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Bloomberg Businessweek March 2, 2020
HP’S 63 TRI-COLOR INK CARTRIDGE
retails for $28.99 at Staples. Stuffed
with foam sponges drenched in a frac-
tion of an ounce of cyan, magenta, and
yellow dyes, this bestseller, model No.
F6U61AN#140, can spray 36,000 drops
per second in the Envy printers made by
HP Inc. The 63 Tri-color cartridge may
not look like much, but that ink, which
needs a refill every 165 pages, is ridicu-
lously valuable. HP’s printer supplies
business garnered $12.9 billion in sales
last year, and the printer division overall
represented 63% of the company’s prof-
its. Here in the year 2020, proprietary ink
cartridges remain important enough to
spark a fight worth at least $35 billion.
Xerox has been trying to buy the
much larger HP for what the target says
is a laughable bid. On Feb. 24, HP Chief
Executive Officer Enrique Lores moved
to protect his hold on F6U61AN#140 and
its toner brethren. During his report on
the company’s latest quarterly earnings,
which met Wall Street’s expectations,
Lores announced that HP would triple
its share buyback program to $15 bil-
lion over three years as part of an effort
to fend off the hostile takeover. While
Lores said he was open to exploring new
merger frameworks, he dismissed the
size and technology of Xerox Holdings
Corp. and stressed that HP already had
a winning strategy.
“I am pumped up,” the CEO tells
Bloomberg Businessweek in an interview
shortly after the earnings call. “We have
a great plan.”
Lores, who’s spent three decades at
HP, has survived his share of existen-
tial threats. Before he took over as CEO
in November, he’d led the printer busi-
ness to a streak of revenue gains after
even his bosses had left it for dead. But
last year also saw HP’s share price fall
by a third from a February high. The
company announced thousands of
employee layoffs as it struggled to com-
pete with cheaper ink cartridges from
Asia. That public floundering has left
HP freshly vulnerable to activist inves-
tors such as Carl Icahn, who owns 11%
of Xerox and 4% of HP. He snarked in
December that HP appears in danger of
following “the road to the graveyard.”
For decades, HP and Xerox ranked
among the most powerful forces of
invention in Silicon Valley. Now they’re
arguing over who has the superior vision
to acquire competitors, jettison work-
ers, and jealously guard the tech specs of
their aging intellectual property.
It’s unclear whether either com-
pany’s leaders can repeat the miracle
Lores’s team managed a few years back.
Consumer and office printers still churn
out 3.2 trillion pages a year, according
to researcher IDC, but Toni Sacconaghi,
a tech analyst at Sanford C. Bernstein,
warned in a client note that the “tradi-
tional printing and copying business is
slowly collapsing.” Recalling the image
that critics deployed in 2002, when HP
tried to acquire its way out of trouble
in the PC business by buying Compaq,
Sacconaghi wondered if the company is
facing another deal that looks an awful
lot like “two garbage trucks colliding.”
Among the HP faithful, however,
the response is, yeah, well, waste man-
agement makes a ton of money, too.
“Garbage trucks are still really big,” says
a longtime HP printing executive who
recently left the company and spoke
on condition of anonymity, like many
sources in this story, because of non-
disclosure agreements and fear of repri-
sals. “The industry may not be sexy, but
it’s not going anywhere.”
IT’S TOUGH TO OVERSTATE HOW
strange it would have seemed a half-
century ago to watch HP and Xerox
fighting over who can pinch pennies the
best. These were temples of engineer-
ing. Xerox’s Palo Alto Research Center
laid the groundwork for software innova-
tions later “borrowed” by Steve Jobs and
Bill Gates. (Think graphical interfaces.)
HP’s Bill Hewlett and Dave Packard
pioneered groundbreaking circuits, cal-
culators, LED screens, and, of course,
the very idea of starting up a company
in a garage, which they did in 1939. HP
eventually codified its founders’ ethos
as the “HP Way,” a mission statement
centered around respect for employee
creativity and the development of inno-
vative products in a wide range of fields.
By the 1980s, a string of advances
in robotics led to HP’s line of inkjet
and laser printers, which might as well
have been printing money. In the three
decades following the company’s intro-
duction of the desktop laser printer, in
1984, the division wrangled in well over a
half-trillion dollars of revenue. HP dom-
inated the market by reinvesting billions
in printhead physics, color science, and
other feats of engineering. The devices
had such monstrous sales potential, they
were given codenames like Godzilla and
Ghidorah (Godzilla’s hydra foe).
Then there was the ink. The sol-
vents and pigments that HP scientists
concocted were so overpriced that the
company could afford to sell its hard-
ware at steep losses and make it up in ink
and toner sales. The 1,000-liter vats of
ink at HP’s manufacturing hubs might as
well have been filled with Dom Pérignon.
This was the HP Lores joined as an
engineering intern in 1989. He was
there when the company’s products
became fixtures of a new generation of
home offices—and, a couple decades or
so later, when they began to suffer in
the shadow of the iPhone and Gmail.
By the late aughts, printers looked like
a relic of a bygone era, and then-CEO
Meg Whitman spun off the PCs-and-
printers division as HP Inc. in 2015.
She kept artificial intelligence, cloud,
and consulting—you know, the sexy
divisions—for herself under the banner
of Hewlett Packard Enterprise Co.
“We all thought printing was dead,”
says a former vice president who worked
closely with Lores. “HP was running the
same playbook since they invented
the category.” Likewise, Wall Street
and the press broadly assumed the old
hardware was doomed and Whitman
was smart to cut ties. Pretty much the
opposite happened: Amazon.com Inc.
and Microsoft Corp. crushed Whitman’s
cloud services, and frumpy old HP Inc.’s
stock climbed 67% through the end of
- “Not many people thought we
could grow, but we proved everybody
wrong,” Lores says. As the printer team’s
morale improved, Lores ordered up
improvements to his core lines, such as
adding more smartphone and cloud con-
RYAN DUFFIN FOR BLOOMBERG BUSINESSWEEK nectivity; a subscription ink service,
