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 user 2008-06-18 at 11:15:58 am Views: 58
  • #20244

    Turnaround At H-P’s Printer Division Gets Jammed
    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.

    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
    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.