CRN Exclusive: HP CEO Dion Weisler On Xerox 'Competing' With Its Partners, Huawei Entering Notebook Market, And How HP Is Beating Back The Cybersecurity Threat

Weisler On The Record

HP CEO Dion Weisler spoke with CRN about rival Xerox's $100 million plan to acquire solution providers and convert them into Xerox exclusive partners, Huawei's entry this week into the notebook market, and how HP is beating back the cybersecurity threat with innovations in both its personal systems and printer products.

The discussion with Weisler came after HP posted better-than-expected results for its second fiscal quarter with "breakthrough" quarterly results that marked the first time in six years HP has seen both printer and personal systems sales growth in the same quarter.

"We are out-executing the market," Weisler told CRN after the company reported 10 percent growth in the personal systems business and 2 percent growth in the printer business. "We are doing that playing our own game. We are segmenting the market, figuring out where we want to win and how we are going to win and how we are going to do that together with the channel."

Overall, HP reported adjusted earnings of 40 cents per share on a 7 percent increase in sales to $12.4 billion. The Wall Street consensus was adjusted earnings of 39 cents per share on sales of $11.96 billion, according to Thomson Reuters.

What does it say to the market that HP had quarterly sales growth for both personal systems and printers for the first time since 2010?

We remain humbled by the response to our innovation and the work we have been doing with our more than 250,000 channel partners around the world. That move to go from 80 [percent] to 87 percent [of total annual HP sales through partners] is why you get results like this. That was absolutely the right decision because partners are taking incredible innovation and they are amplifying our efforts every single day.

We are out-executing the market. We are doing that playing our own game. We are segmenting the market, figuring out where we want to win and how we are going to win and how we are going to do that together with the channel. And then we are figuring out, quite frankly, what we don't want to do -- and that is almost equally as important. As a result of that, you get that growth in both segments, and beating consensus on EPS is also a great thing. And let's not forget the beat and raise. We are raising the outlook for the full year.

It is no single magic pill. It's lots of incremental things, an incredible amount of hard work by our entire team and, when I say 'our entire team,' I include the 250,000 channel partners that we have.

What was the printer business performance in the quarter?

The print business hit it out of the park on every single dimension. Overall revenue was up 2 percent, but hardware revenue was up 7 percent, supplies revenue was up 2 percent. It has been a long time since we have had supplies revenue up. NPV [Net Present Value Printer Placement] positive units were up. Market share was up. Operating profit was up. It was kind of up, up, up, up, up. The channel plays a big role in that.

The other thing the channel was doing -- both our existing channel partners and our brand-new channel partners -- was really falling in love with our A3 product portfolio. The promises that we made around A3 are really resonating, not only with our partners but with end customers. So we are thrilled about being able to disrupt that $55 billion copier market.

What was the Personal Systems performance in the quarter?

Personal Systems had another quarter of solid growth – 10 percent year over year -- that is the second quarter in a row [of 10 percent growth]. But it is four quarters in a row of what I call the 'trifecta' where we grow top line, bottom line, as well as taking more share than the market and the competition. That is off the back of great segmentation work, playing our own game, figuring out where the pockets of growth are in premium, in gaming, in consumer, in commercial.

Commercial had a great quarter. It was up 7 percent. Consumer had an even better quarter. It was up 16 percent year over year in personal systems. A lot of work by a lot of channel partners.

What is the common thread resonating with partners and customers?

It is all about security and everything as a service. Those are probably the two biggest things being picked up by our customers and our channel partners. That focus on the security imperative is key. We have seen in the news in the last few weeks the damage that is caused by not having up-to-date hardware. We have the best defense possible in PCs below the operating system, at the operating system, and above the operating system. We mirror that inside our printing platform as well.

And everything is happening as a service. We have seen that for a long time. We have managed print services, and that business continues to grow. One of the fastest-growing elements of the pipeline is everything as a service.

What do you think of Xerox's decision to spend $100 million to buy solution providers in the printer copier market and make them exclusive to Xerox?

