Wednesday, May 20, 2009

HP (NYSE HPQ) comments on printing from Q2 2009 earnings conference

From the May 19th, 2009 conference call transcript, HP CEO Mark Hurd and CFO Cathie Lesjak commented on the company's printing group (IPG) results and direction, both in prepared remarks as well as the question and answer session.

Excerpt from Lesjak's prepared remarks:

Imaging and printing revenue for Q2 was $5.9 billion, down 23% year-on-year, due to a tough economic environment. IPG delivered another quarter of operating profit in excess of $1 billion. Segment operating margin increased 220 basis points to 18.2%, as favorable supplies mix and cost reductions were partially offset by hardware rate declines.

Compared to the second quarter of last year, total printer units declined 27%, and consumer and commercial hardware units declined 23% and 36%, respectively. Supplies revenue declined 14% due to lower end-user demand and reductions in channel inventory.

Last quarter, we outlined several actions that IPG was taking to align its supply chain with lower demand. IPG made progress against these objectives with both owned and channel inventory down significantly since the end of Q1.

We continue to be the undisputed leader in printing, with over twice the market share of our nearest competitor. We are investing in new innovation across the printing business that we expect will drive page growth and extend our leadership. Some of the more innovative investments include our retail publishing systems, touch smart technologies, the Indigo 6000, and new mobile and Cloud printing technologies. In addition, we've demonstrated good momentum in wireless printing and managed print services in Q2.

The second question in the Q&A addressed printer supplies and the nature of their business decline, and Hurd and Lesjak used the opportunity to address the entire printer strategy, and its impact on the company's bottom line. The multi part answer goes from how great the longer-term analog-to-digital transformation strategy is going in spite of the short-term economic woes, to how IPG's $1 Billion quarterly profit now makes up only approximately one-third of company profit.

From the question and answer session (with question from Brian Alexander, analyst from Raymond James and Associates):
Brian Alexander - Raymond James & Associates – Analyst

Okay. On the supplies business, just given the year-over-year declines of 7% and 14% that you've seen over the last two quarters, so a little bit over 10% in the first half of the year, Mark -- what specific metrics do you track internally, whether they be macro or micro in nature, that might support your argument that the declines you're seeing in the supplies business are entirely cyclical versus secular?

Mark Hurd - Hewlett-Packard - Chairman of the Board, CEO and President

So, there's a lot of metrics we track. Obviously, we track revenue performance. We track owned or profit, if you will. We track owned inventory and channel inventory, if you will -- the aggregated supply chain across the business. We track market share by segment.

We track market share by country. So it's a pretty thorough score card we track in the printing business. We obviously, then, look at it relative to our pools of the business, which is graphics, which is obviously a place that we have a lot of intellectual property -- inkjet, where we have a lot of intellectual property, and then laser. So we actually look across those three pools as well, with the same metric set.

So, with supplies, I think you should expect probably in Q3 a bit more of what you saw in Q2 for us. There's some places that we did a very good job in IPG, managing the collective owned inventory and channel inventory. We feel very good about that. But there's some places that we like to align the mix of hardware with supplies within the context of the channel inventory.

I also think in Q3 you should expect to see us going after a bit more share than what you saw in Q2. This is really interesting for us -- one point that would be a little noticeable I thought in the quarter was we had some hardware situations where we had some outages. And we could have shipped some more hardware units in the quarter than we did. So we'll try to take advantage of those opportunities from a market share perspective in Q3.

Brian, let me just for a second, though, try to take you up a level and try to give you some context for how we look at the whole business, because I think it's related to your point. I mean, our view is the base business is slightly up over the long-term – flat to slightly up would be the way I would think of the entire printing segment.

Digital printing content is growing. So the cyclical stuff that we're seeing right now, as we've talked about before, is based on GDP and unemployment. But secular changes that occur in printing, which I've heard from several people that says, is there some big secular change in printing? Secular changes occur over years and decades and over very long periods.

I mean, home photo-printing, for example, is less than 10% of our supplies revenue. It's shifting to the Web and it's shifting to retail locations as well as the home, which is one of the reasons why you see HP investing in Snapfish. It's one of the reasons why you see HP investing in retail photo kiosk. That as everything that goes -- when things go to Snapfish, a photo book, for example, is printed on an Indigo printer using HP intellectual property and HP ink.

