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The State of HP

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I just spent several days with HP going over their security efforts, their PC Roadmap, and earlier this month, I reviewed their financial performance. In addition, I’ve done deep dives on their sustainability and printing efforts over the year. I’ve had a chance to review Xerox’s acquisition proposal and HP’s detailed public objections to it. As we approach the year-end, I thought it would be interesting to collect my thoughts and talk about the state of the company, particularly given the Xerox effort and the recent CEO change.

Culture

One of the things I think we overlook when it comes to reviewing a company is what is going on with the culture. Past CEOs, when HPE and HP were one company, were a mixed lot, and there has been historical animosity between what was a bad trend of autocratic CEOs starting with Carly Fiorina and ending with Marg Hurd. Meg Whitman had her own set of problems largely connected to not understanding the industry, which resulted in the firm’s split. After the split, the smart money would have been on HPE which makes the fact that, in my opinion, HP is much stronger both interesting and somewhat ironic given Whitman seemed to structure the split so that HPE got the strongest assets. HP got the most problems given both Printing and PCs were seen to be in decline. What is now clear is both groups lacked focus, something the split corrected, and the firm’s relative lack of complexity and strong leadership has largely turned the effort around.

Employee practices were relaxed post-Whitman, and many HP employees that have left seem to be gravitating back to the company. Morale seems strong, and the firm exits the year with what appears to be stronger employee loyalty tied to the belief that the execute staff has strategy and execution well in hand. The Xerox hostile acquisition is having a slight adverse impact on this creating some uncertainty, but, so far, the impact is negligible.

HP does have an announced layoff, and layoffs can cause disruptions and lower employee loyalty. I’ve observed no related impact (when handled badly, you often get employees asking about job opportunities at events) yet, but that could change as the layoff executes. I have not reviewed the layoff plan.

Xerox

As I’ve noted, I’ve reviewed both the Xerox proposal and HP’s response. Acquisitions of this scale are very difficult to do well, and this one has none of the elements of success I typically look for. Hostile acquisitions as a class are wicked expensive, create deep animosity between the firms, and generally destroy much of the value of the acquired company. Xerox is offering too little for HP and will destroy much of its value during the acquisition process, which means from HP’s perspective, the offer is too low, and from Xerox’s perspective, it is already too high. Given it would be catastrophic for both firms, I’m left wondering if this attempt is more of a distraction from the lack of a cohesive Xerox long term strategy and an inability in that firm’s leadership to find a future for the company. As noted above, the impact of this effort is negligible on HP, but I expect it is creating more concerns in Xerox as a result. Though, I expect, this effort may be more about trying to eliminate a strong competitor or spike Xerox valuation than any sustained corporate advantage since those attempting this are aware of how disastrous even a consensual merger can often be.

Differentiation

Across both the PC and Print units there is an unusual focus on both Security and Sustainability. Having reviewed both efforts in-depth, I can say with some confidence that HP currently is leading the segment in both efforts. Their acquisition of Bromium, a fascinating company that uses virtualization to effectively inoculate PCs against attacks and their use of Deep Instinct, arguably the only Deep Learning Anti-Virus company in segment, is inspired. These efforts extend across AMD and Intel product lines but do not yet address Qualcomm solutions.

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With Nation-State level attackers HP may be the only firm in its class with an effort strong enough to withstand an attack at this level, though, when AI-driven attacks (which are anticipated within five years) emerge even they may not be able to provide an adequate defense. This will get worse with the advent of Quantum computing, but, fortunately, estimates still put the viable use of that technology out over five years.

If you are building your sustainability efforts, HP, in this segment, would be the strongest firm to learn from, and HP sets the bar on PC and Printer security.

Innovation

HP’s strongest innovation efforts are currently coming from its printing division. That division’s aggressive moves into 3D printing and cloth are segment-leading. In their class, they are the only vendor with the potential to fully revolutionize manufacturing. However, a rough gap analysis suggests there is still a long way to go before factories can fully embrace 3D printing in production as opposed to prototyping, where it is currently most often used. In PCs both Lenovo and Microsoft are being more aggressive than HP with innovation but given much of the enterprise market, in particular, seems to not like change and given driving change requires a level of marketing execution we haven’t seen in segment since the passing of Steve Jobs I don’t view this as a significant disadvantage. Their showcase product this year in the PC division is the Elite Dragonfly. I’m currently using this offering, and it is an impressive technology showcase blending their security and sustainability efforts more aggressively than other offerings. This product provides a good indication of where HP’s other business lines are likely to eventually go.

Executive Leadership

This year saw a CEO transition from Dion Weisler, who successfully navigated the transition from HP as a combined company to a more focused Printing and PC firm to Enrique Lores. Both executives are well regarded in the company, and given Printing was the stronger entity (in terms of revenue), this move was relatively painless. I’ve known and followed both men during their careers. Both represented some of the strongest CEO level skills in the segment with a deep understanding of the business and its related operations.

Wrapping Up

Except for the clouds created by both the Xerox acquisition attempt and the impending layoffs, HP appears to be in strong shape. Their security and sustainability efforts do differentiate them, and they have one of the strongest leadership teams in the segment. Employee support and morale appear strong, and their 3D printing efforts likely showcase the greatest long-term potential differentiated upside for the firm.

With the noted caveats, HP exits 2019 in good shape, and those working with or considering the company should particularly look at their security and sustainability efforts, this last with respect to their printing division because they are segment leaders there and can provide unique insights and direction.

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