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AnonymousInactivehttp://money.cnn.com/news/newsfeeds/articles/djf500/200806170815DOWJONESDJONLINE000223_FORTUNE5.htm
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. -
AuthorJune 18, 2008 at 11:15 AM
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