When you go to a retailer and see an HP photo kiosk, you're printing that on HP ink and HP intellectual property. And the reason why we build that strategy around pages is because we want to be where the consumer goes to print. And so we're agnostic as to where the consumer goes, to be able to get that photo printed. And we see that base business being again some good things and some things that perhaps are headwinds, in terms of what the overall business looks like.

So, think of it this way -- continued growth and printable content; a lot of movement from analog printing to digital. So there is a big market pool for analog printing to move to digital -- things like brochures, signage, labels, coupons, manuals -- stuff like this is all stuff that's shifting from analog to digital, giving us an opportunity for us to get more business.

At the same time, digital printing is increasing and improving its ability to deliver quality, speed; it's lowering its costs. And that will shift to more applications to digital. So things like newspapers, directories, magazines, all these things have an opportunity to move to digital. And then that gives us an opportunity for us to leverage our intellectual property as we move.

So, when we look at the whole thing, we say the base business is flattage [sic] -- flat to up slightly. And then we like our opportunities to gain share in the context of that hand that gets dealt to us.

Brian Alexander - Raymond James & Associates – Analyst


Thanks for the detail.

Cathie Lesjak - Hewlett-Packard - EVP and CFO

Let me just add that we think that with the position that we've got our technology roadmap and our strong competitive position, that we will gain share in that market over the long-term, when economies come back. And that that would allow us to grow this business in the low to mid-single digits, which Mark talked about earlier.

I think the other thing I really want to make clear to folks is, IPG today is roughly one-third of HP's profit. That's a very different position that IPG is in today versus historically. We've now got a much better balanced set of segments from a profitability perspective. I mean, you see services this quarter generating over $1 billion -- $1.2 billion in operating profit. And IPG, at just over $1 billion.

From a margins expectation perspective in the near-term, we expect IPG margins to stay up in the high teens, because we get such a high supplies mix. But over the longer term, with us going out and gaining share, again, getting the unit placements when the market turns around, we expect it to basically go back to the more normal mid-teen range.

And so that's really how you should think about this printing business. We are very well-positioned for when economies turn and we have this makeshift from analog to digital.

Mark Hurd - Hewlett-Packard - Chairman of the Board, CEO and President

I mean, I think, Brian, probably more data than you're asking for, but I think it's important to set the context. And we look at the market as being a low single-digit growth market. And then we like our opportunity to gain share within it.

And that's probably the point when we're dealing with some of the issues we had in Q1, where we get frustrated because we just think the opportunity is a marvelous one for us to take advantage of, given our IP position, our share position, our brand position, and the movement from analog to digital.


Brian Alexander - Raymond James & Associates - Analyst

Thanks.

Tuesday, May 19, 2009

HP (NYSE HPQ) Q2 2009 Printer Metrics

The HP (NYSE HPQ) Q2 2009 earnings announcement conference call is continuing into the Q&A, but here's my regular quarterly summary of the printer and supplies details released as part of the presentation.

Looking for any good news, or at least anything better than the rest, is a challenge. The "Indigo page growth" is the only positive percentage on the chart, but at 15% that's stair-stepped down significantly from the baseline 40% growth we were seeing for a long period of quarters. Operating margins, at 18.2%, seem amazingly good, in light of everything else, until considering that the lower-margin hardware units comprised only 31% of HP IPG revenues for the second fiscal quarter of 2009. (Seems not long ago when that metric passed the 50:50 mark.) And profit dollars, still over $1Billion, are definitely nothing to sneeze at!

One question that comes to mind relates to the success of HP's initiative to make inkjet more successful in the office. The color laser printer category's 42% year-over-year decline could at least in part be attributed to success on the inkjet front. (Disclaimer -- my multimedia capability failed me for the conference call, so I'm relying on the transcripts, when I will see if someone else listening in addressed the question with HP management.)

HP (NYSE HPQ) earnings later today, drama builds

The fragile world economy continues to have "good days and bad days", and the existence of those metaphorical "green shoots" characterized by Fed Chair Ben Bernanke in March (see "Bernanke Sees Green Shoots") may come right back to the printer business.

Today's HP (NYSE HPQ) earnings announcements is considered by many to be an important bellwether of the economy. While the trend of IT spending may be measured in many ways, even just within the details behind the HPQ numbers, one of the important ones will be the company's printer business, and especially the printing supplies group's revenues, profits and commentary provided by HP management after today's market close. In the Wall Street Journal's Ahead of the Tape column today, Jeff Opdyke writes about expectations, in a piece entitled "Latest Economic Signal: H-P Toner Error" and quotes:

Brian Alexander, an analyst at Raymond James & Associates, estimates sales declines in H-P's consumable business "will accelerate this quarter -- it could be down in the low- to midteens -- and will probably stay negative the rest of the year."


