CRN Exclusive: HP's Weisler On Free Windows 10, Intel Kaby Lake And How The New JetFusion 3-D Printers Are 'Printing Themselves'

Weisler On The Record

HP Inc. CEO Dion Weisler spoke with CRN about the impact that the free Windows 10 upgrade is having on personal systems sales, the impending launch of Intel Kaby Lake, the channel plan for the eagerly anticipated JetFusion commercial manufacturing 3-D printers and the company's financial results for the second fiscal quarter, ended April 30.

Weisler's comments came after the company, which split off from Hewlett Packard Enterprise last year, posted better than expected non-GAAP diluted net earnings of 41 cents per share for the quarter, beating the Wall Street consensus of 38 cents per share.

HP shares closed up two percent, or 29 cents, to $12.20 on Wednesday and were up six percent, or 73 cents, to $12.93 in mid-day trading on Thursday.

"Delivering on our financial commitments is evidence of the solid progress we are making to protect our core, deliver on growth and invest in our future," Weisler told analysts.

Has the free Windows 10 upgrade affected personal systems sales?

We have always asserted that a free upgrade is just one of the barriers that we have to contend with. We have some data around it. Generally speaking it has affected our ability to sell new devices.

Having said that, I still maintain that Windows 10 continues to grow. I think that is important because if Microsoft can attract app developers, that is what is going to make the Windows ecosystem strong, vibrant and healthy. And I think that is great in the long term for Microsoft, and it is also great for the industry and great for us.

I am seeing enterprise adoption of Windows as a mobile platform whether that it be in the form of [Microsoft's] Surface [devices] or increasingly in smaller footprints increasingly being more accepted by enterprise customers. I am also seeing them evaluate Windows 10 faster in the cycle of a new OS than previously. That is all good news.

How big is the installed PC base upgrade opportunity?

At the end of the day, there are still 500 million devices out in the market that are four-and-a half to five-and-a-half years old. Over the course of the next couple of months, what you are going to see from Microsoft is that they are going to turn off the free [Windows 10] upgrade, and that will just be one extra stimulus for sales.

What impact will Kaby Lake the first Intel processor platform that will run exclusively Windows 10 have on sales?

The industry now has a lot of choice, and that drives the silicon manufacturers, it drives the operating system manufacturers and it drives frankly all of us to think about new solutions and form factors and new value propositions for our customers.

I think the traditional world of lining up a new piece of silicon from Intel with a new piece of software from Microsoft is gone. What we have now is things that happen in the industry that drive heat in the market.

What we can do is look at where we think the puck is today, where is the puck going in the future and how do we skate toward the puck and unlock and navigate the heat in the market. That is just one of the many complications that exist in the market, and those changes represent opportunity.

Why is last week's launch of the HP JetFusion 3-D Printing commercial manufacturing products significant?

We had a pretty exciting week last week with the launch of our 3-D printing systems. That is a big part of our future along with immersive computing.

It's a breakthrough in terms of speed, quality and cost – 10 times faster than the competition at half the cost. What that means is we can start to tap into some of this $12 trillion traditional manufacturing market where 3-D printing makes more sense than doing traditional manufacturing.

The best example I can give you is our own 3-D printing products where half the bill of materials is printed by our 3-D printers. So the printers are actually printing themselves. We are not doing that to be cute or because we can. We are doing it because the economics make more sense for us to print those parts on 3-D printers than it does by using traditional injection molding.

That is going to amplify across many industries. You saw us tie together with Nike, BMW, Johnson & Johnson, Jabil and Siemens. We are building an incredible ecosystem here.

What is the 3-D Printer channel opportunity?

What we are doing here is having a certified channel. We think that is really important to the end-customer experience.

We are in the process of working through the existing channel partners that are serving the 3-D customers today. But in addition to that, we are working through our more than 250,000 existing channel partners, and there are some of those folks that are really prepared to make some real investments in 3-D printing.

It's not just a case of "you are a partner in print and PC, and you are going to get access to these products as well." You have to show that you understand the market and applications and be able to deliver an exceptional experience. And many of our traditional partners are doing that.

Beyond that – something that was accelerated by the [HP split] – we have some of these very large system integrators, the Accentures and Deloittes of the world – who are really spending some big dollars and building 3-D Printing practices. We are working closely with them. They are a channel as well.

Is scale going to be important for channel partners as they tackle these new high-growth markets like 3-D Printing or Elite x3 smartphone?

