H-P's One-Year Plan
online.wsj.com
online.wsj.com
Assuming I'm reading these numbers correctly[1], the PC division posted earnings of $567 million in Q3 2011. Compare that to $1.2 billion in earnings on enterprise services, $699 million from enterprise hardware, and $892 million from printing and imaging. Revenue from commercial printers was twice the revenue gained from consumer printers.
All told, while the consumer business is a respectable chunk of change even to HP, the consumer business has the thinnest margins, is shrinking, and at the end of the day earns much less than the enterprise side of the house.
HP makes a killing on enterprise services already. More than double the earnings of its entire PC business. Buying high margin software products like Autonomy for its services division to push on customers is easy money. The fact that HP's software business only earned $151 million on $790 million in revenue in Q3 2011 is a tremendous lost opportunity.
HP is not a consumer company anymore. It doesn't need a consumer oriented CEO. It's an enterprise company that needs an enterprise CEO.
Yet somehow, even "financial commentators" fail to recognize any of this. A very disappointing article from the WSJ.
[1] http://h30261.www3.hp.com/phoenix.zhtml?c=71087&p=irol-n...
Plus, figure that even if the consumer business made about $800 million last quarter (between PCs and printers), selling those businesses off for a couple billion, putting the cash in the bank, then laying off all the employees (or transferring them to the buyer) will fill the bank account, reduce head count (and expenses), and allow for more focus on less products that each have higher margins.
Putting it that way, it sounds like combining the Apple and IBM business models to me. Simplify and specialize, focused on the enterprise (where the money is these days).
Apotheker isn't perfect, and there have been missteps to be sure, but on the whole, as an HP employee (recently, via the Fortify acquisition), I think Apotheker has a much better plan for HP than Hurd or Fiorina did.
Zing.
Though this latest 'pivot' into a services company smells a lot like what IBM has done, abandon its hardware manufacturing and go into software services and consulting. Some part of me hates that radical a change, especially since how many of these massive software consulting companies are actually needed?
A couple of ex-housemates of mine (who worked at HP a while back) just laughed. It's like Oracle getting into video games, or Cisco deciding to crank up a steel mill. Software is /not/ one of HP's strengths.
I wonder who's selling short?
Select your product
» HP Universal Print Driver for Windows
» HP Universal Print Driver for Windows - PCL 5
» HP Universal Print Driver for Windows - PCL 6
» HP Universal Print Driver for Windows - Postscript
» HP Universal Print Driver for Windows 64-bit PCL 5
» HP Universal Print Driver for Windows 64-bit PCL 6
» HP Universal Print Driver for Windows 64-bit PS
Thankfully they forgave us the usual split in NA, EMEA, AP1, AP2, etc, geographic versions, with the only clue being in the cryptic codename in the link.
I've had good hp printers (laserjet3, original deskwriter), and one decent one (hp555), but this one is pretty crappy. The software isn't very good, the wifi on it sucks, the ink cartridges are always low. What's more, it came from the apple store, with a new macbook. It works better with my ubuntu boxes.
Uh oh.
And we're going to do it by dropping the premiere retail project that contains software we wrote ourselves.
It's worth noting though, that they didn't dump their profitable business in their pursuit of a new market. On the other hand, they also had a huge pile of money to throw at building the xbox.
Microsoft eventually decided to basically build a PC dedicated to gaming (XBox) that would leverage the legion of game developers already building on PCs. They also would be able to compete against Sony and Playstation because their platform was arguably easier to develop for and more well-known.
The hamburger analogy is disingenuous. Hamburgers weren't invented in our generation and they don't radically change every 18 months.
McDonald's doesn't make much money on the burgers themselves. The profit is in the fries and sodas. The point being that it would be absurd for McDonalds to decide to kill off the burger, because it "wasn't profitable". The burger drives those other sales.
Computers might not be profitable for HP, but supposedly they drive other, more profitable sales. (I'm not sure what those other products are, though!)
Printers and ink, baby.