So in other words, the markets will respond to the perception of the economy's fate, which hangs (today at least) on the collective read on HP's second quarter, and HP's quarter will be dramatically affected by its printer business, of which printer supplies play a pivotal part. A bit mindful of the old story about "for the want of a nail, the shoe was lost; for the want of a shoe, the horse was lost; ...". But let's hope that's "saved" not "lost" in this case. Stay tuned-post market!

Friday, May 15, 2009

E-book Footnotes -- Campaigning on Kindle, the new "Kindling"

Campaigning on Kindle

A reader based in Montana has forwarded along this news, about the first candidate for US Congress with an Amazon Kindle-based campaign. Interesting!

Tyler Gernant has become the first candidate for political office to offer his position papers via Amazon Kindle. For every 99-cent download of these policy packets, 34 cents will go towards the purchase of tree saplings for communities in Montana, where Gernant is running for U.S. Congress. Periodically we will update you on how many trees we will be able to purchase and then during the Montana planting season, the Gernant for Congress campaign will engage in a volunteer effort to reinvest in one of the state's most valuable natural resources by planting trees.


The Amazing Kindling

And Twitterers are tweeting away this week over the new "Kindling" -- quite a clever spoof on the much-discussed (NASDAQ AMZN) Kindle. Only one #Kindling reference on Twitter so far, though. It is nice to have some lighter topics, moving on from #Swineflu, taking up tweet-space.

Thursday, May 14, 2009

TwitDoc brings document distribution to Twitter


This one comes with a tip of the hat to Francois Ragnet, a Xerox (NYSE XRX) program manager who authors The Future of Documents blog and has been turning out some great content of late. (A link to his blog is also available in my blogroll, to the right.)

Yesterday Ragnet highlighted TwitDoc -- a new Twitter application that allows Twitter-based distribution of documents, and not just in a narrow range of formats. From the TwitDoc site, here's an explanation of their range of file capabilities.

You can upload pictures (jpg, png, gif), or documents: Word (doc, docx), PowerPoint (ppt, pptx, pps), Excel (xls, xlsx), PDF, PS, Open Office (odt, odp, sxw, sxl), and text (txt, rtf). Please do not upload copyrighted material for which you do not own the rights.




My first quick demo worked beautifully (see above), with the document opening quickly and flawlessly from its Scribd.com-based home. (My regular readers will recognize Scribd from many posts covering the "YouTube for Documents" company.)

Definitely ones worth keeping an eye on -- that's both TwitDoc, and The Future of Documents blog.

Wednesday, May 13, 2009

Observations: Tabbloid and HP’s (NYSE HPQ) Ongoing Innovation

Observations: Tabbloid and HP’s (NYSE HPQ) Ongoing Innovation

A recent article by Ashlee Vance in the Sunday New York Times profiled HP CEO Mark Hurd. He was generally complimentary on Hurd’s success steering HP’s mega-oceanliner into profitable seas via a sharp financial pencil that has led to drastic cost-cutting and a string of successful acquisitions. Hurd’s non-personality-driven, no-nonsense turnaround has been all the more stunning in the wake of the tumultuous tenure of previous HP CEO Carly Fiorina.

But the title of the piece, “Does HP Need a Dose of Anarchy?” suggests that there is a knock, or potential knock, on the new boss: will Hurd’s HP Labs R&D cuts, which have chopped the number of active projects from 150 to 30, stifle the launch of innovative products in future years? A well-known HP alumnus, Charles House, who worked at HP for 29 years overseeing the creation of 12 product lines, told Vance, “I think they are seriously underspending on research and development. It seems to me that betting on new areas is a struggle for them.”

The article asks if HP has missed the boat in a couple of exploding technology categories recently, allowing rivals to beat it to the punch with new gadgets in fields like smartphones (Apple and the iPhone) and e-book readers (Amazon and the Kindle). Vance notes, “HP is trying to expand its presence in businesses like personal computers and printers, [but] some critics argue that those markets have little left to give.”

Has innovation at HP’s Imaging and Printing Group (IPG) been stifled? One counter example is the effort of Antonio Rodriguez and his team. Rodriguez is the former CEO of Tabblo, a firm acquired by HP in 2007 (see "HP acquires Tabblo") and is now the chief technology officer of IPG’s Inkjet and Web Solutions division.

