Los Angeles Times - 16.11.2019

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and HP: When a company
runs out of ideas for new
products and new markets
and turns instead to playing
around with corporate
restructuring, the handwrit-
ing is on the wall.
Let’s look at how this has
played out.
Start with Xerox. Its
foray into truly farsighted
innovation was covered in
my 1999 book “Dealers of
Lightning,” which told the
story of the founding and
first years of its Palo Alto
Research Center, the leg-
endary Xerox PARC. Until
well into the 1970s, Xerox
ranked as one of the most
successful corporations on
Earth. The original source of
its almost unimaginable
wealth was the Xerox 914
copier, introduced in 1959,
which revolutionized office
routine by making copies
cheap and fast.
It would later be said that
Xerox became a prisoner of
the vision of Chester Carl-
son, the main inventor of the
914, because it was so very
successful that the company
viewed all aspects of its
business through the 914
prism.
That’s true in a sense, but
the company’s most suc-
cessful invention really was
its business model: The 914
could not be purchased but
only leased, with the lease
payments based on how
many pages an office put
through it. This was the
“click,” and the model was so
lucrative that the executive
who reputedly conceived it,
Peter McColough, eventu-
ally became Xerox’s chair-
man and CEO.
Xerox’s franchise eventu-
ally came under attack from
Japanese companies selling
cheaper copiers that could
fit on a desk rather than a
behemoth installed in a
“copier room” to be fed by
secretaries standing in line.
McColough also perceived
that the company was vul-
nerable to technological
developments that might
make paper obsolete in the
office of the future.

As a counterstrike, he

founded PARC and allowed

it to be established in Palo

Alto, as far from the compa-

ny’s Rochester, N.Y., head-

quarters as possible. PARC

was staffed with brilliant

engineers and computer

scientists who rewarded

their independence from

Rochester by inventing the

personal computer, Ether-

net and the laser printer,

among other novelties.

Xerox has been ridiculed

for failing to exploit these

inventions (except the laser

printer, from which it earned

millions), but that’s unfair.

The corporation had a sales

force of hundreds of thou-

sands trained to put big

copier machines into big

offices.

The market for PCs

didn’t exist and was scarcely

foreseeable; it would eventu-

ally be exploited by a com-

pany with fewer than 50

employees, Apple — into

which Xerox actually

pumped a few millions in

venture capital. PARC is

now a wholly owned subsidi-

ary of Xerox.

Xerox did put PARC’s

technology into a product,

the Xerox Star, introduced

in 1981. The Star was a gor-

geous machine, integrating

software and hardware so

perfectly it never crashed,

with a graphical display and

point-and-click mouse (I

witnessed a 1998 demo of a

Star cobbled together from

bits and pieces its engineer-

ing team exhumed from,

sometimes, their attics).

But it was conceived on a

Xerox office machine scale,

with a central unit needing

its own room and big desk-

top workstations. A full

networked installation

would cost $250,000 in 1981

dollars. The product failed.

Xerox’s struggles in the

last couple of decades have

been painful to witness. The

stock has almost doubled

this year, but that only puts

it back roughly to where it

was five years ago. The

company’s most recent

innovation was its conver-

sion into a holding company

in July, a nugatory restruc-

turing that has virtually no

impact on shareholders,

customers, or anyone else,

except perhaps for the in-

vestment bankers and law-

yers collecting fees for the

paper shuffling.

The corporate ambition,

according to its 2018 annual

report, is to “return at least

50% of free cash flow to

shareholders” via dividends

and share buybacks. Oh,

yeah, it also says it wants to

“re-energize innovation,”

though its R&D spending of

$397 million last year repre-

sented about 4% of its $9.8

billion in revenue. By com-

parison, Apple spent $16.2

billion on R&D last year.

Granted, Apple is a much

bigger company, with $260

billion in sales, but its R&D

spending is 6% of revenue.

Then there’s HP. The

company’s legend began

with founders David

Packard and Bill Hewlett

inventing an audio oscillator

in a Palo Alto garage (now a

corporate landmark) in 1938.

Not only were the company’s

products standouts in their

field, so was its management

style — nurturing engineer-

ing talent through collabo-

ration and a flat corporate

hierarchy dubbed “manage-

ment by walking around.”

The rapidity of the PC

and internet revolutions

eventually threatened to

leave HP behind. Its most

profitable business model

was a razor-and-blade strat-

egy in its printer line — sell

the printer, and make mon-

ey from repeat purchases of

consumable ink. But those

riches began to wane as

cheap knock-off cartridges

infiltrated the market.

