Xerox Considers Takeover Offer for HP | Hacker News Reader

Xerox Considers Takeover Offer for HP

wsj.com

80 pointsbig_chungus84 comments

In the words of Scott McNealy, "Everyone likes to hold hands while circling the drain." (I believe he made that comment when SGI agreed to acquire Cray.)

It is interesting to me as a technologist to remember these companies as both powerhouses in their domains and failing enterprises. What I don't know is what allows a company to successfully 're-invent' itself or to recover its core values and return to a previously powerful position. IBM did that once transitioning from PCs, Microsoft seems to have done it, and Apple pulled it off when Steve Jobs returned. SGI died, MIPS is nearly dead, Sun is dead, Compaq died, Dell might be considered a comeback, National Semiconductor died, AT&T Bell Labs died, Northern Telcom died, Polaroid died, Kodak is nearly dead.

There are obvious issues when the accountants take over and start squeezing the cash out of a company, and companies that just keep getting deeper and deeper into a technology that isn't going to survive when something new has come along. But why are these events so crippling that companies that have the resources to re-invent themselves seem to so often fail to do so?

Think it comes down to incentive structures and what kind of behavior is rewarded. In a well functioning company people creating value bottom up see an upward trajectory in their careers. Companies that lose their way end up in a limbo state where power brokers, star communicators, coordinators end up capturing all the value and the act of creating bottom up value becomes an irrational act. An employee will do exceptional work if they have some kind of belief that they will be able to monetize it by capturing some of the value created. Once this belief evaporates doing great work becomes a fools errand. We (humans) appear to be hard wired to reverse engineer the incentive structures both explicit and implicit in any given situation.

I think there is a lot of truth in this. It was certainly the case at Sun when my friends started leaving that they had lost hope of being able to "make a difference." I expect that is an expression of the condition you describe.

Is it possible to get some sort of measure for that? Is it possible for an outsider to understand if creation of value is a priority at a given company?

The older I get the more I believe this. Everything about a company's behavior can be explained by their incentive structures. Mission statements and grand visions mean nothing. Incentive structures are everything.

I've basically seen this happen at my former employer. They started an industry, made hundreds of millions, but instead of investing in development, the executives all receive massive bonuses. Competition is now creeping in and they have no way to compete. What was once new and innovative tech is now legacy enterprise. Instead of a cooperative relationship with customers it has become adversarial. Instead of hiring engineers and building better technology that sells itself as it once did, they hire salesmen to negotiate multiyear reoccurring contracts.

I have often thought it would be a good idea if employees had a voice in the salaries of their bosses. That would prevent mediocre executives from looting a company like that. If an executive is really good and benefits the company as a whole, sure give them a high salary to keep them on board. But if they're mostly profiting from the hard work of the rest of the company, and don't want to reinvest the profits back into the company or share it with the employees, then why should they be getting these massive salaries?

This is absolutely spot on.

A good deal of resources in some large organizations are wasted on vanity projects initiated by mid-management specifically for such value-capture.

> What I don't know is what allows a company to successfully 're-invent' itself or to recover its core values and return to a previously powerful position. IBM did that once transitioning from PCs...

By the way IBM did it at least four times before: once when they Computing-Tabulating-Recording company reinvented themselves and their focus and became IBM; once after WWII when they made a push into electronic computing and once in the 60s with the phenomenal 360 project and finally in the 80s when PCs dominated revenue.

Thomas J Watson’s autobiography is a must-read and covers up through the 360.

They re-invented themselves as a services company in the 2000s. For good or for worse.

so far it didn't pan out greatly, but I stopped hearing about that in 2010

I'm not sure if Nat'l Semi died or not. They became a division of TI which is currently trading near its all-time-greatest valuation. TI is one of the most valuable companies on earth. Before the acquisition National had healthy profits.

The Nat Semi & TI merger is an interesting case. They both had huge numbers of parts in the same categories, but little actual overlap in actual part catalogs. They complemented each other nicely in terms feature-space coverage. At the same time, building a modern semiconductor fab is so capital intensive that only huge companies can do it. So the economics of that merger were uncommonly attractive.

Photocopy and Copy & Paste finally become one.