Rodriguez last appeared in this column in September 2007 (see "HP's $300 million ad Campaign and the Four Ps of Marketing"), in a discussion of HP’s Web printing strategy. Since then, he and his team have been busy on a variety of fronts, including working on driving printing from Web-based content.

The Tabbloid project is one recent area of innovation. The name cleverly combines Rodriguez’s former company’s name (Tabblo) with the name of a traditional newspaper format (“tabloid”). The Tabbloid technology allows users to receive a custom formatted PDF file comprised of the latest items from their favorite blogs, including text and images. The file can be viewed in an Acrobat viewer or printed in beautiful living color on your (hopefully HP-branded) output device.


End-users sign up for the service and identify the blogs they want to read at www.tabbloid.com. To get them started, HP provides links to a few leading blogs in several categories. The service packages each blog and its latest and greatest RSS feeds, complete with images (see photo above).

Rodriguez is typically exuberant about Tabbloid’s impact on HP’s printing business. “Tabbloid has resulted in millions of incremental pages printed, the result of hundreds of thousands of issues, with tens of thousands of people signing up for the service” since its fall 2008 launch, he proclaims.

When asked why Tabbloid provides a superior user experience compared to simply improving the printing capabilities of individual blogs, another area HP has invested in, Rodriguez explains, “Tabbloid has been two orders of magnitude more successful than Blog Print for three reasons. First, [HP R&D investment in] cleaning up the RSS feed content, including taking junk out and crawling for completeness and ‘normalizing’ the content [leading to fewer or no ‘dead ends’]; second, the capability to mix and match content, focusing on users’ interest in variety, not single blog-dedicated content; and third, automatic e-mail delivery of content.”
Tabbloid, despite its slick Web site and appealing PDF output, has been a “skunk works” operation and not a full-fledged HP program until recent weeks. Despite his enthusiasm, Rodriguez recognizes that there is more work to be done. One area that excites him is an application of the Tabbloid technology that focuses on the needs of publishers rather than readers (stay tuned to future editions of this column for more).

One editorial comment about HP’s innovation direction should be noted. Typical efforts over the last number of years centered around printing from the Web and other new content sources have too often come down to the company’s rather narrow business goals of increasing (or sustaining) the usage of HP-supplied ink, toner, and paper. However, HP’s investment in innovation will best be realized by expanding that view and carefully exploring real customer needs and how they can best be met, whether with printing or even non-printing solutions.

In terms of understanding customer needs and business models, take another look at last month’s Observations column (see "Ultimate Countertrend - The Printed Blog") and its brief exploration of The Printed Blog (TPB), which, with its printed blog newspaper, is a similar solution to Tabbloid, at least in its output. A big difference is that the small company behind TPB sees the publishing ecosystem at large (e.g. existing newspapers, advertisers, printers, distributors, and readers) and is integrating existing needs and capabilities. HP can take a lesson from this view, in moving away from a “how to spill more ink” approach.

But back to the original question in this column: Is HP, under its new CEO Mark Hurd, stifling innovation and thus the firm’s future? At least regarding that idea on the printing and imaging side of HP, it is refreshing that there is still room for a skunk works project or two.

Tuesday, May 12, 2009

Zink's Design Contest -- Challenge to Re-imagine Printing

ZINK Imaging is taking entries for their first annual Zero Boundaries™ design competition, challenging contestants to "re-imagine printing and its role in the digital world", using ZINK technology.

I've followed ZINK since their launch at DEMO 2007 more than two years ago (see "Zinking in from Demo"), and their "zero ink"-based products have been gaining attention since, including most recently the Dell Wasabi printer (see "Dell's (NASDAQ DELL) Wasabi printer reviewed -- WSJ video"). And while the products have been greeted with reviewer praise and commercial success, none so far really has expanded the horizons of printing in the manner this contest is attempting to spark. The contest has two design solution options, along these lines:
The Zero Boundaries™ competition invites designers to explore the concept and opportunities of a "ZINK-enabled" world through a single design challenge that can be addressed by entrants in two ways - either with a design solution for a specific target market and with specific print output size(s) (Option 1) OR with a design solution that addresses broader opportunities uniquely fulfilled by the ZINK Technology (Option 2)

Stated more succintly, contest descriptions refer to Option 1 as "Printing to die for" and Option 2 as "In a Perfect ZINK World".

Cash prizes of $25,000+(updated from $15,000 as of 5/15) are at stake, with entries closing June 8th and winners announced on June 29th. Contest information is available at the Zero Boundaries™ web site.

