by Robert Palmer
HP’s 2014 Industry Analyst Summit, held March 4–6 in Boston, was a showcase event attended by more than 300 analysts from around the world.
Although filled with as much industry jargon and marketing speak as one would want to hear in a three-day period, HP managed to connect the dots between its broad portfolio of products and services and its strategy around the converged IT infrastructure, which has become front and center for HP over the past few years.
As was the case a year ago, CEO Meg Whitman kicked off the event wit a general session addressing HP’s current performance and overall direction. Whitman focused her comments on several strategic issues that have been the cornerstone of HP’s turnaround plan, including the Pan-HP initiatives around cloud, security, big data, and mobility. She explained that a fundamental shift in the way technology is acquired and consumed is underscoring a “serious requirement” for integrated cloud solutions and the open source community.
All of this builds on HP’s strategy to deliver solutions designed for “the new style of IT,” a term that the firm has used since last year’s analyst summit and one that consistently found its way into nearly every presentation during the 2014 event. According to Whitman, the “the new style of IT” is really about the new style of business — powered by IT.
A good portion of Whitman’s opening remarks dealt with HP’s financial performance. The company is healthy again, and Whitman pointed specifically to several indicating factors: zero operating debt, healthy cash flow, consistent delivery to EPS targets, and a share price that has reached its highest point for the last three years. She also pointed out that HP gained share in some of its most important product segments in Q4, including servers, ink and laser printers, and storage.
Meanwhile, Whitman stressed that HP has also streamlined decision-making processes and taken steps to reconnect with its customers, partners, and employees. Restoring employee confidence is a big part of HP’s turnaround program and Whitman says that management has “definitely captured the hearts and minds of HP people.”
Gaining employee buy-in and revitalizing the HP spirit was one of the most important challenges facing Whitman when she assumed control of the firm in late 2011. She noted that HP is a very large and storied company that has been built through major acquisitions. While this fostered significant growth, the need was to create a single culture at HP — one that was unique to the new organization but that carried forward its traditional innovative spirit, commonly referred to as the HP Way. “When I came to HP the culture was not well defined,” Whitman said, citing the aggregation of various acquisitions as the leading cause. “So we created something called the HP Way Now — because you can’t go back you can only go forward.”
Whitman admitted that this kind of cultural change takes time, but it is clear that HP is moving in a positive direction. Results were quite visible even during the analyst event itself. Last year’s analyst summit produced some rather unfavorable reviews and many reported on what seemed to be inconsistent messaging and a lack of unity between Whitman and her executive team.
That was not the case at this year’s event. HP’s executive team has obviously bought in — not only to Whitman’s strategic direction but also her managerial style. Presentations from the various business groups were tightly connected and complementary, with top-level messaging and strategic goals very consistent throughout. Meanwhile, there now seems to be an easy and comfortable relationship between Whitman and her management team, a noticeable difference from previous events. HP is clearly a unified company again, which bodes well for the firm and should provide a warning signal to competitors.
Innovation was another key talking point over the course of the event. Unlike many of its competitors, which seem to be reducing R&D spend on a quarterly basis, HP continues to invest in developing new technologies, products, platforms, and services. “Today, we are investing more money in R&D than ever before,” Whitman explained, noting that HP is celebrating its engineers and its innovation. “It is very hard to kill founder DNA and that DNA is alive at HP.”
Whitman pointed out that HP is developing solutions to solve today’s problems, while at the same time investing in technologies for the future. She noted, for example, that the fundamental architecture for computing has not changed in 60 years, arguing that current computing architecture is no longer efficient for the age of big data. “We will stay ahead of demand, not by evolving an old technology but by changing the game,” she claimed.
HP is also planning to introduce new technologies and products in a variety of adjacent markets. One such area is 3D printing. According to Whitman, there has been a lot of buzz around 3D printing lately but HP is working to introduce new technology to overcome what it sees as the major obstacles for broader application: speed and quality. Whitman argued that watching a 3D printer in action today is like “watching ice melt,” adding that HP will soon have more to say about new solutions it is developing in that space.
