46
which now has 6 million members;
and efforts to develop 3D-printed goods
ranging from clothing to food. Between
2016 and 2018, sales at the PC business
shot up 26%, and printer sales rose 14%.
Mostly, though, Lores and Dion Weisler,
the boisterous Australian who preceded
him as CEO, focused with a singular zeal
on cutting costs throughout their PC and
printing supply chains.
Alex Cho, the president of HP’s per-
sonal systems business, says the com-
pany was maniacal in that pursuit. “I
remember a review where one person
said, ‘We only have these items that
could save us $1.50.’ I was like, ‘What
about [the parts] under $1.50?’” he
says. “We needed a culture of going
after that stuff.”
Far from the grand vision of the HP
Way, the executive team spent a signif-
icant portion of its research and devel-
opment budget on stopping product
lines from wasting microscopic amounts
of ink, or on ways to make its printers
less compatible with other companies’
cartridges. Accounting tricks weren’t
out of the question, either. Two former
printer division employees say the com-
pany often raised hardware prices near
the end of a fiscal quarter to make short-
term losses from printer sales look less
severe. An HP spokesperson says the
company doesn’t prevent the use of
refilled cartridges that have a genuine
HP chip, and that the company man-
ages its printer hardware and supplies
“based on a wide variety of factors.”
An obsessive focus on quarterly mar-
gins put a low ceiling on the company’s
ability to plan ahead, says the long-
time HP printing executive: “What HP
now thinks is innovation is overwhelm-
ingly incremental vs. disruptive. They
squeezed the lemon to the last drop.”
When asked about these charges,
Lores invites Businessweek to visit HP’s
research labs to witness his company’s
commitment to revolutionary R&D.
While he said on the Feb. 24 earnings
call that “reducing cost is a neverend-
ing task,” in the one-on-one interview,
he pledges that these cuts “will not
jeopardize investments in long-term
technologies.”Bloomberg Businessweek March 2, 20202016 2019$4b20HP operating income
◼Printing
◼Personal systems
groupRYAN DUFFIN FOR BLOOMBERG BUSINESSWEEK. DATA: COMPILED BY BLOOMBERG, GARTNERGlobal printer and copier sales
in 2018Canon
$ 7.1 bRicoh
$4.6bKonica
Minolta
$3.4bFuji
Xerox
$2.4bKyocera
$2.3b
Brother
$1.3b
Epson
$2.2bOther
$3.5bToshiba
$1.2bXerox
$4.1bHP
$8.3b1984 201912%60HP R&D spending as a
share of net revenueIN FEBRUARY 2019, HP PROJECTED
its first decline in quarterly printer sup-
plies revenue in years. This wasn’t some
isolated issue. A critical mass of fed-up
customers finally seemed to be sick
enough of HP’s high cartridge prices
to try generic ink resellers or, in some
cases, counterfeiters. Weisler vowed to
fight off the other ink producers, and
later, the company said it would stop dis-
counting certain pricey printer lines and
make sure the deep-discount models
couldn’t use non-HP ink. The company
was already shipping certain staffers to
less costly offices in Texas and Idaho,
where they had to accept lower salaries,
and was in the process of laying off 5,000
employees, roughly 9% of its workforce.
Some revered engineers who’d stuck it
out since the good old days took buyouts
or pay cuts. A couple of quarters later,
Weisler was out, too. Lores’s first act as
incoming CEO was to begin dismissing as
many as 9,000 more employees.
In swooped Icahn and Xerox, the
113-year-old company struggling to
maintain its photocopier sales. In 2018,
Icahn had used his position as a leading
Xerox shareholder to urge the ouster
of the company’s CEO and scuttle its
attempt to sell itself to Fujifilm Holdings
Corp. At first, Icahn and John Visentin,
Xerox’s new CEO, just wanted some
kind of expanded partnership with HP.
Most printer companies hold at least a
few patents that all their rivals need,so these kinds of frenemy deals are
common. But when one executive sug-
gested that Xerox, at one-third the size
of HP, should just try to buy the com-
pany, Visentin’s team fixated on the
idea. Icahn, infamous for loading up
struggling companies with debt and
selling off valuable assets for short-term
gains, was an easy sell, too. Visentin and
Icahn declined to comment.
In November, Visentin proposed
a cash-and-stock deal valued at $22 a
share, fueled by colossal bank loans.
Icahn lobbied Lores to make the deal
or some variation on it, including let-
ting HP buy Xerox instead. (He’s since
said Visentin would have to run the com-
bined business.) Lores didn’t bite. He
felt the offer significantly undervalued
HP and would saddle both companies
with billions of dollars in debt. Visentin
launched a proxy battle for control of
HP’s board, nominating a slate of direc-
tors who’d favor the deal. He also raised
Xerox’s bid to $24 a share, or $35 billion.
Over the past few months, members
of Lores’s team have sought to quash
the deal by promising big cost savings
and shareholder returns. Lores’s latest
counteroffer to shareholders suggests his
management team is hellbent on keep-
ing control of HP. “They’ve planted their
flag,” says Sacconaghi, the Bernstein
analyst. “But printer supplies, the
majority of the company’s profits, have
gone down for the last three quarters.