In this case though, HP isnt the former powerhouse, which is alive and well, as HPE, reinventing itself and on quite an acquisition spree. HP is the printer and pc business they shed to keep themselves from bleeding out. HP is the kind of thing Lenovo likes buying, some scrap somebody else wanted. HP may have the larger market cap, but HPE is the company building itself for the future.

Yep, the old HP is alive and well as Agilent Technologies. They’re no technological powerhouse, but a respected and successful scientific instruments business. Just the sort of business Bill and David set out to create in the first place.

HP Inc has higher revenue than Lenovo. Just sayin' :-)

I was only painting it as the discarded "we dont want this legacy business" that HPE shed. Lenovo likes those scraps of companies reinventing themselves.

And if weve learned anything from this post, the much smaller company can apparently buy the larger one.

The popular theory which explains why this happens is documented as the innovator's dilemma: https://en.wikipedia.org/wiki/The_Innovator%27s_Dilemma

Basically to become that successful, companies have some hit product that becomes their golden goose. All data in the world says that a dollar invested in keeping the golden goose alive and healthy is the optimal way to invest that dollar. No one in the company (not execs, or accountants, or engineers) would want to disrupt this good thing that's going on.

Like, suppose that technologists/engineers make rational data-driven decision - look at this huuuge pile of data that validates the decision to continue doing the same thing over and over again.

At that point the business model and original product are baked into the companies DNA, and despite new things coming along, they really can't even imagine what it's like to do anything else.

The ability to reinvent is truly the secret sauce to business. Very few execs can do this for their organizations. If someone could do it reliably and predictably, they'd instantly be compensated $100M+ and dropped into any of the companies you mentioned to 'turn it around'

This used to be true for the old line of tech companies. The new tech behemoths have learned that lesson well. Their senior management and boards are paranoid about disruption. They are extremely agile with new opportunities. See Alphabet's range of investments, ditto Amazon, Microsoft, Facebook and Apple. In many cases, the founders separate themselves from the day-to-day management and short term revenue pressures that Wall imposes. This allows them to focus on new areas of growth. The share structure, allows this to happen -- class B stock give the founders the ability to ignore short term revenue pressure to some extent. This generation of tech companies are different beasts.

Everybody thinks they are different until proven otherwise.

This generation is risking that there won't be a next big thing, and so someone smaller but more focused comes from behind and slowly takes over while they are focusing too much energy on looking for a next big thing that never happens. A more focused organization would better look after the core business and not be disrupted by someone who does their core business just a little better.

I can't tell you which answer is right (ask me in 30 years), but I can see possibilities.

True. I agree, and indeed hope that today's giants will be disrupted. The only thing worse than a monopoly is an eternal one.

My point was more of a warning to startup founders and investors. They should not assume that Google and the others will be too slow to respond to a competitive threat that a startup poses or a big opportunity that a startup creates. They will pounce aggressively, and either acquire or kill the startup. Complacency about FAANG is very very dangerous to the health of a startup.

And yet Google was completely blindsided by Facebook. Google even had social network apps, and the whole time Facebook was rising they tried to compete with it. The same goes for messaging and WhatsApp. Google had competing messaging products the whole time.

A critcal point in that book is about profit margins. No one making 40% is interested in a new business making 20% even if it may eventually be 10x bigger. It’s seems risky until it’s too late.

Especially when that 20% might supplant the 40% business.

Kodak knew and they tried, but they misread how fast the transition would go. They thought there would be a period for hybrid film/digital devices, for instance.

It's hard to criticise Kodak because they really were pioneers in the early days of digital photography.

The Innovator's Dilemma covers that too though. It's usually the case that the incumbent does invent the disruptive technology. Actually selling it in scale ends up not happening and often the eventual winner is actually formed by old employees of the incumbent who see the opportunity and can't get the organization to move on it, so they form a new one. To me that was the most amazing part of the book, that the barrier wasn't the technology itself, it was all incentives/politics/etc that made it not work.

Fascinating

They "knew" after shelving prototypes 10 years prior. They only reacted which is too hard.

Company success is often about judging timing... too early or too late == death both cases. Super hard to do.

Exactly, General Magic is a classic example of too early. The technology of the time was simply incapable of supporting their vision.

