HP:  The Turn Around Of The Decade?

HP’s Financials And Fake News: PCs And Printers Are Growth Markets!      

  • I’m having trouble reconciling the death of printers and PCs with HP’s financials. HP basically just has PCs and Printers and are up 10% year over year with growth in nearly every geography in both PCs and Printer supplies and worldwide. They aren’t alone AMD and Intel both had strong financials and most of HP’s peers also reported growth in PCs at least. HP is pretty much the printer market by themselves these days. Now the numbers firms continue to forecast declines but having done that job myself not only to I question the accuracy of their base calculations I know their forecasts are generally crap. Their forecasts are little more than drawing a line based on past performance with little or no effort to measure demand, buyer behavior across product, demand for alternatives, or anticipated marketing spend by critical vendors (this last largely because they can’t get to that number both because it isn’t reported and because it is often very fluid).

    I think PCs and Printers could become growth markets again, in fact I think they likely could be growth markets now, and that the market decline was Fake News. Let me explain.

    Marketing 101

    Back when I was in college one of the first classes in marketing I took explained that one of the text book mistakes firms make is that when facing a market decline, they cut marketing. Since then I’ve come to the belief that my peers who took that course got it exactly backwards and walked away with the belief that in a downturn the first thing you always cut is marketing because that is what generally happened.

    When the numbers firms forecast a market decline instead of ramping up marketing to increase demand and offset the decline firms tend to cut marketing which cuts demand and accelerates the decline. Though, if you think about it, cutting marketing could also force a market into decline making the forecast self-fulfilling.

    The Power Of Perception

    People tend to forget that the iPhone was almost unsellable when it was launched. The product that it was rumored to be based on the LG Prada, didn’t sell well at all even though it had the Prada brand. Folks didn’t like screen phones back then, they were hard to type on (you had to look at them unlike a keyboard phone like the then dominant BlackBerry), they had bad battery life comparatively (screens took a ton more power than keyboards did), the didn’t have apps yet, and they were relatively fragile (those screens broke a lot). On every metric that existed at the time the iPhone wasn’t competitive which is largely why it surprised the entire industry when it effectively took over the market.

    300,000 people, no wait, almost 400,00 people have ordered a car from Tesla that they likely won’t get until next year that is relatively hard to fuel, has limited range, and costs significantly more than comparable gas vehicles. In both cases people bought into a concept, perceptions ruled over reality. In the iPhone’s case, they went from hate to deep love and in the Tesla Model 3s case they bought into the idea of the car because they couldn’t yet see or test drive it.

    I maintain it was the belief that the PC and Printer markets were in decline that caused them to drop into a sustained decline. For instance.

    PC Decline’s False Premise

    At the heart of the PC decline forecast was the belief that folks would abandon their PCs and use iPads instead. If people aren’t buying one class of product to do a necessary set of tasks and the tasks still need to be done you must explain what they are buying instead and the consensus was iPads. But iPads stopped selling well several years back and attempts to use them as laptops, at least before the iPad Pro shipped, largely failed anyway so the premise that founded the PC market decline was false.

    But it shifted the market to build 2-in1 PCs to counter a threat that didn’t even exist and now it is estimated that less than 10% of those that buy 2-in-1s ever use the tablet capability in that product. That capability was created to fight a false threat yet we still seem to pretend it was real.

    HP And The Naked Emperor

    There is that old fable about The Emperor’s New Clothes. In this children’s fable a con artist convinces the Emperor and his court that the con man has created magical clothing that can’t be seen by idiots. But he has no product so everyone sees nothing. But they don’t want to admit they are idiots so pretend they do (ironically confirming they are). This is until a young child asks why the Emperor is naked. I think HP is basically playing the role of the young child in that story. (By the way, being an analyst, I’ve often wondered why anyone would want stupid people to see them naked. Something to ponder).

    You see all HP basically has are PCs and Printers and they could either except they were totally screwed or buckle down and fight back. So, they did market, they did drive demand, they had no real choice. The result was moving into the number one position in PC sales and selling more and more printing supplies. They didn’t have another business to fall back on.

    This suggests if their peers also stepped up with demand generation that, if the market isn’t already growing (and given both AMD and Intel’s financial results I expect it is), it certainly would.

    And, you know, the product my own wife just wanted this month was a printer, not an HP, but a Canon Printer that prints stuff you can eat and we have 3D printers gaining popularity as well so even if paper does go away there is a ton of other opportunities for this technology. But given HP’s supplies were up clearly people are printing more paper stuff than they were a year ago so the hole “printing is in decline thing” looks to be BS, at least in HP shops.

    Wrapping Up: I Think The PC Decline Is BS

    I do, I think that the initial iPad scare caused the market to make a bad conclusion that people would trade in their PCs for iPads and they would use their iPads instead of paper. With some exceptions, that has largely proven to be false. Yes, using a phone for things like boarding passes is a thing and we are reading more stuff on-line but we are not only still printing we are finding other things like food to print on and with.

    This suggests not only could both markets be growth markets but that the next time an executive hears that their market is in decline perhaps focusing on more aggressive demand generation would be a better path than cutting back on marketing. Just saying…

    By the way, it is kind of scary how easily we, as a race, are misled.