Reinventing HP Inc.: The 2016 Industry Analyst Summit

Jim Hamilton, Jeff Hayes and Deborah Hawkins
Jul 1, 2016

Last week HP Inc. brought a sizeable group of industry analysts to Boston for the first time since splitting from Hewlett Packard Enterprise. The goal was to discuss its priorities and outline how it intends to grow. The company’s bold vision and mission statements set the tone for the details that followed:

  • Vision: Create technology that makes life better for everyone everywhere
  • Mission: Engineer experiences that amaze

HP Strategy

Dion Weisler kicked off the event by outlining the company’s strategy and describing four major trends that impact the company’s decisions:

  • The millennial mindset – A generational change in which the youngest generation often prefers a service experience (e.g. an Uber instead of buying a car)
  • Mobility & security – Two factors impacting every aspect of product design
  • Everything as a service – Contractual models applicable to all customers (e.g. extending managed print services downstream with Auto Replenishment Services and upstream with PCs and Print-as-a-Service).
  • The merging of the 2D & 3D worlds – Combining virtual reality, the Internet of Things (IoT), and 3D printing into a blended reality of immersive experiences in which the digital and physical worlds collide.

Mentioning competitors who were struggling or distracted, Weisler described HP Inc. as a “pillar of stability” having gone through its own split in 2015 (a recurring theme of the first day of the event was that it had been 226 days since the split was finalized). That split has formed the new HP Inc. which is comprised of two parts: personal computing systems and printing. Overall, HP intends to revitalize core product areas (such as PCs, consumer and office printers), expand into new markets (such as A3, graphic arts, and gaming) and grow new categories (such as 3D printing, immersive computing, and IoT).

In Weisler’s and other presentations there was a lot of emphasis on the renewed focus the company has on its core business. For example, Chief Financial Officer Cathie Lesjak, a first-time participant in HP’s industry analyst event, noted that the split provided the company with the opportunity to have a board that is focused exclusively on the printing and PC business.

Lesjak also emphasized the variable cost structure of HP Inc.’s business, strong cash flow, and intent to return 50% to 75% of its free cash to shareholders in dividends and stock repurchases.

HP performance - first half 2016

HP Inc.’s division presidents summarized their business and key initiatives tying back to the themes of re-invention and broader social/technology trends described by Weisler.

Personal Systems

As HP Inc. looks to reinvent its Personal Systems group, one main theme is “rejuvenating the innovation spirit of PCs.” Ron Coughlin, President of the Personal Systems group, highlighted market share gains and increased net promoter scores to document the group’s progress. He said that the company’s premium PC and gaming business had doubled since last quarter. New product introductions including thin laptops contributed to this. Moving forward he cited the need for a competitive cost structure plus technological “sprinkles of magic” to assure success. In the future he sees ongoing opportunities in the office, education, and healthcare of the future, with an emphasis on 3D scanning and virtual and augmented reality. The concept of ‘blended reality’ is one important link between HP’s Personal Systems and Printing divisions.

Printing

  • Home – In consumer and home environments, a market that InfoTrends sees as in gradual decline, HP aims to reinvigorate the mobile printing experience and play on design and lifestyle particularly from social applications. The HP Deskjet 3700 launched earlier this month claims to be the world’s smallest all-in-one (AIO) and is certainly an eye catcher with white housing and alternate color schemes. Though consumer print is declining, HP stressed that by making the printing experience easier and more intuitive it will encourage users to print more of their photos. (See the InfoTrends blog entitled “HP Announces Software to Enhance Mobile Printing Experience.”)

