Will HP's Strategy Of Revamping Printing Business Pay Off?

HP Inc.’s (NYSE:HPQ) latest quarterly results reflect solid execution in its printing business.

The company’s printing business’ quarterly revenues have witnessed back-to-back year-over-year growth. During third-quarter fiscal 2017, Printing revenues were up 6% year over year to $4.698 billion, primarily due to a 10% increase in supplies revenues.

Moreover, the company recorded increase in unit shipments in all the three quarters of fiscal 2017. During the first, second and third quarters, HP registered year-over-year growth of 6%, 3.6% and 1.3%, respectively, in unit shipments.

Additionally, per reports of the independent research firm, International Data Corporation (“IDC”), HP has been witnessing market-share improvement in Hardcopy Peripherals for the last three consecutive quarters. This indicates that the company’s strategies are in the right direction.

Challenges in HP’s Printing Business

HP is one of the two publicly-traded entities formed after the November 2015 split of Hewlett-Packard Company. Besides HP Inc., the split led to the formation of Hewlett Packard Enterprise Company (NYSE:HPE) . HP primarily focuses on PCs and printing products and services.

Notably, over the past several years, the company’s printing business has been facing challenges like sluggish demand and cut-throat competition in the space which have eroded its revenues and market share.

It should be noted that demand for printers is not as strong as it was 10 years ago. It has witnessed a secular decline over the past several years, as consumers are increasingly favoring digital alternatives over printed materials due to their cost effectiveness.

Furthermore, over the past few quarters, HP has been losing market share to its Japanese rivals — Canon and Epson — due to intense price competition. These Japanese manufacturers have been able to slash prices due to a weak yen compared to the U.S. dollar.

HP’s Counter Strategies

In an effort to revamp its printer business, HP is looking at every aspect of growth, including product innovation and differentiation, acquisition, and expansion of 3D printing capabilities.

Innovation is the Key

It should be noted that if demand for anything does not remain as strong as it did once, one should resort to creative ideas in order to make innovative and differentiated products for gaining greater market share from rivals.

It seems that HP has learned this lesson and is focusing on developing innovative and differentiated products. Last year, the company rolled out a smart pocket-sized printer for smartphones and tablets called Sprocket.

Furthermore, the company, last year, unveiled its A3 multifunction printers (MFPs), which are now being shipped to more than 80 countries covering all key markets. These printers are designed to hamper the traditional $55-billion A3 copier category. The all-new A3 MFPs — with latest printing technology — enhance overall customer and partner experience with advanced security features. The printers also provide brighter colors, shorter production cycles and higher production throughput.

Trying Inorganic Growth Tactic

Apart from focusing on developing differentiated products, HP is also looking at acquisitions to drive growth. Most recently, the company completed the acquisition of Samsung (KS:005930) Electronics’ printer business.

Apart from bringing in additional revenues, the acquisition will help HP in expanding its printing business, as Samsung's printer business has more than 6,500 printing patents. All these will support development and manufacturing of HP printers, going forward.

Besides eliminating a major competitor, the above discussed deal will also facilitate price control. Also, it will give HP access to Samsung’s partners and strengthen the former’s position across various geographies.

Enhancing 3D Printing Capabilities

The company is also trying to enhance its 3D printing business capabilities, in an effort to revive tumbling sales. It should be noted that even though HP has been operating in this space for almost five years now, the company is way behind 3D Systems Corporation (NYSE:DDD) and Stratasys Ltd. (NASDAQ:SSYS) .

Thus, in order to fortify its presence in this space, last year, HP unveiled its Jet Fusion 3D Printing Solution with two models to choose from — 4200 and 3200. Unlike 3D Systems and Stratasys, which target all kinds of consumers, HP emphasizes only on industrial markets due to the ability to afford a premium range of 3D printing solutions.

To satisfy customers in this space, HP has collaborated with various companies like Siemens, BMW, Nike Inc (NYSE:NKE). and Autodesk Inc (NASDAQ:ADSK)., with an aim to develop more advanced 3D printing technologies for a wide array of industrial use.

Bottom Line

HP’s efforts to revive its printing business have been commendable. Looking at satisfactory results from HP’s strategies, we feel the company can turnaround the printing business, and have a bigger share in the inkjet as well as 3D printer market.

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