a blog about cars, auto blog

The View
Through The Windshield

About Cars ... and Everything Else I See
by Joe Sherlock

Greatest Hits: Carly, HP and me (posted 2/14/2005)

Hewlett Payoff: I've never worked for Hewlett Packard, although once-upon-a-time HP was a substantial customer of mine.

In 1980, Discovery Plastics landed its first large display job, a production order making dealer point-of-purchase displays for Hewlett Packard. Each display was constructed of connected, hinged Plexiglas panels which had been screenprinted with blue and black images and a silver background. Clear overlay panels permitted HP's computer retail dealers to insert promotional signs and product posters supplied by HP.

Nevertheless, having relatives and friends who worked there, living up the road from HP's printer headquarters and having once lived in a town where HP was the largest business employer, here's my take on recent events:

handheld computerHewlett Packard was always a specialty technology firm, making products for engineers, the medical industry, etc. Even HP's computers were specialized. Its history did not include mass market products - until printers. HP became a leader in the printer market because of its patented technology. Hewlett Packard captured this position because they had a better product; this allowed HP to price it at high margins consistent with HP's traditional profit philosophy.

HP's lead in printers is now shrinking. Lexmark and others are giving HP a run for its money. My guess is that Hewlett Packard's printer profits will erode in the coming years.

computer systemFor the last 10-15 years, the personal computer market has been a low-profit, commodity business. (Unless you're Apple.) The purchase of Compaq Computer by Hewlett Packard was a strategic mistake. HP has no history of managing tight-margin businesses. In fact, HP usually exits a business segment when profits drop.

Dell is a tough, scrappy company that has figured out how to make a profit from the PC mass market - be aggressive, be the low-cost producer, minimize overhead, watch your inventory and receivables like a hawk, be ever alert. And keep your selling costs low by marketing extensively on the web.

In the past three years, Dell's share price has jumped 90%. Meanwhile, HP's stock is trading at 13% less than before the Compaq merger. (HP's biggest rival in printers, Lexmark, saw its stock rise by 60% over the same period.)

business blogHewlett Packard can never become Dell - such a culture is alien to HP. CEO Michael Dell has said, "The Compaq merger was the best thing that ever happened to Dell."

No wonder Carly Fiorina, Hewlett Packard's CEO and the idiot behind the Compaq-HP marriage, got fired. Fired - but not punished. Carly got a big payoff - a $21.4 million severance package. And, between fiscal 1999 and 2003, Fiorina was paid $159 million in cash, stock, benefits and options. We should all be so lucky.

If I had been running HP, I would have acquired non-commodity businesses, like Apple - philosophically a better fit. (Unique Products = Improved Margins.) I would have used Apple's unique operating systems to enhance both companies' positions in the specialty markets each served. And found new markets. But that's just my opinion.

Will Hewlett Packard now exit the PC business and concentrate on specialty lines that meet its profitability standards and better fit its HP culture? Beats me. But, whatever direction is chosen, the transition will be painful. For everyone except Carly Fiorina.


copyright 2005-15 - Joseph M. Sherlock - All applicable rights reserved


Disclaimer

The facts presented in this blog are based on my best guesses and my substantially faulty geezer memory. The opinions expressed herein are strictly those of the author and are protected by the Constitution. Probably.

If I have slandered any brands of automobiles, either expressly or inadvertently, they're most likely crap cars and deserve it. Automobile manufacturers should be aware that they always have the option of giving me free cars to try and change my mind.

If I have slandered any people or corporations in this blog, either expressly or inadvertently, they should buy me strong drinks (and an expensive meal) and try to prove to me that they're not the jerks I've portrayed them to be. If you're buying, I'm willing to listen.

Don't be shy - try a bribe. It might help.

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