Example tie-in: Kid going off to college? Tuition is expensive, buy a low-cost HP laptop and we'll toss in a discount on an HP inkjet printer! You don't want to deal with library printing and waiting in lines, you'll want a printer in your room!
more than you think since software touches every industry everywhere and somebody needs to implement all of that.
I went and met with an old pharmaceutical company client of mine recently. 10 years ago they were 500 people in the head office with a mix of departments. they had a tiny 2-3 person IT department that was in a far corner. when I visited recently, half the building was IT with consultants from big firms, a homegrown department, etc.
HP has a large enterprise hardware business with much bigger profit margins. This includes servers, storage, ethernet switches, etc. Everybody seems to forget this.
Given the onslaught of chinese PC manufacturers and the diminishing profit margins, this makes some sense (like it did for IBM, that also dropped their PC business but kept their server business).
Many people who haven't dealt with HP in business are unaware of the large amount of enterprise software they provide. For example, HP is one of the largest healthcare software providers. Just go to their website and take a look.
I agree with you. Many companies will want to have one relationship for servers and desktops just b/c it's much easier to manage.
However, besides Dell, where else can you get this?
So, while it might hurt them short term, long run, most American companies are going to get out of commodity PC's b/c of the low profit margin.
Ref:http://www.hardwarecentral.com/reviews/article.php/3927996/F...
No other competitor came close to HP, though, which shipped 18 million computers in the fourth quarter. It finished the year with almost 20 percent of all PC shipments globally.
"The corporate PC segment continues to outperform the consumer market as companies replace systems with newer, faster, more efficient computers," Wilkins said.
Since the article doesn't distinguish consumer vs corporate sales, I suspect that they are suggesting the most of HP's computer sales being from the corporate segment, which is not at all surprising. If that's the case, it supports what I said, "HP hasn't been a major player in the consumer PC market for a long time"
Related, and maybe I missed this, but is HP selling off all of their PC division, or just the consumer PC division? If it's everything, has anyone seen any explanation why the company that shipped the most PCs by a decent margin would be looking to leave the market?
1. The dude has no experience running a consumer oriented hardware business. 2. He hasn't run a global company. (SAP, for all it's glory is still an European company). 3. None of SAP's businesses have anything in common with HP's DNA.
Not sure why the board committed such a blunder and why they continue to do so as the CEO is taking down one of the well respected companies in the valley.
Having said that, I don't think it would be the biggest issue anyway; 1 and 3 are much bigger problems for HP and you're spot-on with those.
You also get to work with application developers who have built the things that run at the core of the major companies in the world, and many of them have decades of experience at this. These applications will likely never be put in the cloud or replaced by something with just a nicer GUI, since the important thing is security, correctness and absolute stability.
So do not rule out companies which seem to do "just boring" stuff when looking for your next job. Enterprise applications can be very challenging (and are also reliable money makers).
The core of some of these applications are not even developed in Waldorf but f.e. in Palo Alto or Seoul; so that interviewer doesn't know what he's talking about.
For specific SAP projects I worked on they had development offices in Tel Seoul, Beijing, Berlin and Waldorf. Another project had development offices in Tel Aviv, Palo Alto and Waldorf. And this goes on and on. It's areally international company, more development spreadout than with Microsoft f.e.
Their customers range from Pepsi and Coca Cola. Also, do you know what runs at the backend Apple itunes? What do you think makes Philips' distribution channels tick?
SAP always claims that of all the goods being manufactured, shipped and sold across the world passes through an SAP system.
That said; SAP is primary a support and consultancy organizaqtion. They spend a shitton of money on R&D and new software development but the last time I read their year report they gained most of their revenue from the very expensive support contracts they sell (but as a big bank who cannot afford downtime they will then guarantee you to have an expert on site within 2 hours yaddayaddayadda)
What that SAP dude is doing at HP is beyond me.
Based on what?
WebOS was/is thought by many to be the best mobile OS without a company big enough to push it. HP could have been that company. Especially with the PC business providing some buffer for profit loss while issues with the other hardware were worked out.
