HP Selling Fewer Printers, And Loving It


During the vendor's fourth fiscal quarter 2008 earnings conference call on Monday, Mark Hurd, HP chairman and CEO, and Cathie Lesjak, HP's executive vice president and CFO, both said they are happy with the HP installed printer base for the short-term because it means selling fewer low-margin servers.

HP's Imaging and Printing group had revenue of $7.5 billion during the quarter, down 1 percent compared to last year. Lesjak said that an 8 percent drop in number of consumer printers sold and a 9 percent drop in sales of commercial sales were offset by a 9 percent rise in sales of supplies.

Of that 9 percent rise in supplies, about 2 percent came from a rise in prices, Lesjak said.

At the same time, unit sales of multifunction printers rose 25 percent during the quarter, while unit sales of wireless printers rose 54 percent, Lesjak said.

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It is a situation which is welcomed at HP. "We will continue to be prudent in our pursuit of lower-end units, as well as focused on driving profitable growth and positioning ourselves for the long term," she said.

Despite the overall drop in servers, HP is increasing its market share, which is making it easier to sell supplies, Hurd said.

For instance, Hurd said that increasing sales of wireless printers to home users may result in fewer printers being sold, but not in the amount of pages being printed. "That's not necessarily a bad answer," he said. "We sort of like the answer where we can sell less hardware to effectively print as much as the ecosystem has been printing."

Lower unit growth is not bad unless it leads to lower market share, Hurd said. "We look at the installed base as being installed longer. ... In the end, it's not necessarily a bad answer to us with the dynamics we're seeing today," he said.

That healthy installed base is more important to HP than selling more printers, Lesjak said.

"As long as people continue to print on HP printers so that we have a healthy installed base, having them hold onto their printers longer and delay upgrading is actually positive for earnings for us," she said. "They're buying the same amount of supplies, and we're not having to make that next investment in terms of placing a hardware unit that's either at a negative profit margin, or at a very low margin."

More than half of HP's overall profits come from its installed base, a situation which helps insulate the company from dropping printer sales, at least for now, Hurd said.

"In a strange way, it's actually a positive to the earnings model," he said. "It may not be the greatest long-term thing, but in the case of the guidance we're giving you, it may be a good short-term thing. As long as that [printer] base stays HP, and as long as people are still printing as well as the numbers tell us, that's actually good news for us."

Hurd agreed that it might be possible for competitors to try to grab a larger share of the installed base through aggressive pricing to get a bigger part of the supplies business.

"And we'll respond with some degree of rationality. ... This market has the consumer hanging onto their installed base longer. ... Quite frankly, the consumer is not reacting to the couple-dollar promotions."

Stephen Allen, president of Integrated Technology Systems, a New York-based solution provider, said HP is right not to worry about falling printer sales for now.

A big reason is the move by customers to color laser printers, which can double the per-printer supplies revenue, Allen said.

For instance, a good quality network printer lasts five years, after which customers start to experience things like jamming and streaking, and so need to buy a replacement.

A small business customer with five to 10 black/white laser printers is likely to replace one of them with a color laser printer they can now buy for under $3,000, Allen said. That color laser printer now needs four print cartridges compared to one for the replaced black/white printer, doubling the typical annual supplies purchased to $2,000.

Another way that HP wins by fewer printer sales is in terms of services, Allen said.

"Laser printers require a lot of service, while supplies do not," he said. "So if HP sells more laser printers, it may make more money on services, but it also gets higher costs and needs to increase its staff. If HP sells more supplies, it doesn't need to add staff."