It is astounding how people, WSJ contributors inclusive, only see HP as a pusher of cheap laptops and crappy inkjet printers.
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.
Sounds like HP is doing what IBM did not too long ago. Getting out of commodity markets and into markets where profits are higher and it's easier to differentiate yourself from the masses. IBM is still strong in what they do even though they got out of the PC business and pretty much everything else consumer focused. Now HP is doing the same thing and they're getting torn a new one.
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).
Agreed, the column is ridiculously biased. The author thinks Hurd was so great, but it was Hurd who first paid over $1B for Palm and then, when asked what HP's plans were in phones, said "Oh, we only bought Palm for the IP".
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.
Well, first of all HP is not seen as a pusher of cheap laptops and crappy printers. (Check out the Envy14 and you'l l know why). Next, expanding into more profitable software avenues need not always come at the cost of abandoning the core ideology of a company. To repeat what IBM did nearly 10 years ago today says something about the leadership - copycats who can't be more innovative. I think the recent changes are driven by the CEO - who knows only how to run enterprise software and the article is spot on regarding that aspect.
No, it's like McDonalds getting out of the McFlurry business.
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).
I disagree. It's like McDonalds dropping hamburgers from the menu because they don't have the profit margins of soda. Except who would go to a McDonalds who only sells soda? Sometimes the unprofitable side of your business directly and/or indirectly fuels the other most profitable aspects of your biz. Dropping the most public facing division of HP will have unforeseen consequences over time.
I don't know about you, but it's been a LONG time since I've seen anyone using an HP computer. If the general consumer wants a computer for their home, they typically buy from Dell. This is also true for a lot of companies. HP hasn't been a major player in the consumer PC market for a long time. I don't think leaving the consumer PC industry will matter much at all in terms of their "public facing division."
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.
I did not know that. Thanks for sharing. However, that comment comes right after this one:
"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?
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.
HP did 'pivot' in the early days, first into making electronic calculators and then into PC's.
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?
"We're going to concentrate on our core compentency, software."
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.
The second most annoying thing about HP printers to me for the past 6 years has been their horrible 600mb driver software packages. (The first simply being the price of ink).
Thanks for the tip. But, hey, it's HP ... can't change the spots on that cat. Drill down two not-so-obvious links to the download page, and there are SEVEN choices of "universal" driver:
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.
If my newish hp printer is anything to go on, their core competency is requiring me to agree to the printer's terms of service. Seems to happen every single time I want to do anything with the printer.
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.
Meh. They're not focusing on software as in printer drivers. They're focusing on software as in enterprise architecture and professional services. There, 600 MB is the basic client demo you put together in half a day.
It's worth remembering that Microsoft did exactly what you've described. They decided that the video game market was where the money was, and pursued it with aplomb.
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 had slowly moved their way into the video game business. The PC had become a popular gaming platform by 1995, and Microsoft made a commitment to building a first-class video game platform/SDK, DirectX.
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.
Microsoft was slowly moving onto consoles even before the Xbox. The Dreamcast ran Windows CE, and Microsoft approached SEGA at one point about building a Dreamcast 2, IIRC.
Well not pivot in the current use where the entire company changes all of its direction, but 'pivot' in the sense that the new division becomes the company's primary focus.
HP was a huge company back then. They made a lot more than consumer products and they didn't focus on any one thing. They made everything from oscilloscopes to calculators, primarily for scientists and engineers. It isn't like they laid off oscilloscope designers to hire people for the calculator division.
The pivot worked out quite well for IBM. It happened when there was significant question as to whether their PC business would ever be an industry leader; they'd just laid off more than 100,000 people because of overall weakness in their business and the economy in general.
The hamburger analogy is disingenuous. Hamburgers weren't invented in our generation and they don't radically change every 18 months.
Actually, I think the hamburger analogy works something like this:
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!)
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!
HP have recently won a large service contract with a large Oil-and-Gas business in Canada. We've been contracted by the business, some for more than 7 years, doing software consultancy and maintenance. We have yet to see how HP will manage the transition, but we have so far little confidence the same level of service would be maintained. Not to mention that their development center is not in North America.
Never. The nature of the consultancy (at least with the current setup) is high-touch, but treated as rather mechanical in nature. Having a working team that rarely interacts with the client might not be the best setup.
> especially since how many of these massive software consulting companies are actually needed?
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.
An amusing quip, but the comparison only serves to beg the question. McDonald’s is ostensibly in the hamburger business, but the engine room of the company is real estate. See http://money.howstuffworks.com/mcdonalds2.htm.
Well put. Who in HP's board made the brilliant decision of bringing in Mr ex-SAP as the HP CEO.
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.
Disagree on point 2; we see some of SAP's tentacles down here in New Zealand which is about as far from Europe as it's possible to get. Wikipedia seems to think they're pretty global too (http://en.wikipedia.org/wiki/SAP_AG).
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.
SAP's US headquarters is near me in Pennsylvania. I interviewed for a software developer job there once. I was told, by the interviewer, that the programming jobs in the US are boring because the real work is done in Germany...
The PA office is a bit of a glorified regional sales office. SAP Labs in Palo Alto however does a lot of interesting and original dev work. There are quite a few very good engineers there who would take real offense at this statement.