In 1999, HP’s traditional-

ist CEO Lew Platt stepped

down and gave way to Carly

Fiorina, then the CEO of

Lucent Technologies. She

took over a company that

was big in PCs, a stagnant

market with profit margins

close to zero.

As things turned out,

Fiorina’s imagination fo-

cused largely on burnishing

her personal image. She

boasted about HP’s superior

innovation, but in truth HP

technology was all but invisi-

ble in many of its products.

HP marketed “Apple iPod by

HP,” a product identical to

the Apple version except for

an HP logo etched into the

case. Her big consumer

product breakthrough was a

hybrid computer/home-

theater-in-a-box that was a

showcase of other compa-

nies’ innovation — it had a

Microsoft operating system,

ran on an Intel chip and

used Apple’s iTunes as its

music file system. When I

costed out its components

in a 2005 experiment, I found

they could be had separately

for about $900. HP sold the

same things bundled to-

gether for $1,899.99.

Fiorina’s downfall at HP

could be traced to her dou-

bling down on PCs through

the 2002 acquisition of Com-

paq Computer. The deal was

compared by Scott McNealy,

then the head of Sun Micro-

systems, to “two garbage

trucks colliding.” The deal

inspired a ferocious internal

war, with some of the found-

ers’ own children lining up in

opposition. More to the

point, the acquisition failed

to turbocharge HP. Fiorina

was sacked in 2005, after

presiding over a stock slide

of about 60% during her

tenure.

Her successor, Mark

Hurd, was credited with

turning the company

around, though during his

tenure a scandal erupted at

the board level when it

transpired that some board

members and journalists

had been spied on as the

company searched for the

sources of corporate leaks.

Hurd, who died last month,

was forced out of his job in

2010 amid accusations of

sexual harassment (un-

founded) and financial

misdeeds (validated). He

eventually became CEO of

Oracle.

His eventual successor

was former EBay CEO Meg

Whitman, who took over in

201 1. Whitman touted a

computer based on a hugely

innovative architecture and

called “The Machine,” which

is still in development but

with sharply scaled-back

ambitions.

Whitman’s big idea was

another feat of corporate

restructuring in 2015 — the

hiving off of HP’s business

technology service division

as Hewlett Packard Enter-

prise, with its PC and printer

businesses remaining with

the original company. The

investment community

hasn’t been particularly

thrilled about the move,

since both offspring face

difficult markets and lots of

competition.

HP’s third-quarter re-

port was unencouraging,

with printer income down

5% over the year-earlier

period. On the plus side, the

company returned $800

million to shareholders

through dividends and

share repurchases, which

should please the Carl Ic-

ahns of the world.

It’s fair to assume that

good and innovative work is

still being done at Xerox and

HP, both of which employ

platoons of talented engi-

neers and scientists. Indeed,

HP’s Spectre x360 laptop,

refreshed late last year, has

received sterling reviews in

the consumer tech press.

Will the proposed merger

be a plus for these compa-

nies or a minus? Toni Sac-

conaghi, a tech analyst at

Sanford C. Bernstein, is

among the doubters. “The

traditional printing and

copying business is slowly

collapsing,” he said in a note

to clients. Mischievously,

according to Fortune, he

titled his analysis, “Xerox

buying HPQ: Brilliance? A

Dare? ‘Two Garbage Trucks

Colliding?’”

It’s hard to imagine a

tradition of truly ground-

breaking work arising from a

merger of two companies

determined to cut costs. The

sad truth is that most corpo-

rations, especially in tech-

nology, get one or perhaps

two cracks at reaching the

business pinnacle and fewer

can stay there.

IBM, General Electric,

Apple and Microsoft have

shown that it’s possible to

survive a few turns of the

wheel, but the first two are

struggling and the latter two

have had their ups and

downs. For the most part,

yesterday’s kings of the hill

are doomed today or tomor-

row to drift off, like old

pensioners, into the sunset.

Keep up to date with

Michael Hiltzik. Follow

@hiltzikm on Twitter, see

his Facebook page, or email

michael.hiltzik

@latimes.com.

Merging HP and Xerox may

be the only way to save them

[Hiltzik,from C1]

XEROX CEO Joseph C. Wilson holds 2,400 copies

produced in one hour at a 1964 N.Y. press conference.

Associated Press