Thursday, March 14, 2013

What a difference (or not) seven years makes!

When I updated my spreadsheet the other day, I started seeing some trends

The other day, after catching up with filling in my "HP Printer Metrics" spreadsheet (and announced it with a blog post), I started thinking about differences and similarities in the printing and imaging industry over the last seven years, and wondering if there would be any evidence of changed industry dynamics over those years, just from a look at the high-level metrics, and from the industry leader who despite all the moving parts "underneath the hood" puts in a remarkably consistent financial performance, year-in and year-out.

The first quarterly set of figures I included in the spreadsheet was from Quarter One, 2006, and now with the 2013 version in the books (remember HPQ starts their Fiscal Year on November 1st), I took a quick look at the numbers, side-by-side. Quarterly revenues in the seven years fell by about 10%, to just below $6 Billion. And 2013's Q1 showing at $5.9 Billion was the first sub-$6 Billion result since since the $5.7 Billion posted in Q3 of 2009, which was the second sub-$6 Billion quarter in a row, with Q2 2009 matching the most recent quarter at $5.9 Billion. And of the 29 periods in my spreadsheet, Q2 and Q3 of 2009, and Q1 of 2013, are the only three quarters NOT above the $6 Billion benchmark. So with all the optimism after HP's last quarter, one would have to say the business formerly managed under the "IPG" banner is not all that healthy, just looking at the revenues.

Profits actually were also less in Q12013 than those reported  in Q12006, but by a very small margin, and less, percentage-wise, than the revenue difference. Unlike revenues, there is not a dramatic "threshold" like the $6 Billion which is so rarely not exceeded, though the $1 Billion mark in profits is a median tide line which seems to divide good and bad quarters. And of course, that there is a strong correlation between overall profits and supplies revenues (r=.66) is not surprising.
Back to looking at revenues, and the three components reported on by the company, which are supplies, commercial hardware, and consumer hardware, a divergent picture unfolds when looking at the "six years later" quarterly revenue. The supplies business is steadiest, and actually shows growth of nearly 7%, which being in nominal dollars, would probably not represent "real" growth. Commercial hardware declined by nearly 20%, and the consumer hardware quarter-to-quarter comparison shows a whopping 44% decline. A few factors come to mind in explaining these trends - supplies revenue growing, with a (theoretically) continually growing installed base which remains thirsty for its related ink and toner supplies, even with gradually declining average per-unit pricing; commercial hardware slipping gradually, based on eroding demand in office printing, but having stemmed the tide of overall decline with an upward expansion into graphics arts; and general and increasing decline on the consumer side of the hardware business. Speaking of consistency, one last look at this macro-level data really tells a story. When plotting the quarterly revenue "growth rate" on a year-to-year basis, I was stunned to see only four "phases" of positive and negative compares. Beginning in 2006, prior to the "Great Recession", things were in the black, followed by a period of sharp declines which were economically based, with a recovery period lasting six quarterly, and declines over the quarters since. Most of the changes are of the "single-digit" variety, with the exception of the 2008/2009 period, but clearly something has changed. One could argue that the cyclical, economy-based decline was actually less worrisome than the flatter, current period, perhaps driven less by factors like business levels and employment, and more by behavioral and cultural shifts away from printing and hard copy, during what has become what may be called the "mobile revolution" as we look back.

1 comment:

Greg Walters said...

Great Work Jim!!!!!

Very solid, good stuff...wow.