity.

On average, a printer in the commercial space lasts in the market in the installed base about seven years and in the home market on average it’s about three years. If we extend out the portfolio and don’t refresh it for ten years or 11 years, what happens is the clone alternatives out in the market get pretty good.

So the trick is to make sure that we’re doing the right kind of technology investments at the right intervals to ensure that there is less capable aftermarket alternatives and you can’t do it too early because you then haven’t achieved the full benefit of the business model which is a razor-razor blade model.

One notable development for HPI was its $1.05 billion acquisition of Samsung:

We went out into the market and looked for a disruptive technology and came across Samsung who are relatively new entrant into the printing market, who took it upon themselves to see how they could disrupt the other, mainly Japanese based photocopying companies. And they did an incredibly interesting thing. They developed a product that is really behaves more like a printer than a photocopy…we said this technology is so good, these people are so good, we want to buy this company.

Still on a technology innovation front, the rise of 3D printing also presents a major opportunity for HPI, says Weisler, but only in the longer term:

Today, the 3D printing market is only a $5 billion business, relative to the PC business, which is $333 billion. It’s not interesting and I didn’t get into it to be part of a $5 billion business.I got into it to disrupt a $12 trillion business, manufacturing business.

That said, across a ten year window, the interest level is clearly going to change, particularly as new technologies such as Artificial Intelligence converge with printing:

AI is indeed an important part of technology, no matter what part of technology. It might not be as apparent in the kind of products and services that we bring out to market, albeit I think you’ll see it visibly in our personal systems side of the business,. Some of the work we’re doing with augmented reality and AI will start to show itself, but we use it every day in our products and I’ll give you just one example inside our 3D printers. One of the biggest challenges we have is thermal control and writing algorithms to monitor and conduct thermal control is very difficult. So we need machine-to-machine learning to be able to do that for us on the fly. So we have very complicated AI algorithms built into many of our products in order to make those products differentiated better.

Overall, Weisler is pleased with the progress to date at HPI, with the proviso that he feels that the full potential of what’s going on within the company isn’t fully appreciated:

We are doing incredible things in our labs that aren’t yet even public that we feel really excited about. I think not everyone yet has fully understood that we have a core business, but we’ve also got this really exciting growth area that we’re working on. Our graphics business I think is under-appreciated. I think the value that we get for the breakthrough technology we have in 3D printing is underappreciated today and that’s okay because it’s not yet a big part of our revenue.

My take

HPI is clearly benefiting from its independence and ability to ‘stick to the knitting’ of its core businesses. While the HPE proposition seems almost too ‘busy’, HPI’s simplicity is appealing, despite the challenges and competitive nature of the market.

 

Image credit - HPI

Disclosure - Weisler was speaking at Bernstein's 33rd Annual Strategic Decisions Conference