HP Execs Explain New Printer-Supplies Model

Last week at a Securities Analyst Meeting, HP Inc. announced a broad restructuring plan that would involve global employee layoffs of about 7,000 to 9,000 employees, or about 16 percent of its workforce. The company also announced a new business model that seeks to address its declining printer-supplies revenue – particularly ink and particularly in EMEA (Europe, Middle-East, Africa). That plan would fundamentally change the company’s traditional printer-sales business model, which involves selling printers at a loss, but making up for the lost revenue on supplies sales.

According to CRN, at the meeting, HP executives said the company plans to begin phasing out discounts for printer models that can use  non-HP supplies. That means that customers will still be able to buy “subsidized” HP printers that can use third-party supplies, but those printers will be higher-priced than those that can only use HP supplies. (With subsidized printers, HP charges less for the printer than it costs, but makes up for lost revenue with the sale of supplies.)

According to incoming HP CEO Enrique Lores, the changes would only affect its transaction business, not its managed print services (MPS) for channel partners, and will take some time to implement – several years.

HP had also announced it’s “accelerating the transition into services,” according to Lores, who has led HP’s printer group and will take over as HP Inc. CEO on November 1st, replacing departing CEO Dion Wiesler. Tuan Tran will then replace Lores, leading HP’s printing group.

“Customers can pay for the full value of the HP printer up front, gaining the flexibility for supplies,” Tran said during the Security Analyst Meeting. “This is like buying an unlocked cell phone and then choosing your own wireless carrier. In these cases, customers can enjoy HP’s superior printing hardware, but obviously take risk if they choose alternative supplies.”

In the future, Tran said, “We’ll begin to systematically increase hardware prices that move towards this model. As a result, supplies—while still very, very, very important to us—will no longer be the singular metric to determine our progress.”

Growth Areas

HP executives said A3 MFPs, premium PCs, and 3D printing are among the most important growth areas for HP, and will see increased investment. Also key is managed print services and Device as a Service, both of which provide recurring revenue.

“The big opportunity is contractual, an area where we are under-indexed today but well-positioned,” said Tran. Tran said MPS revenue grew double-digits year-over-year. and 1,000 customers around the world have signed up for HP MPS.

Our Take

Unfortunately, HP’s actions reflect the reality of the lower-end printer/MFP  market. Over about the last decade, this lower-end segment has seen declining print volumes – particularly among home users – as well as an onslaught of cheap third-party toner and ink supplies, usually made in China. In the higher-end office market, customers can usually be “locked into” purchasing OEM supplies with managed print services (MPS). HP has taken a similar approach with its Instant Ink program, which locks customers into purchasing HP OEM ink at a discount. Although Instant Ink has by all accounts appeared to be successful, it doesn’t appear to be successful enough to combat both lower print volumes and cheap clone supplies.

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