Stay tuned in late June for info on the winners and other finalists!

Wednesday, May 06, 2009

More on HP's (NYSE HPQ) CloudPrint

Business Week writer Aaron Ricadela has an interesting background piece ("HP's CloudPrint Heads into BlackBerrys") on the Monday HP (NYSE HPQ) announcement with Research in Motion (CSE RIM). It's a very upbeat account of the development of the CloudPrint service, which I've covered here since its initial announcement several years ago, and mentioned in a May 4th post covering the HP/RIM deal. (See "HP (NYSE HPQ), RIM announce alliance -- includes CloudPrint for BlackBerry".)

Ricadela's account focuses on the revamped HP Labs (HPL) and uses CloudPrint as a proof point that the legendary HPL has the ongoing ability to come up with big, important innovations. Actually, at least in CloudPrint's case, maybe not so much on the "big", at least for now, but certainly the value of in-house innovation can't be understated. The passage quoting Shaw Wu of Kaufman Brothers gets to the heart of it:

Shaw Wu, a senior analyst at Kaufman Brothers , notes that while licensing revenue from products like CloudPrint is a drop in the bucket for a company with $118 billion in annual sales, technologies that emerge from HP Labs can give the company advantages in PCs, printing, and other key markets. "If they're able to out-engineer Dell (DELL) and Acer, not only does it drive out costs, but they can change their strategy," he says.


Looking at the power of the story, my Google News Search index for "CloudPrint BlackBerry" is coming up with about 800 hits this afternoon (May 6th, two days after the initial release), which is a great number for a printing story. And it proves the lesson -- team up with something sexy, like Mobile Phones, to get the buzz back in printing. And Tweets? They are aplenty! A Twitter search yields NUMEROUS tweets referring to the announcement, but aside from a few valuable links, what can really be said in 140 characters?

And back to the Business Week story? Just one little bone to pick. Hey it's HP -- did you really have to pull a printer out of the trash for the demo?

Monday, May 04, 2009

HP (NYSE HPQ), RIM announce alliance -- includes CloudPrint for BlackBerry


In a press announcement released this morning, May 4 2009, HP and RIM have disclosed strategic alliance to "mobilize business on BlackBerry" smartphones.

In addition to the enterprise/IT elements of the alliance (HP Operations Manager for BlackBerry Enterprise Server, EDS Mobile Workplace Services), and the HP spokesperson one would expect in such a release, Ann Livermore, executive vice president for HP's Technology Solutions Group, there's a printing related element that's notable for several reasons.

A component of the alliance, in fact the lead item, is the inclusion of HP's CloudPrint solution for RIM's ubiquitous BlackBerry. In the words of the alliance announcement, the HP Labs-developed CloudPrint offers "a web services based solution that allows users to print emails, documents, photos and web pages using a BlackBerry smartphone, wherever they are – in the office, at home or on the road." Readers of this blog may recognize CloudPrint from previous posts, from August 2007 (see "Printing from the Cloud") and April 2008 (see "iPhone Printing Revisited").

Whether or not "Cloud Printing" becomes a meaningful benefit for at a least a significant subset of BlackBerry users remains to be seen, but kudos to HP on at least two fronts. First, I give credit to HP for keeping the CloudPrint momentum going for almost two years since its public revelation (and who knows how much longer it was rattling around HP Labs before that). And second, I note the beneficial integration of a printing feature/benefit to go along with the other Enterprise/IT elements of the alliance, just as customers might see and want things, even if the provider, HP in this case, isn't necessarily organized in a way that leads to this integration on a regular basis.

Friday, May 01, 2009

Dell's (NASDAQ DELL) Wasabi printer reviewed by WSJ video



Reporter Stacey Delo of the WSJ.com likes the Dell Wasabi printer, featuring Zink technology, in a recently released video review. The premise of the "Worth It?" video is that the device will lead to more sharing of the reviewers photos by adding printing capability. Delo found the Wasabi easy to use, and rates the 2x3 inch photos "pretty good" and was even "shocked at how well they came out", though finding the prints a bit dark. She also mentions Polaroid's Pogo. Conclusion: it's worth it!

BTW this "worth it" rating referenced the "special price" of $99, offered since the Wasabi became available in February (see "Dell (NASDAQ DELL) Wasabi PZ310, Zink-based printer, now available") but a quick check of the Dell direct marketing site this afternoon (5/1) shows a "special-special" price of $79!