Not even to that extent. Some people propped indie open source dvd-ready built-in arcade emulator consoles in the 2Ks, and it bombed. The machine was alright, but the market was just not ripe. Look at all the classic mini consoles milking money recently.

there's an anthropomorphic factor.. companies know there's a chance they will die, but they can't find the strength to overcome fear of switching most of the time. They'd rather milk the cow until the last drop, which is what happens.

It’s timing. When a technology is only just starting out, the cost of entry is peanuts. Linus started Linux in his student bedroom, Zuck did the same with Facebook. The Apple I was a spare time project. The original HP was a bit more organised, they started in a garage but did intend it to be a business from the start.

When a technology is at the point where it is maturing, the cost of entry is bank-breaking. By then the first movers have attracted serious capital, but more importantly they have network effects on their side. Everyone can see this is the way to go and they are way ahead of you. There’s a decision point, spend billions to probably be an also-ran anyway, or essentially give the money to the shareholders.

Everybody focuses on the technology, but it’s the network effects that really matter. This is why WebOS and Windows Phone failed, why couldn’t HP and Microsoft buy their way into the mobile phone landscape? Their technology was excellent. The problem was the weren’t competing with Apple and a Google. They were competing with them, plus all the companies that had invested in the iPhone and Android ecosystems. The carriers, device manufacturers, software developers, service companies, all with huge investments in those platforms. Add that all up and it’s maybe 10x as much as just Apple and Google on their own. By now, probably a lot more.

So it’s all about timing. Google knew this, which is why 20% time happened. You pretty much have to invent the future to have any chance of owning it, or even getting a slice. Google was just incredibly lucky that Android fell into their laps at just the right time, and was powerful enough to compete with iOS. So the problem is, how do you keep genuinely innovating?

On the other hand Apple wasn't in the phone business at all a decade ago, it was dominated by Nokia. Windows CE was on a lot of devices.

The opportunity came because the whole industry was moribund, they couldn't see the wood for the trees. Most of us hated our phones.

Did we? I was happy with my phone back then. It made calls and received SMSes. Having to use T9 was not so good but not even so bad.

Of course my phone does much more now, calling and texting being the least of it. I wouldn't go back ( * ), but I also won't go back to the cars of the 70s. This doesn't mean I hated my dad's car.

Apple invented a new phone which is not a phone as intended before 2007 and one that people liked. That's why they got so successful.

HP and Xerox are probably still good at what they used to do (I'm happy with my ZBook and LaserJet) but they are probably not where the bulk of the market is nowadays. So they seem to be fading away.

(*) Except that phones got so light and small around 2000 that they could almost fit in a closed fist and I'm missing that.

I share the sentiment but I cannot deny that I somehow wanted an iphone kind thing around the time it happened. We all bought phones who had one more feature, color lcd, fancy games, internal mp3 player, photos..

I somehow hate smartphones nowadays because of the "more is less" dimension but the iphone was a normal thing to happen.

In a way, the current smartphone industry is not primarily the successor to the "dumbphone", industry. It's one of the industries it absorbed, but wasn't more important to the current industry than e.g. the MP3 player industry.

In 2007, Apple already had manufacturing and supply chain experience producing 100 million devices. Had locked up enough flash memory to have a pricing advantage, had a direct relationship with consumers through the Apple Stores and when the App Store was introduced had millions of customers use to doing micro transactions via iTunes. They had about the same number of credit cards on file as Amazon.

Good point but Apple is not a tiny startup at that time. Also they benefited for a huge amount of internal synergies too. Ipod gave them knowledge about pocket ~computers, plus decades of personal computer design.

Smartphones aren't really phones, that's just the name that stuck. They are hand computers that happen to include phone functionality. This is exactly the point so many pundits and phone industry insiders missed at the time.

They thought the iPhone was just a phone, and judged it in those terms. A massive mistake that allowed Apple to walk away with over 90% of the profits of the entire industry right under their noses. Their network effect advantages didn't help them, because they were obsolete. It's like hoping the network of stables, fields, saddle makers and horseshoe manufacturers will save the horse drawn carriage from the car. The network effects that matter to smartphones are app stores, app developers and services for apps.

This was a key insight that I missed as well when I watched the debut of the iPhone. Much of the industry had wrapped their head around the idea that a "smart phone" was really just a personal digital assistant with calendar, email, and notes grafted onto a phone. After all, Palm was super successful with their Pilot and Blackberry dominated this market with their "phone with a keyboard for email."

