此消息一出，惠普股價在10月4日收盤時下跌了9.6%。摩根士丹利、瑞士信貸和美國銀行均將其目標股價下調了1美元或更多。Loop Capital將其股票評級從“買入”降為“持有”，此前，Sanford C. Bernstein和UBS在9月便已經下調了其評級。
但這里存在更深層次的顧慮。IT投資顧問公司martinwolf M&A Advisors的總裁及創始人馬蒂·沃爾夫說：“這個模式存在漏洞”，而且很久之前就已存在。“如果我們看一下[惠普和2014年拆分形成的另一家公司慧與]，它們參與競爭的最復雜的垂直業務領域達到了15到20個，而且每一個領域都得拔尖。它們應該被拆分為20家公司。公司需要的并不是懂個人電腦和打印業務的高管[例如曾經執掌打印部門的洛瑞斯]，而是有重組經驗的高管。”（最近，像eBay等公司發現自己在剝離非關聯資產時倍感壓力。）
HP’s printer and ink business used to gush money. Those days may be over.
The company announced a major restructuring at its 2019 securities analyst meeting on Thursday. HP will reduce its workforce of 55,000 by 7,000 to 9,000—a cut of 13% to 16%. The move is supposed to save $1 billion a year by the end of 2022. To entice investors, HP mentioned a 10% boost in stock dividends and increased share buybacks.
The news sent shares reeling by 9.6% at October 4’s market close. Morgan Stanley, Credit Suisse, and Bank of America all lowered their share price targets by a dollar or more. Loop Capital downgraded it from “buy” to “hold,” which is on top of September downgrades by Sanford C. Bernstein and UBS.
The surface issue is the printing business. But going deeper, investors and analysts aren’t confident that HP can evolve to keep up with drastically changing times.
HP misses all that liquid gold
The lifeblood of HP—the printing and PC unit that resulted from the 2014 split of the original Hewlett-Packard—is the sale of printer ink.
In the first nine months of 2019, computers (HP’s personal systems division) brought in $28.3 billion for the company. The printing division, at $15.1 billion, seems like the weaker sibling. But look at operating margins, and the picture flips.
In the quarter ending July 31, 2019, personal systems had an operating margin of 5.6%. Printing, with a 15.6% margin, brings in the big profits. And almost 65% of the printing division revenue in those nine months ending July 31, 2019 came from “supplies.” That’s ink.
The traditional printing business model functions similarly to that of the razors and razorblades business. Companies sell razors to consumers at low prices, then once they are locked in, the blades—like ink—are expensive, creating a high profit-margin item users buy over and over.
These are the profits that subsidize so much elsewhere in the company. Unfortunately for HP, the ink market has been changing for years. “People are going offline and buying off-brand,” says John Roy, lead analyst in IT hardware, services, and networking for UBS.
“Specifically [it’s] the purchase of replacement ink cartridges by commercial accounts” that is the big problem, says Jim Kelleher, director of research and senior technology analyst for Argus Research. HP is strong in retail sales. But those commercial customers are increasingly buying substitute cartridges online to save money. “So, the highest-margin part of this business, which has higher margins than the PC business, is now under siege. The concern is that this crown-jewel business must contend with secular decline in margins.”
HP's plan is to break its printing product lines into two categories. Like cell phones, some will come at a premium price but be unlocked, so users can choose any ink they want. The other type are priced cheaper but only work with HP cartridges. There’s no word yet on the premium for the unlocked printer hardware or how much ink would run in either case.
“They feel like they have [an ink] cost advantage versus the competition,” Roy says. In theory, HP could presumably drop its ink price below whatever the off-brands could afford to charge.
HP may believe in its plans, but the sudden share drop and analyst downgrades and price-target reductions show investors don’t like what they hear. That may be for two reasons.
“It’s certainly possibly they could have a strategy that works,” Roy of UBS says. “[But] it doesn’t fit my experience.” Such a shift requires an enormous change on the part of HP’s customers, who may not like being told to pay more for printers or ink.
An HP spokesperson pointed to the restructuring announcement that quoted incoming HP CEO Enrique Lores as saying, “We are taking bold and decisive actions as we embark on our next chapter. We see significant opportunities to create shareholder value and we will accomplish this by advancing our leadership, disrupting industries and aggressively transforming the way we work. We will become an even more customer-focused and digitally enabled company, that will lead with innovation and execute with purpose.”
But there are deeper concerns. “Their model is flawed” and has been for a long time, says Marty Wolf, president and founder of IT investment advisory firm martinwolf M&A Advisors. “If you look at [both HP and HPE, the other spin-off from the 2014 breakup], they compete across 15 or 20 of the most complex verticals, and you have to be best of breed. They needed to be broken up in 20 companies. They don’t need an executive [like Lores, who was head of the printing division] with experience in PCs and printers. They need an executive with experience in restructuring.” (Recently other companies like eBay have found themselves under pressure to shed non-related assets.)
The HP spokesperson responded with a reference to the company’s CEO succession announcement of Aug. 22, 2019, which characterized Lores as “a key architect of one of the largest and most complex corporate separations in business history” and “instrumental in transforming HP’s cost structure while simplifying the organization and creating the capacity to invest in innovation to drive profitable top and bottom-line growth.” In the same announcement, HP board chairman Chip Bergh, who is CEO of Levi Strauss, called Lores “an inspiring and proven business leader” who was “the board’s unanimous choice as a successor.”
Also, with previous financial filings seeming strong, this sort of announcement shouldn’t result in tanking shares. “Usually the market views that as the company trying to take better control of a situation,” says Chester Spatt, a professor of finance at Carnegie Mellon University’s Tepper School of Business. “Maybe the market thinks there’s adverse information in this.”
With an earnings announcement expected in November, we’ll soon find out if there’s more bad news to come. If that’s the case, investors might decide HP’s cartridge has run dry.