HP’S BIG PUSH INTO COMMERCIAL PRINTING
HP’S BIG PUSH INTO COMMERCIAL PRINTING
user 2005-07-19 at 10:45:00 am Views: 67
2005-07-19 at 10:45:00 am #12157HP’s Big Push Into Commercial Printing
Vyomesh Joshi says that technology unveiled this week will help grow his division’s size to $40 billion in ten years.
HP’s printing and imaging division, which produces 73% of the company’s operating profit, has historically been focused mostly on consumers. On Monday, its dynamic leader Vyomesh Joshi (known as VJ) announced in New York a new technology that could transform that business into a commercial printing powerhouse. It’s a development that makes the company’s much-maligned “Invent” tagline seem quite apt.
HP has made a fundamental breakthrough in how printers are manufactured, allowing it to achieve unprecedented economies of scale. Joshi told FORTUNE that he expects to use this innovation to take HP’s $24 billion printer business deep into the commercial and industrial printing arena, where vast printing volumes would boost demand for the paper and ink that deliver the majority of the division’s profits. Such a shift, he says, should help him nearly double the size of HP’s printing and imaging unit to $40 billion within the next ten years.
Joshi unveiled new “printhead” technology that boosts printing quality while also making the process faster and cheaper. Printheads are the tiny but critical parts in inkjet printers that lay down millions of droplets of ink—150 million a second in one of the many new machines announced Monday. Up until now the printhead has been a sandwich of materials mechanically assembled and drilled with lasers. While the base was a silicon chip just like any other semiconductor, other elements were essentially welded on. Now Joshi’s engineers have developed a method to manufacture the whole device as a semiconductor chip using the standard chip making process called photolithography. “Photolithography is how we will get accuracy in drop placement and quality, as well as speed,” says Joshi.
This may not sound like such a big deal, until you get a chance to probe with Joshi, as I did in a conversation we had in New York a few days before the announcement. By standardizing much of HP’s inkjet technology around this one technology, the company will reap enormous savings in manufacturing costs, Joshi claims. It will also halve the cost of developing new printerheads. Such a competitive advantage could make the $1.4 billion spent developing this new technology almost a bargain. “I couldn’t [go] after industrial and retail [markets] without these economics,” he adds.
He is reaching for the Holy Grail in technology—superior technology that is so complex that it can only be cost effectively produced in high volume. This strategy works best with semiconductors. That’s how Intel has brought the price of its chips down even as they get more sophisticated, and how Texas Instruments, the company whose chips are inside most cellphones, enables us to achieve amazing feats with wireless devices that cost so little.
Eventually, many of HP’s inkjet printers will use these printheads, but the commercial market is where Joshi sees the most opportunity. He hopes to start building printers to attack a range of markets that HP hasn’t cracked before—commercial photofinishers (who operate kiosks in retail stores and malls) and even large-scale commercial printing and professional publishing. “Like FORTUNE?,” I ask. “Maybe someday,” he replies. A video at the launch included images of giant 30-to 40-foot industrial printers cranking out thousands of pages at high speeds. Such devices, using the new printheads, are already operating in the company’s laboratories.
These advances represent Joshi’s second “Big Bang,” as he likes to call it. In mid-2002 he revamped HP’s printer product line around two core printer device designs.
“Before mid-2002,” says Joshi, “we were declining in revenue and making between 10% and 11% operating profits. But then the business started growing 7% to 10% each quarter and operating profit went up to 17%. I’d attribute that to [the Big Bang] strategy.”
The new strategy will probably give HP a big advantage against Epson, Canon, Lexmark, and dell. HP’s worldwide share of simple and all-in-one inkjet printers remains at 42%, according to IDC. That domination is what gives the company the resources to make such a huge investment.
“This puts them head and shoulders above any other competitor,” says analyst Tim Bajarin of the Creative Strategies consulting firm.” Joshi, of course, agrees: “Nobody else has all-photolithographic technology.” Bajarin, a close observer of the industry, says it’s likely to stay that way for a while.