Commitment to the channel
During the event, HP made several comments to reinforce its commitment to the channel. Whitman admitted that HP has not always been an easy company to work with but noted that it has made improvements and will continue to invest in improving channel programs and communication. She pointed to the launch of HP’s Partner One program as a specific example of HP’s strategy to drive profitable growth through its channel partners.
Whitman stated that HP’s technology partners want to see a supplier with a sound footing and a track record of success. “They also want a partner with great assets,” she added, pointing to HP’s strong technology portfolio and trusted brand.
Bill Veghte, executive vice president for HP’s Enterprise Group added that HP’s go-to-market strategy is focused on delivering customer outcomes through more specialists, sales plays and channel enablement programs. “It’s around specialists that can dislodge the competition,” he explained. At the same time, Veghte argued against the notion that the channel could become obsolete in a future dominated by services and cloud infrastructure. “I think there is so much value-add that customers need from the channel,” he said.
What about print?
It is worth pointing out that Whitman hardly made mention of HP’s printing business during her entire opening remarks. Of course, her focus was on overarching strategy with specific details on the status of HP’s turnaround program. Dion Weisler, executive vice president for HP’s Printing and Personal Systems Group, offered insight in this part of HP’s business.
Weisler spent the first part of his presentation talking about the blending of personal and business environments. Referencing the BYOD phenomenon and the changing modern-day workforce, he cited various statistics to prove his point. For example, the number of anytime, anywhere workers doubled from 15 to 30 percent from 2011 to 2012. Likewise, 72 percent of people bring at least one personal device to work. According to Weisler, individuals now have real expectations about their personal devices. “Cool is no longer just a nice to have,” he argued. “Cool is now a necessity.”
Building on these statistics, Weisler noted that HP plans to deliver the best experience to more people in all environments: at home, at work, and on the go. Home services will play an expanding role for HP in the future. In fact, Weisler stated that HP intends to eventually offer “everything as a service,” which has long been part of its articulated strategy around the shift to cloud infrastructure and cloud-based services.
So, how does all of this apply to HP’s printing business? More importantly, how does “the new style of IT” fit within the parameters of selling printers and supplies? Weisler points to HP’s recently announced Instant Ink program as a prime example. Shifting consumers to a page subscription model for home printing was a dramatic move that could disrupt the market entirely — both for HP and its competitors. By offering customers the ability to purchase pages on a monthly subscription program, HP has changed the traditional “ink-out” business model by allowing consumers to pay a relatively small monthly fee and virtually eliminate concern about print costs.
The program offers users three different pricing levels based on a set number of pages (ranging from $2.99 to $9.99 per month). Users can purchase additional pages if needed, roll over unused pages, or move up to a different pricing plan at any time. There is no upfront commitment required and you can cancel the program at any time. HP also monitors the ink cartridges and sends out replacement supplies before the cartridge is depleted, eliminating the hassle of searching for ink cartridges at the last minute. The firm even provides packaging and postage for returning the used ink cartridge.
It is a brilliant play that seems to already be gaining traction for HP. It is still too early to tell but according to HP, initial results are very promising in terms of adoption rates, page volumes, and the displacement of competitors. “This is a very complicated thing to deliver but it is a very good example of the new style of IT,” Weisler stated.
It is not hard to imagine that HP might soon offer similar ink subscription services for the office — particularly for SMB. Weisler spoke at length about HP’s “ink in the office” initiatives, including the success of the Officejet Pro X series products, which were the firm’s first A4-size inkjet machines based on page-wide array inkjet technology. According to Weisler, the business inkjet segment is growing at a CAGR of 9 percent and the total addressable market is expected to reach $10 billion by 2016.
Of course, HP is the dominant player in this space, with products based on both serial and page-wide array technology. Weisler stretched things a bit by stating that HP is the only competitor in the business inkjet category. In fact, others such as Memjet and Brother have productized page-wide technology, while others have introduced serial inkjet products designed for the business segment.
Nevertheless, HP is clearly dominating in terms of market share and product breadth in the business inkjet category. Indeed, Weisler stated that HP’s “ink in the office” products now account for one-third of its ink business. It is unclear whether this includes HP’s production-class inkjet presses, but one would have to assume it does not.
