HP's PRINTER DIVISION GETS JAMMED !
HP's PRINTER DIVISION GETS JAMMED !
2008-06-18 at 11:14:56 am #20204
Turnaround At H-P’s Printer Division Gets Jammed
SAN FRANCISCO With consumer printer sales softening dramatically, HP has made a big investment to change its printer division’s business model. It no longer stresses selling lots of inexpensive printers. Instead, HP’s been focusing on getting HP customers to print more pages through a variety of services HP continues to conjure up.Analysts are so far not persuaded that the changes are doing much to spur growth. They hold that the division’s revenue will grow by only about 5% in HP’s fiscal year, which would mean it would come in lower than HP’s most optimstic growth projections and will have fallen for the third consecutive year.”Printer sales keep stagnating,” said Shaw Wu, an analyst at American Technology Research.HP is confident it is on the right path, despite the thoughts to the contrary from Wall Street. Senior Vice President Vyomesh Joshi reiterated in a recent interview that the new focus will yield an additional $1.5 billion in printer division sales this year.”There are 50 trillion pages printed every year, our page market share is only 1.3%,” Joshi said. “We still ship about 40% of the printers every year. But when you think about all the pages we could print and don’t, there’s tremendous opportunities for services and software, and not just ink and printers.”In general, the kinds of Web-based services or outsourced printing jobs taht HP is focusing on offer better margins than sales of hardware products like printers.
Given the importance of HP’s printer division to its overall health — it contributed 40% of its operating profit and 26% of its sales last quarter — investors seem leery of the printer division’s turnaround so far. That has helped to send HP shares down nearly 7% this year, compared with a 4.3% drop on the Morgan Stanley Technology Index, though the company has reported record results for this year so far.To be sure, there are printer-centric prongs in Joshi’s plan. His division continues to invest in selling more printers in emerging markets. HP is also continuing to push sales of printers for digital-camera enthusiasts looking to save a buck or two by printing out photos themselves. Meanwhile, it is selling higher-speed printers to the publishing industry and continues to market printers to consumers.But the shift from an emphasis on selling printers remains paramount, given how consumer printer sales in general have been fading, thus chipping away at a fundamental part of HP’s business.
‘Pages’ Not Printers
HP’s printer division has, for years, profited largely by selling inexpensive printers and then charging a lot for ink refills, with the printer sales fostering other areas of its business.As long as printer sales remained strong, HP could count on its cash cow to provide a lion’s share of the profits and sales.Starting last year though, printer sales at HP have been sliding with a maturing market to blame. Of late, consumers and enterprises — pinched by higher prices for gasoline, energy and commodities — have cut back spending.Attempts to cash in on the digital-camera craze, by providing advanced printers to make photo-quality prints at home, hasn’t panned out.Now, HP wants its customers to think of printing as a service to be provided to them without having to invest in printers or cartridges. Rather than focusing on selling printers, the new strategy has HP doing things like offering to outsource entire printing jobs. HP argues that businesses can lop nearly a third off what they would usually spend on their printing jobs.As a consequence, Web-based features like Snapfish, HP’s online photo-printing service, have gotten new marketing muscle and been incorporated in “end-to-end” photo services that HP is offering.HP is also focused on getting larger enterprises to do more of their own printing in-house. That dovetails with HP’s $1.4 billion investment in providing industrial-strength printing assets and services for professional publishers or small business.Overall, HP’s target is to gain a bigger share of the $21 billion worth of sign printing done each year, or the $6 billion spent to create packaging or the $12 billion spent on printing direct-marketing materials.
The new emphasis has helped turn what HP calls its “graphics arts” arm into a new star of HP’s printing group. It now generates about 10% of the division’s revenue.
The shift brings about a completely new breed of competition for HP. In addition to Fujifilm Holdings Corp. (FUJI) and Lexmark International Inc. (LXK), HP’s push into graphic services has been met with stiff resistance by incumbents Xerox Corp. (XRX) and Eastman Kodak Co. (EK).HP Chief Executive Mark Hurd thinks there is some reason for optimism. At the very least, his attitude has veered quite dramatically in just three months. On a conference call to discuss HP’s latest results May 20, Hurd said printer- division sales “actually looked pretty strong. We’ve done a good job on our channel inventory.”Yet later on, in addressing another inkjet question, he had a more cautionary approach. “There’s good numbers in there, and there’s some numbers that we wished were better,” he said.In February, after HP’s printing division reported a 5% drop in inkjet sales, Hurd could’t contain his disappointment. “To be very blunt, I’m not real happy about it,” Hurd said.