A recent article in Wirth Consulting’s Industry Pulse eNewsletter sums up Hewlett-Packard’s latest earning report:
1. Overall earnings are up – good news for shareholders.
2. Supplies revenue is up – good news for HP, share holders don’t care where the revenue comes from.
3. Printer shipments are down – bad news for HP and shareholders.
Drummer #1 – Supply Revenues
Recognizing the gold mine that is supply revenue (toner, ink, photo paper, etc.), we believe that over the years it has artificially propped up HP’s overall earnings. This is borne out by the fact that in all of Wirth Consulting’s What You Should Know (WYSK) Reports to date, the HP models that we evaluated had among the highest Cost Per Page (CPP) and Total Cost of Ownership (TCO).
Drummer #2 -Bean counters
Bean counters recognize a good thing when they see it and we contend that they exert undue influence over the cost of toner, ink, photo paper, etc. On the other hand, in our WYSK evaluations, Xerox devices always tend to be among the devices with the lowest CPP and TCO. Note that in order to compete over the decades, Xerox has been highly aware of CPP and TCO, and somehow still manages to serve up high-quality products with low CPP and TCO time and time again.
Drummer #3 – Virtual "back door" to IT
Today’s IT departments approve the purchase of just about any HP device without batting an eye. Other vendors with household names such as Canon, Xerox, Sharp, Samsung, et. al. are automatically put into the position of finding a way to get the ear of influential IT staff and demonstrate why the use of their devices will make IT’s lives easier than that of HP products. This is a tough row to hoe. Thankfully, many of the aforementioned have been able to crack IT’s "silicon ceiling" by making an end run to the chief financial officer with comprehensive CPP and TCO analysis in hand.
This particular scenario reminds me of back in the day when purchasing agents "could never be fired for buying IBM" (typewriters that is). Even though there were typewriters we tested from other vendors that consistently outperformed the IBM Selectric, typists demanded them and purchasing agents happily complied. I could never understand this line of thinking, especially when we were testing Sperry Remington SR-101 typewriters that were virtual clones of the IBM Selectrics, were less expensive to buy, and used the same ribbons and "golf ball" type elements. (BTW, can you even find an IBM product in any office today? Do you think that this type of narrow-minded thinking played a role in the demise of IBM in the office? We certainly do.)
IT staff have used HP’s Web JetAdmin to manage fleets of HP printers forever. While Web JetAdmin also has limited basic support-management for third-party printers, HP continues to make it difficult for other vendors to provide "hooks" into their feature set and provide the level of manageability provided by HP printers. While there are other vendors with enterprise-wide management capabilities (such as Xerox CentreWare Web, Lexmark MarkVision and Canon imageWARE), HP keeps IT in the HP Web JetAdmin fold by deliberately preventing other vendors from even entering, much less competing in the Web JetAdmin enterprise-management game.
Unfortunately, HP’s enterprise-management won’t appeal to B2B and SMB customers,because B2B and SMB customers don’t have IT staffs and fleets of printers that they need to micromanage. In other words, only enterprises and larger workgroups need HP’s "value add" of Web JetAdmin enterprise-management. In contrast, SMB and B2B customers just want a reliable printer that is easy to use, produces business-quality output and is inexpensive to operate and own. In this case, there are many alternatives to HP printers and MFPs.
So what’s left? Nothing really. Although our evaluations show that HP MFPs are very good at what they do, their high cost of operation and ownership have prevented them from winning any Gold Medals in our Head2Head Comparison Reports.
Is HP too complacent and content to butter their bread with supply revenues? While many view HP’s latest earnings report as positive, we see it as a silver cloud with a black lining. With printer sales down, how could HP possibly continue to rely on supply revenue as the source of their butter?
Happy reading! Terry Wirth
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