Both of these markets are very applications specific. When you are thinking about x3 it is not really a horizontal play. It is a vertical play. It is about understanding how a hospital or a pharmaceutical company works, and then tuning the incoming processes to take advantage of the technology.

It doesn't mean that you have to be an enormous reseller to be able to do that, but you have to understand those industries.

More broadly speaking as you move into 3-D printing you also have to understand traditional manufacturing where it makes more sense to print things in an analog fashion you should continue to do that. But where it makes more sense to print things digitally you should understand exactly what that value proposition is for the customer, how it unlocks the fact that they don't need to have inventory, they are burning less fossil fuels, they are not putting stuff on the cargo line, they are not tying up cost of capital, they are not building warehouses, etc.

What is the key for partners that want to partner with HP Inc. on x3 or 3-D Printing?

It really is application-specific and I think that does require focus. So where we are seeing the most success is where companies – big or small – are separating out divisions or groups of people where they wake up every single day and all they think about is how they are either going to transform a workflow with x3 or how they are going to transform manufacturing from traditional lines to digital.

What should partners expect from the HP A3 printing product that's set to be released next year, aimed at disrupting the copier market?

Our plans are on track for A3. We did some teaser work on that with our partner and customer advisory board.

It's not just about the product. It is about the whole go-to-market strategy, the business model and the focus on services. We have listened very carefully and attentively as we fine tune and adjust. We will have those products by the middle of next year.

How would you characterize the second quarter results?

It was a really solid quarter. I am really proud of how the team stepped up and delivered for our customers because if we have happy customers everything else will take care of itself. The innovation engine is alive and well. Our partner community is really delighted by the work we are doing.

We just had a couple of very large events with both our partners and customers. We had our first partner advisory board, and we have received some amazing feedback – comments like the portfolio is the best we have ever had. We are feeling really great about that. They amplify our efforts. They are out there selling our story. They are giving us really good feedback as well which helps us with our [product] road maps and go-to-market models. There was lots of really great execution by the team.

What is your mood with regard to how the channel performed in the quarter?

I am feeling good about the channel. I am a big channel supporter. I wouldn't be shifting my ink from 80 percent [channel] to 87 percent of the channel if I didn't think the channel was more efficient than we were.

I am a big believer in the channel. I am really humbled to accept some of our new channel partners – the systems integrators – who we are now working with pretty closely. I think our traditional 150,000 channel partners are doing a great job.

They are a more efficient channel [than the direct business]. They are able to have a deeper, more intimate relationship with their customers, and we are working very closely together with them. So I am bullish on the channel.

How are some of the new personal systems products doing in the market like the Spectre 13, the Elite x2 and the Elite x3?

In our core every single day we are releasing amazing products. The premium Spectre 13 that we released at the New York Times Luxury Show in Paris has received rave reviews. Forecasts are up and through the roof on the product. That is fantastic.

Our Elite x2 line is doing incredibly well, a really strong pipeline with the partner community that would love to have an alternative to other OEMs in the market.

The x3, which we released at Mobile World Congress, is really generating some very special interest. More forward-thinking partners who understand the workflow transformation that these products enable are beginning to invest and shape themselves to take advantage of the technology we are introducing. So we are moving up the stack in personal systems.

Commercial mobility with x2 and x3 – which is in the growth bucket – is beginning to show some real signs of life. The pipeline is getting stronger by the day.

What kind of response are you seeing from partners with regard to the new printer products?

We just released 15 new platforms ranging from PageWide Array products to Jet Intelligence products as well as OfficeJet Pro, so we are focusing in on the commercial part of the market where security underpins everything we do.

Our partners are telling us we need to focus on security so we are stepping up with the world's most secure printers.

Our [printing] graphics business had the 11th consecutive quarter of growth in a row, and we head from here on Monday out to Dusseldorf for Drupa – which of course is the Olympics of graphics. We are going to be the largest exhibitor there. It is going to be the first time a digital player has been the largest exhibitor at Drupa. We have got about 6,000 square meters with our latest technologies around flexible packaging and general improvements we have made that will improve both the quality, resolution and economics of our products.

What was your message to the first partner advisory council which HP recently held with key partners?

The biggest message is to be brutally honest with us. That just makes us better. Don't pull any punches. Make sure you are telling us the good, the bad and the ugly. I think we had very vocal and transparent discussions with them. There are many things they said we are doing exceptionally – they said we have the best [product] portfolio they have ever seen us have. And by the way they said if you can do A, B, C and D they are going to keep running to us, and we are going to get our fair share.