Regardless of how you measure it, HP is clearly the market leader for office ink and its position seems destined to improve rather quickly. Just a few short weeks following its industry analyst summit, HP announced a new class of business inkjet printers and MFPs based on page-wide array technology aimed specifically at the enterprise. (For more on HP’s new Officejet Enterprise Color products, see HP Takes Business Ink Into New Territory With Officejet Enterprise Platform).
By all accounts, HP’s Graphics Solutions business is firing on all cylinders. Stephen Nigro, senior vice president for HP’s Inkjet & Graphics Solution Business, spoke openly about a “lack of vision” in our industry when it comes to thinking about print. “People love to print,” he exclaimed. Nigro focused on the analog to digital conversion as a prime opportunity for HP, noting that only 25 percent of the commercial print space is digital — leaving 75 percent of the market as untapped territory.
Nigro says that HP will focus intently on transforming two specific applications: packaging and education. “Packaging is what is going to drive our Indigo business,” he stated. Of course, packaging is actually comprised of a broad set of applications, including labels, flexible packaging, folded packaging, and corrugated packaging. Nigro points to specific trends around theme-based packaging, micro-segmentation, faster turnarounds, and the need to reduce inventory as key factors that will help drive the transition to digital.
Today, 30 percent of HP’s Indigo press business is actually in the production of labels. According to Nigro, 85 percent of HP’s Indigo 10000 customers are repeat buyers, and some of those customers are already achieving close to 2 million B2-size impressions per month. Meanwhile, HP is also seeing exceptional growth in its inkjet press business. The firm now has 120 inkjet presses installed around the world, with a total of 50 billion pages printed — 15 percent of those coming in just the last quarter.
What about MPS?
Interestingly, HP spent a good deal of time during the analyst summit discussing its consumer and production print businesses, but it seemed there was a lack of emphasis on the office-printing segment — both for SMB and enterprise.
Pradeep Jotwani, senior vice president of HP’s LaserJet Enterprise Solutions business provided some top-level information — leading off with the rather remarkable point that HP shipped its 200 millionth LaserJet printer in November of last year. Equally impressive is the news that, according to IDC, HP has the number one market share in laser printers, laser AIOs and laser MFPs. But the rest of this session focused more on market opportunity and solutions portfolio rather than tactical programs or strategic initiatives.
Indeed, MPS only seemed to garner cursory mention throughout the event, and most of the time it was to reinforce the fact that HP is not number one in the managed print services space. HP has made several moves of late in the MPS market and it would have been interesting to hear more about the status of some of these programs. There was no mention of the OEM deal inked late last year between HP and Sharp to sell rebranded A3-size products in MPS accounts. Likewise, it would have been great to hear more about HP’s partner delivered MPS programs — even just some general comments about how HP plans to grow its MPS business.
HP’s Industry Analyst Summit offered a wealth of information and provided significant insight into the firm’s strategic direction. As is always the case, one must cipher through all the hype that surrounds these events to get to the salient points, but that was not particularly challenging given the format of the event and the access to HP executives.
What is clear is that HP is no longer mired in its turnaround strategy. It is now executing very effectively. Looking specifically at printing, HP’s commercial print business is growing steadily and the firm has a clear path for garnering its fair share of pages that have yet to convert from analog to digital. In the consumer inkjet space, where nearly every other competitor is struggling to deal with the decline in home printing, HP has launched a new service and business model that could disrupt the market and drive additional market share for HP, something that would have seemed quite a challenge not that long ago.
In the office, HP is doubling down on its page-wide array inkjet technology and pushing an ink in the office strategy that provides a great deal of differentiation and a compelling value proposition—especially when it comes to affordable office color. Meanwhile, the firm’s laser business is as steady as ever, and HP is looking to extend its leadership position in services and solutions.
The challenge for HP, and every other printing vendor for that matter, is keeping print relevant in a climate where digital display is rapidly encroaching on the need for output. In short, the industry needs to create more reasons to print — to somehow increase the value of printing. As Steve Nigro put it so eloquently during his session: “print is not the challenge … printing is the challenge.”
Meanwhile, HP is consistently repositioning itself as a key enabler for the future of IT and the converged infrastructure. “We are deeply focused on transitioning from selling point products to selling solutions that address customer problems,” said Meg Whitman. “No other company can provide the connective tissue for companies transitioning to the new style of IT.”
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