I don't think you can buy customers. I don't think buying share is the right way to run a business. The right way to run a business is to have an incredible value proposition that is sustainable, where it makes sense economically and technically solves a problem for the customer.

You might get a short-term boost in performance. It doesn't necessarily stick because a customer only ever sticks around if you are adding value.

Our approach is to build incredible innovative technology rather than buying channel partners -- effectively then competing with them. We don't want to be in competition with our partners. What we would much prefer to do is leverage the partners that are out there in the market. If I am a channel partner, I would be thinking twice about whether I want to be working with a company that is out there buying my competitors and competing against me every single day, as opposed to what we are doing, which is moving from 80 [percent] to 87 percent [of total sales] with and through the channel. As long as you feel confident that you have the right technology, you have the right value proposition and the right economics, you will win the long game.

Were you surprised by Huawei's decision to enter the notebook market?

I am always surprised by new entrants that come into mature categories. We have had three step out and now one step in. It makes you wonder what they see as a sub-optimized player in a market that is consolidating rather than growing.

We take all competitors seriously. We have operated in a very competitive environment for decades. I think the personal systems market is doing better at the moment – it returned to growth in this last quarter. But that was really us: HP and its 250,000 channel partners that pulled the market into growth. We outperformed the market by 12 percent. If it were not for us, the market would not have grown. And when I say 'us' I mean all our channel partners.

I remain confident – as I have said with A3 -- that if we delight customers and amaze customers with incredible innovative technology that is at the leading edge, that has beautiful design, high value for the money, sprinkles of magic that underpin all the things that are important to customers like having it offered as a service, the right security platform -- we will win. We are playing our own game, and it is working for us.

Talk about the component price increases and how it is playing out in the commercial market.

We kind of broke the news on component prices several quarters ago when nobody was talking about it. That is an example of how closely we are working with the broader ecosystem. We saw it in our heat map data that this [component price increase] train was coming. As a result, we leveraged our incredibly strong balance sheet to lever up and buy components.

The first thing you have to do is shore up supply. And we have shored up supply for the full year. Now it is about working with all of our complete bill of materials ecosystem to drive cost optimization across the whole bill of materials and everything we do in the business. That was putting some pressure on the quarter. The [operating margin] rate this quarter was 3.2 percent [in personal systems]. We say this business will run at 3 [percent to] 4 percent [margin].

We were able to price through a lot of those component increases in consumer this quarter. But with commercial, it has not yet landed. The unknown is the impact on demand as we raise those prices, which is why we remain continuously prudent on where the market goes in the future.

I don't expect there is a short-term answer to this particular issue. It requires the upstream vendors to make very significant investments with capital to address the problem. It is also nothing new. There are cost ups and cost downs. It is always a battle to get supply and demand in sync. But this team knows how to operate in up and down markets.

How are you continuing to invest in differentiating HP with security innovation in both personal systems and printers?

We think that security needs to happen at the hardware level, and we don't think about PCs any differently than printers. The printer has an operating system, hardware and a hard drive. Below the operating system, we have to have a suite of security solutions that protect the hardware from the bad guys. At the operating system, we have to have a suite of solutions that protect against the bad guys, and above the operating system we need to do exactly the same thing.

If you look at our portfolio with HP Sure Start [firmware], it operates below the operating system at the hardware level. It interrogates the BIOS before the machine is started and if there have been any changes flashes it back to factory-known default. At the operating system level, we do many things: [HP] Sure Click is great example of that – protecting against malware. And above the operating system Sure View is a great example of that – protecting against visual hacking – someone looking over your shoulder.

We are deploying security across both printing and personal systems. We are going to invest heavily in this market below the operating system, at the operating system and above the operating system.

What is your message to partners coming out of the quarter?

Our goal is to amaze our collective customers. When I say 'collective,' I mean the channel and our customers. We have got to do that with innovation that surprises them and amazes them every single quarter. You can count on us to remain humble. We are going to listen with two ears and speak with one mouth and use them in relative proportion to which they were given. And when we do that and we listen to our customers, they are giving us the best clues on what they need going forward. And when we do that, our best and most innovative days lie ahead of us.