C++ developer working at SAP here, so my job is not exactly representative of SAP. That said, it is a very interesting job. We are building a distributed in-memory database that can power lots of SAP applications. We work with server machines with 2TB of RAM, gigantic SSD storage and many, many cores.
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).
From a pure techie point of view you can do great stuff there as a programmer. But the end-result is just nog as sexy as having developed games for an iphone or invented the New Social Thing. But your software scales over 100 gigs of RAM, is blazingly fast and can process transaction records in the order of 10,000s per second; that's non-boring to me :P
Yes... but I think quite many of us older than 23 would rather program SAP than games or Iphone apps, although I wouldn't hazard a guess at the proportion.
Not true. SAP tends to acquire a lot of new companies (with the fight with Oracle heating up in the past couple of years) and a lot of these smaller companies are based around the globe.
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.
I should have been more specific. When I say a global company, I mean that every aspect about the company should be global. Having an office in every part of the world doesn't make the company a global company if almost all of the leadership decisions stem out of Germany.
You're widly misinformed when it comes to SAP (edit: reacting to point #2, I agree with the other two.)
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)
I used to work for a logistics company, and about half of our customers (all major US companies) required us to integrate with their SAP system. SAP may do most of its business in Europe, but it certainly does have an international customer base.
"Search Committee of the Board of Directors has been created, consisting of Marc L. Andreessen, Lawrence T. Babbio, Jr., John H. Hammergren, and Joel Z. Hyatt, which will oversee the process for the identification and selection of a new CEO and Board Chair."
That's not clear at all. The Palm acquisition was Hurd's doing. This column is knocking Apotheker for killing it, but a pretty good case can be made that keeping it going would just be throwing good money after bad.
And a counter argument could be that given time, HP could have done something productive with WebOS -- the TouchPad, Pre, etc.
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.
Earnings. I've heard comments on how he only increased earnings by cracking the whip, and cutting R&D. Maybe that's the case.
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.
Well, he said one of his first and most important tasks was to decrease the amount of bureaucracy HP's salesmen had to fight to get their job done; as I recall they were only able to devote about 30% of their time to actual sales. I can certainly recall a number of anecdotes from the Carly years about an unresponsive and unrealistic sales organization that along with Sun's near total dysfunction in sales between what could be charged on a credit card and mainframe level deals made Dell the default server vendor.
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 way of phrasing makes it sound as if it's a nonsensical move all the time. bureaucratic overhead can grow to the point that destroying it can make the parts worth more than the original whole.
Well, you may be right here. Wikipedia says HP's enterprise net income was about 8.7 billion, in 2010 (off about 57B revenue). It's total net income? $8.761 billion, off 127B revenue).
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.
> 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).
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.
As I recall when the various issues came up he lied to the board and/or it was shown he'd falsified ... expense reports? as part of a coverup. Basically he unambiguously demonstrated to a board (that had its own as bad or worse ethical problems not long before) that they couldn't trust him, that his character wasn't up to the task. I don't think they had much choice but to fire him.
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.
They may be the biggest PC maker, but I would not say that is because they make great PCs-they just make A LOT of them.
HP used to make great printers and servers.
I hope they can get back to a place where they do SOMETHING well.
They once made a great consumer PC. It was the initial HP Envy 14.
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'm not complaining. Me, my fiance, and her friend have gone through probably 5 total HP Laptops over the last 5 years. All 5 were different models and had the power switch connection to the system board go bad after 1-2 years.
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.
I wonder if that was related to their acquisition of Voodoo. Perhaps the original Envy was a case of putting an HP badge on a Voodoo design, whereas the later designs were from HP Personal Systems Group.
It's a real shame that HP has lost it's mind because I really wanted to get a Veer as my next smartphone. I like the design of the phone itself, and I really wanted to give webOS a try but I am just not confident that HP will continue to support it. After all they've demonstrated that they are willing to lose a significant amount of money to divest themselves of the consumer mobile industry.
Well a very entertaining read, I question it's validity. I've never been a big HP fan, but I find it hard to believe this is even close to being the whole situation at HP.
This is a terrible article. Their main error was buying palm. That was a huge gamble that was very unlikely to pay off in this market. You can't beat a 'free' OS on cost and you don't have the magic marketing and design to make a high-end product more desirable than Apple. There was effectively 0 chance web OS would be a "hit," and a low chance that it would even sell at all.
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.
And a company that was worth 2 billion dollars with a decreasing revenue stream. As an ex employee of autonomy i can definitely say that HP made a very very big mistake.
2 billion? I think you are forgetting about their recent acquisition of Iron Mountain Digital. I would say the companies were worth 4-6 B. They still paid too much, but there is a big difference between paying 400% over value and paying 60% over value.
... Iron Mountain Digital was bought three months ago for $380M. If they were worth $2B before, they haven't doubled or tripled their worth because they spent $380M of their cash reserves.
Even if you argue the decision to abandon WebOS devices was sound the execution of it was horrendous. They utterly destroyed whatever value was left in the WebOS. To me, it can't be an accident. This is Leo Apotheker deliberately making sure that the brand is unsalvagable, thus ensuring he can act with freedom going forward to transform the company how he wants - not in shareholder's interest, but in his own interest.
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...