The iPhone vision of a hand held computer that happened to make phone calls was way broader than I could get my head around at the time. I remember predicting that there were maybe 10 apps that would ever make money on such a device :-).

You can add Yahoo to that list as well. I was using Yahoo mail, music, briefcase, messenger, chat, daily 'only' like ~15 years ago!

> What I don't know is what allows a company to successfully 're-invent' itself or to recover its core values and return to a previously powerful position.

An excellent article about Fujifilm, and why it survived but Kodak died.

Kodak is dead. Today's Kodak is basically just a brand. The film division is a different entity.

https://petapixel.com/2018/10/19/why-kodak-died-and-fujifilm...

The film division is really not dead though, which must be pointed out.

The current film company is not the original Kodak. It appears the Kodak imaging division was bought by the UK Kodak Pension Plan (I kid you not) and they still privately own the business. They share the "Kodak" brand name with the Eastman Kodak Company, and the HQ is in the UK.

Yes, I know. It's even weirder than that though. From the perspective of the people who work at the plant though, it's the same. They do (very, limited compared to way back then) research and development, and run the production of film. Same people and the same things as has been going on for decades. These people, Eastman Kodak, produce the film. They also sell motion picture film.

What the UK Kodak Pension Plan bought is Kodak Alaris - they sell still image film. And they buy that film from Eastman Kodak.

> MIPS is nearly dead

In the embedded systems space, MIPS is alive and if not kicking, at least twitching a bit. ARM has grabbed a lot of marketshare, but MIPS will likely hang on to some of the very low-clock systems.

Is attempting a re-invention an efficient use of capital?

Maybe those companies that went gracefully into the night were able to pay out dividends for their owners to reinvest in Google, Facebook, etc and nobody lost much of anything from their decline?

Lack of vision at the top.

A company with $10bn revenue buys one with $58bn revenue. This comes after cancelling a merger and nearly getting sued for $1bn because they last-minute-cancelled a merger with Fujifilm.

Sounds totally healthy and not at all like some financial game played by Xerox's activist investors.

Prediction: if this happens the joint company will be worth nothing in 2030. They are already now kicking out lots of staff, so are probably as usual destroying the R&D departments in favour of short term profit margins.

Xerox Holdings Corporation (XRX) =Market Cap 8.071B HP Inc. (HPQ) = Market Cap 26.638B Xerox ended Fujifilm joint venture today and is already trying a new multibillion-dollar business. I had no idea they still had some relevant product in the global market. But it is very likely that these advances are more about a financial game of activist investors than a long-term plan.

Xerox is huge in the services business, that's why HP looks good to them, they also still make tons and tons of printers, from big to small

Xerox spun off their services business as Conduent, which was basically ACS that they acquired previously.

This I didnt know

Ursula seemed to think her job was to diversify Xerox away from copiers, and then Carl Icahn came along and said, no, there's more value for shareholders in breaking it up.

The Conduent separation happened at the beginning of 2017. There were some dribs and drabs that were transferred to Conduent because they seemed to be services and not copiers, but most of it was the former ACS.

For perspective (if the numbers I just looked up are right), Conduent has 85,000 employees but averages less than $18K in revenue per employee.

What services business? Xerox makes almost all of its revenue from selling or renting printers/copiers. HP itself spun off its services business a little while ago (HPE is a completely different company now).

This is essentially a move for two companies in similar segments that see a slow death on the horizon to combine to cut costs and hope for a successful pivot. It makes sense as well, since the market for printers is already too small for two major players and is just shrinking every year.

> What services business?

According to their annual report:

https://www.xerox.com/downloads/usa/en/x/Xerox-2018-Annual-R...

2018

- Revenues: $9.8B

---- Sales: $3.97B

---- Services, maintenance and rentals: $5.59B

> What services business?

They also do document conversion, although I'm unsure of what the business is called publicly (maybe this [1]). They take documents in practically any format and do language conversion, whilst maintaining formatting (a super hard problem). As I understand they get a considerable amount of business from converting technical documents.

[1] https://xeroxtranslates.com/

kudos. that's really interesting, actually. never would’ve pegged xerox to be in the high-end translation game. neat service

>What services business?

As margins fell in hardware businesses most of the manufacturers shifted to selling what used to be included in the product as separate service. This then gets extended out to related domains. It's quite common for a corporation to outsource their whole print room to a company like Xerox.