You can restore R&D, and make employees happy again (though there is a cost). Heads can be replaced. Killing off products is not so easy to reverse.
Maybe they are reducing their product lines to focus on what they do best. Or maybe they are just playing the "chop the company into pieces, and hope that the sum of the parts is worth more than the whole" gamble.
But maybe PC sales help drive enterprise services (as businesses will buy their PCs from HP, then tack on a high-margin service plan, and finally add on some ludicrously profitable consulting jobs).
Services are hard to sell. Services masquerading as products are easier. Without the PC business, it might be harder for HP to sell their services bundled with products.
Intel scrapped its unprofitable memory division, to focus on CPU, and that was said to be a sound move. But PC builders are savvy customers, and won't buy their CPU from Intel just because they can also get memory there. I'd expect that selling non-core stuff to an enterprise needs a thin edge of the wedge, which the CEO can be fooled into thinking of as a product.
I wonder how many of IBM's consulting customers don't buy significant amounts of IBM (mainframe and proprietary mid-range) hardware.
Just anecdotical, but I've seen this happening at least in one case: my wife's employer, a reasonable large European gas&oil company. They first bought HP computers and very expensive printers, and then, obviously, they also signed a consulting contract with HP's local reseller at pretty high rates.
People wanted to buy higher quality kit, but Dell was the only company that was willing to to give them the time of day. (Hmmm, I'll bet this put a lot of money into Supermicro and perhaps Tyan's pockets, since building your own could be an attractive proposition.)
That said, their replacement for him was obviously insane (and also ethically tainted). Perhaps they couldn't find anyone better who'd take the job.
All aluminum/magnesium alloy case, oversized multitouch trackpad, island style backlit keyboard, edge to edge glass over a very bright, very dense 1600x900 screen... You couldn't get a better display in a similar size from any brand, even Apple. Compared to the dull, sparse 1366x768 panels every other PC offered, it was amazing. There was true attention to detail and build quality there. I think it was easily the best laptop on the market, and Wired named it PC of the Year at the end of 2010.
A few short months later they stopped building it with that display, and put the same cheap 1366x768 panel in it as everything else, then started incorporating its design features into the rest of its lineup... but without the build quality rivaling a MacBook Pro the Envy briefly had. They came close to doing laptops really really well, but gave up on it for unfathomable reasons...
I ended up cracking and getting a Macbook, but I still have a 6-year-old Thinkpad that runs like new. Those things were, in my opinion, far better quality than anything HP put out.
Your mileage may vary, of course; I only have my experiences to go off of.
The only other valid point in the article is that they haven't handled their PR well.
I guess I am alone here, but I was very impressed that HP was willing to cut it's losses on palm/web OS so quickly.
Also, for better or worse, a publicly traded company needs to grow. If you look at HP's financial report...there is definitely room for growth in enterprise software. I think buying Autonomy (a profitable company) is a good direction for them to go (though I do admit they paid a very high price).
They didn't even try. Seriously.. Was it a bad decision to acquire Palm? Maybe. The way it was executed made it a waste of money. The _potential_ was good, the system itself is awesome. It lacked decent devices (and a global supply chain, opposed to 'You can only buy a Palm Pre 2 in France'), mere hardware.
They bought it, did a half-assed job to come up with a new line of hardware (still nothing to boast about on this front) and acted surprised when the market didn't jump to buy everything with HP and WebOS logos.
The original Palm acquisition _only_ made sense if you understand that you'll need 2-3 iterations to make that business successful.
Your '0 chance WebOS would be a "hit"' line seems off to me. It's more beautiful than Android (and iOS to me, but YYMV). It's far closer to your garden variety Linux machine than Android (which might appeal to geeks only, granted). The development model for the platform is great and could bring in lots of people that so far haven't started mobile development at all. Synergy/Just Type were executed well for the most parts. WebOS had a very decent chance, but like any other piece of technology you need to support it first, do a couple of iterations based on market feedback.