computer industry

Are Things Looking Up for Hewlett-Packard in Boise?

By Sharon Fisher, 12-22-09

Amidst the news that Micron Technologies Inc. has made a $204 million profit this quarter—the biggest one in eight years, according to Idaho governor and Micron champion C.L. “Butch” Otter—Hewlett-Packard Co. is insisting prospects are improved for its printer division as well.

Moreover, the company—which is not known for its marketing acumen; as the old joke goes, if HP were selling sushi, they’d market it as “cold, dead fish”—seems to be showing increased savvy in developing and leveraging new markets.

HP’s fourth-quarter earnings, announced at the end of November, showed a 15 percent decline in revenue, to $6.5 billion, compared with the previous year. Supplies revenue was down 8 percent while commercial hardware revenue and consumer hardware revenue declined 32 percent and 17 percent, respectively. Printer unit shipments decreased 20 percent, with commercial printer hardware units down 38 percent and consumer printer hardware units down 14 percent. None of this is particularly great news. The one bright spot is that the printer division made more profit; its operating profit was $1.2 billion, or 18.1 percent of revenue, versus $1.2 billion, or 15.3 percent of revenue, in the prior-year period. The printing group accounted for 21 percent of the company’s $114.6 billion revenue last year and 32 percent of its $13.4 billion profit, according to Bloomberg.

Chief Executive Officer Mark Hurd told analysts at that time that the division was “poised for recovery,” a phrase that is often the kiss of death to a company, but which actually shows evidence of having some truth to it. In fact, increased demand later in the year led to shortages in laser printers, which the company has pledged to solve by the end of January, the end of its next financial quarter, Bloomberg said.

Bloomberg went on to note the August, 2008, reorganization that had resulted in a number of layoffs in the Boise facility. In addition, a September Wall Street Journal article reported that the company was considering combining the printer and PC units, replacing Executive Vice President Vyomesh Joshi, who has led the Imaging and Printing group for nine years—the longest tenure of any executive under Hurd. Such a development—upon which Joshi would not comment—would likely hit Boise hard.

The overall market for shipments of printers, copiers and multifunction devices is down 7 percent to $49.8 billion, according to Photizo Group, a Lexington, Ky., market researcher, in an article in the Wall Street Journal. However, total shipments for the overall hardcopy market grew 11.6 percent in the third quarter compared to the previous quarter, according to IDC’s Worldwide Quarterly Hardcopy Peripherals Tracker, in an article in Redmond Channel Partner. (It was a 15 percent drop from the previous year, but these days we take good news where we can get it.) While HP’s global market share dropped 4 percent compared with the previous year, it still commands 41 percent of the market—far ahead of second-place Canon with 19 percent.

Moreover, because HP provides a wide variety of products and services, it is better positioned than competitors such as Lexmark and Kodak, which depend more on their printer revenue, Bloomberg quoted Kaufman Bros. analyst Shaw Wu as saying. Kodak is competing with HP on price, while HP is competing with Kodak on reliability—long an HP strong point—as well as successfully calling Kodak out on some of its pricing claims, said an article in the Wall Street Journal. HP is also demonstrating its newest printers in places such as movie theaters.

HP is also competing with Xerox in a new area called managed printing services, defined by industry analytical firm Gartner Inc.—which ranks the two companies as leaders in the area—as “the ability for the service provider to take primary responsibility for meeting the customer’s office printing needs, including the printing equipment, the supplies, the service and the overall management of the printer fleet,” according to Zacks Investment Research. Such services are expected to save cash-strapped organizations money. “A recent survey by Quocirca Research (co-sponsored by Xerox) found that printing costs were 10 percent of total IT budgets for 41 percent of the respondents, with the number rising to 65 pcercent in case of the financial services industry,” Zacks reported. “Half the U.S. respondents hoped to save 30 percent of costs from MPS implementation.”

Photizo and Gartner disagree on which company has the lead in managed printing services, with Photizo saying HP surpassed Xerox last year with a 35 percent share to Xerox’s 29 percent, while Gartner believes Xerox is still the leader.

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