Unfortunately Xerox it's also common to shut down your print room and send more emails instead.

All the smart printer sales guys got out of the business 5-10 years ago. Companies renew less and less printer/copiers on the contracts every year.

Sadly, less printers = less document management so things are really bad at those places now.

Meanwhile in manufacturing, we still use printers and nobody makes a good laser with a rear paper exit anymore

Xerox spun off conduent, which provides tons of arbitrary business services such as call centers.

This consolidation of printer companies has been going on for a long time now. When I started working in the field it seemed every large corporation had a printer division.

I just read a Reuters article on the legal action that was recently found in Fuji's favour, it said that Xerox relies on Fuji for copiers. The new Xerox management is anti-Fuji merger, so buying HP makes sense as an alternative source of copiers to Fuji.

https://www.reuters.com/article/us-xerox-fujifilm/fujifilm-w...

It is very important to remember that this isn’t the “real HP”, it’s just some generic PC OEM with the name. The real HP lived on as Agilent.

Even Agilent didn't like the real HP and kicked them to the curb as Keysight. I hope that when the HP name is up on the auction block, Keysight is smart enough to take it back.

This makes no sense, HP is in much better position than Xerox. HP has the best inkjet technology, overall software/firmware and recently absorbed Samsung's printer business which gives them a great laser portfolio as well. Xerox is only a few years removed with flirting with bankruptcy.

Disclosure: used to work on HP printers several years ago

Maybe you can answer this question for me: Why does HP not have a good ink tank printer based on the shell of something like the HP OfficeJet 3830?

It seems like Canon, Epson and Brother are the only real current options for ink tank / bottle refill printers.

HP does have ink tank printers, but I believe they are only sold in emerging markets.

https://store.hp.com/id-en/default/printers-hp-ink-tank-syst...

In developed economies HP was/is pushing for users to use its "Ink subscription" service. I am assuming that using cartridges has higher margins for HP. The business model for HP is to make money selling supplies, and with ink tank printers it is trivial for a customer to use non-OEM refills.

That's interesting. In South Africa, at the moment, they also don't have widely available ink tank printers. The two main ones sold at most shops are Epson and Canon, with Epson having the most aggressive marketing campaign of the two. The nice thing about Canon's offering is that they took some of their older designs (that people are used to) and stuck in the ink tank. Epson's offering is the cheapest, with an entry level but not bottom of the range costing about USD 140.

Edit: No document feeder on that HP! That's disappointing.

I used to work testing printers for Xerox. Back then they were benchmarking their printers against the HP ones that performed a lot better. This is a bold move but one that I’m not sure will ever pay off. I always thought printers and consumer electronics is a low margin business and not something people really want to be in.

HP stock already up 10% in pre-market alone, based on this rumour: https://finance.yahoo.com/quote/HPQ?p=HPQ&.tsrc=fin-tre-srch

I'm reminded of Steve Job's insight into why Xerox failed to capitalize on their Alto/Star tech:

https://www.youtube.com/watch?v=_1rXqD6M614

Apple is at an all-time high and Xerox is circling the drain. Pretty amazing to see what Apple has become with the point-in-the-right-direction Steve got from Xerox all those years ago.

https://news.ycombinator.com/item?id=8979051

Does this mean that support from my Samsung printer will now come from Xerox? I was appalled to discover I had to contact HP for support.

If Xerox buys HP, is someone else going to buy HPE? (Any speculation on who?)

They have second largest market share behind Dell. Who would be in the market to buy something just so they can tackle Dell head on? Cisco?

EMC was in talks with HPE before deciding to merge with Dell. The next logical player would be Cisco. A merger with Oracle doesn’t sound likely but isn’t outside the realm of possibility.

HPE is a more complex acquisition now since they’ve started pouring more investment into supercomputing, which heavily depends on getting a few good long term deals. They’re no longer a pure infrastructure play.

But if someone buys HP it shouldn’t have any effect on HPE. These are separate topics.

Isn't HP the number one server vendor in the world? Who is xerox? Maker of dying tech. Doesn't make sense.

That would be post-split HPE, not HP.

https://www.bloomberg.com/news/articles/2019-11-06/xerox-con...

Bloomberg link with no paywall

Printer companies belong together.

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