HP DeskJet 3700 with print

  • Office – As an innovator and market segment leader in office print, HP has a tremendous brand advantage and continues to innovate and explore new opportunities. Enrique Lores, President Imaging & Printing & Solutions identified the new opportunities for HP in the office as PageWide, A3, Security, and Print-as-a-Service (PaaS). PageWide is certainly a technology that HP has leveraged to compete in many markets but in office it has among the lowest TCO in its class and is gaining in acceptance across the globe. HP stated it will soon bring its first PageWide A3 printer/MFP product to the office and compete vigorously in a market currently served by copier vendors with toner-based devices that have non-user replaceable parts. (For more on HP Inc.’s recent office printer announcements, see the InfoTrends blog entitled “HP Printing Reinvented Event – 8th March 2016.”)
  • Graphics – HP’s Graphics business, and particularly its consumables business, is on a roll with eleven straight quarters of growth. This group, which includes the Indigo, Latex, PageWide Web Press, and Scitex brands, is fresh off the drupa trade fair in Dusseldorf, Germany where HP was the largest exhibitor, occupying an entire hall. Mike Salfity, General Manager, HP Graphics Solutions Business, noted that the group had exceeded its drupa sales goals by 150% (including multi-unit sales to Cimpress and Shutterfly). A particularly interesting technical demonstration from drupa called “HP Indigo Digital Combination Printing” was highlighted in an InfoTrends blog entitled “Four Things that Surprised Me at drupa 2016.” HP Indigo developments at drupa are covered in an InfoTrends blog entitled “HP at drupa 2016: Re-Imagining Production Digital Printing.”
  • 3D printing – Steve Nigro, President of the 3D Print group, called 3D printing “the digital furnace of the next industrial revolution” and described how the business is creating an ecosystem of partners including companies providing certified materials that can be sold through an HP materials “app” store for HP’s Multi Jet Fusion 3D printers. Nigro also noted that when HP’s engineers and supply chain managers examined the components and costs related to manufacturing the new 3D printers, they estimated that 50% of Multi Jet Fusion parts can be 3D printed instead of produced using conventional manufacturing methods. Joining Nigro on stage was John Dulchinos, VP Strategic Capabilities at Jabil, an $18 billion engineering, manufacturing and intelligent digital supply chain vendor, who described their vision of how 3D printing will allow them to reinvent manufacturing around mass customization, “end of tail” products, localized production, and new business models. (Note: For more information on HP’s 3D announcements, please refer to the InfoTrends blog entitled “HP Jet Fusion 3D 3200/4200 – Innovation in 3D Printing.”)

Multi Jet Fusion 3D printer

Exit Marketing Software Business, Re-invent and Expand Printing Channel Business

While the event was in progress HP announced the sale of its marketing optimization software assets to OpenText. This was in addition to related assets sold to OpenText earlier this year. The move has the effect of removing HP from the Customer Communications Management (CCM) market (for more details, see the InfoTrends blog entitled “HP Inc. Continues to Divest its Software Assets to OpenText”). HP indicated that it will focus on software that is close to or embedded with devices (e.g. Jetadmin, JetAdvantage, Print OS) and work with software partners for best-in-class solutions for specific business processes, vertical markets, and regions.

HP also announced that it will be re-investing the proceeds of this sale in its printing business to “reduce supplies channel inventory and to increase marketing.” HP indicated it intends to change its supplies selling model from pushing stock into the channel (often done by “rewarding” the channel for purchasing) to creating demand pull through the channel (and rewarding the channel for selling). The company plans to reduce the amount of inventory in the channel, have less price variability within a region (i.e. fewer promotions), and more marketing emphasis on the value of HP-branded supplies.

HP’s four-box model builds off of plans to grow its installed base, drive usage, increase its share of supplies, and optimize pricing. Channel strategy for the printing and PC businesses is critical, and with these and other moves HP expects to expand its channel business from 80% (currently) to 87% later this year.

InfoTrends Opinion

Within the “pre-split HP” the Personal Systems and Printing Group was often an important source for funding acquisitions in other business units and propping up profits over the last five+ years. Within HP Inc., InfoTrends sees a change in focus and priorities that are evident in many of the actions management has taken over the last eight months including:

  • Board of directors focused on personal systems and printing
  • Divestiture of numerous software assets and a re-focus on software partners
  • Investments in a new channel program to grow the sales of HP-branded supplies, reduce gray market sales, and improve pricing
  • Sustaining R&D spending levels to fund product development in core and future markets, while making cost cuts in non-sales areas to remain competitive and respond to a strong U.S. dollar

It takes time to re-invent a $50B+ company and rejuvenate revenue and profits. InfoTrends expects HP will continue to be challenged in aspects of its core business in the consumer and office markets, but we are excited about the company’s direction and growth potential particularly around the use of PageWide technology in graphics, A3, and 3D printing, and initiatives around blended reality and immersive computing.

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