August 8, 2016
The OEM’s CEO and CFO spoke about the company’s plans for the future, ahead of quarterly results being published.
Barrons discussed a teleconference with HP Inc CEO Dion Weisler and CFO Cathie Lesjack, in which both reiterated “a few points of the company’s business strategy that they have laid out this year”. Ahead of the OEM’s quarterly results at the end of the month, the site noted that Weisler gave an overview of the business, including that “it’s a story of execution across three attributes” – variable cost structure, printer business supplies revenue, and the negative cash cycle” of the PC business.
Weisler noted that in print “we see a strong correlation to GDP, so a variable cost structure has been important” – referring to the change in price models revealed earlier this year. He also referred to the “annuity stream of supplies”, with printers placed “at a loss” in the market and HP Inc making money “over the lifecycle of that sale”. Profit margin in PCs, meanwhile, is “significantly smaller”, but it offers an “infinite return on capital”.
Lesjak was asked by the site about the “negative cash conversion cycle” that the PC sector brings, responding that “over time, operating margin matters”, but that with the business “performing well”, it demonstrates the cyclical but profitable nature of the industry. Weisler then pointed out that operating cash flow is one “key focus” for HP Inc’s investors, highlighting the OEM’s “very well received” figures in the second quarter.
Moving back to supplies, Weisler pointed out that making sure the sector “is humming well” was important, and both he and Lesjak reiterated that “supplies revenue will stabilise by the end of 2017 in constant currency terms”. She reiterated that the “four-box model” for working supplies revenue includes the installed base, pricing of supplies, driving customers “toward services rather than a transaction”, and ensuring investors understand the business model.
The installed base “matters to some extent” because you “have to understand what type of units are in the base”, with Lesjak pointing out that “it does matter what our market share is of supplies”, and Weisler adding that “everything we do day to day in print is focused in those four areas”. Three new product areas the OEM has entered included A3 copiers, graphics, and “commercial mobility”, with Weisler highlighting all three as “broad”.
A3 copiers will see $55 billion (€49 billion) in “potential revenue”, as well as the $35 billion (€31 billion) “opportunity” in wide-format, with A3 copiers a “well-established” market HP Inc intends to bring “disruptive technology” into. Wide-format meanwhile offers the OEM a chance to hit a “sweet spot” for a “real opportunity” to get a larger market share in the sector. Both noted that “a lot is possible as a consequence” of last year’s split, with “new priorities” such as these able to gain investment.
Finally, both discussed 3D printing and “immersive computing”, with Weisler “excited about disrupting” 3D printing and injection-moulding as they grow, with the aim of making the two markets “take HP into ‘the next three to 10 years’ in terms of new business […] all of that has to be underpinned by innovation […] we have to switch from these largely transactional forms of the past, as everything has gone to an as-a-service model, and we have to be always looking for the pockets of growth”.
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