JUNE 9, 2008

Technology
By Aaron Ricadela

HP's Printing Chief Is on a Mission

Vyomesh Joshi plans to preserve printing's status as HP's most profitable division by, among other initiatives, getting consumers to use printers at home more

During a hectic stretch in the waning days of May, Vyomesh Joshi, Hewlett-Packard's (HPQ) high-energy printing chief, was darting around Europe and the Middle East. On May 29, he was in Düsseldorf, Germany, to unveil a line of high-end machines aimed at newspapers and publishers. Within days, Joshi was off to Dubai to promote HP's printers for the reams of pages consumers are expected to print as the booming city gets wired for broadband. HP will announce a batch of three more HP printers in New York on June 10.

If the jet-setting and product announcements convey a sense of urgency, they should. HP's consumer printer sales have declined four of the past five quarters, including a 3% drop in the three-month period that ended Apr. 30, amid slower-than-expected demand for digital-photo printing. Quarterly profits were flat at $1.2 billion. Some Wall Street analysts expect revenue in the larger imaging and printing group run by Joshi to grow less than 5% in the fiscal year that ends in October, compared with growth of 6% in 2006 and 2007.

Make no mistake. Joshi's imaging and printing group is HP's most profitable and is expected to supply a quarter of the company's sales and 40% of profits this year. But its bread-and-butter consumer inkjet printing business has been showing signs of weakness, and Chief Executive Mark Hurd has made no secret of his dissatisfaction with the performance. "We could have done better than we did," Hurd said during a conference call with analysts on Feb. 20, referring to a 5% drop in consumer inkjet sales. "And just to be very blunt, I'm not real happy about it."

Fighting Trends Executive Vice-President Joshi, a 28-year HP veteran known as "VJ," who's credited with turning HP's printing group into an industry powerhouse, has a multipronged plan for injecting sizzle into the group. To jog printing sales by the 4% to 6% HP has promised Wall Street, Joshi is investing in overseas markets, targeting commercial printing shops that have yet to embrace digital technology, and trying to push consumers to make more printouts of photos, boarding passes, maps, and other content from the Web. "We need to add $1.5 billion in revenue each year," Joshi says. "It can't come from one particular segment."

Success could bolster HP's stock price and reassert the prominence of Joshi and his division within HP. Even as the U.S. economy has slowed and corporations have delayed IT purchases, HP has performed better than peers including Dell (DELL), thanks to cost-cutting and growth in its overseas operations. But the performance of imaging and printing may be among issues "keeping investors to the sidelines," says Jayson Noland, an analyst at Robert W. Baird. HP's printing revenue, he adds, is "slowly stagnating. …It's certainly been a concern on Wall Street." The company's stock has declined 5.7% this year.

Several analysts blame the drop in HP's inkjet printer sales on consumers who are doing less home printing of digital photographs than the company was expecting. "They were hoping that with the explosion of digital cameras, people would find printing at home a big convenience," says Shaw Wu, a senior analyst at American Technology Research. Instead, consumers find that matching the inks, paper, and software settings to print photos from home is too complex, and the quality often doesn't match what they could get at a store.

Expanding hard-drive sizes, photo sharing by e-mail, and the emergence of digital photo frames have also led many PC users to view photos on their screens rather than print them out, analysts say. "These are trends that are tough for even HP to fight," Wu says.

Joshi denies that consumers sacrifice quality by printing at home, and blames falling hardware prices for lower retail printer revenue. The consumer business looks more robust when you include sales of ink and other printing supplies, which grew 8% in the second quarter to $4.8 billion, he adds.

A Visionary Executive To bring the rest of the business up to par, Joshi will draw on what analysts say is a reputation for visionary execution. Joshi, 54, joined HP in 1980 as an engineer in the company's instrument group, working on plotters that produced text or graphics by moving a computer-controlled pen across a page. By the mid-1980s he was working as a manager in the printing group, and ran the company's inkjet business by 1999.

The executive is credited with helping HP annex new markets such as multifunction and large-format printers, and took over the entire imaging and printing group in 2001. Since then, printing revenues have grown 46%. "VJ's had a tremendous success record," says Jonathan Eunice, founder and principal IT adviser at industry consultant Illuminata.

Joshi, who analysts say is heavily recruited for industry jobs, thrived under former CEO Carly Fiorina. In January, 2005, she put him in charge of a group that combined HP's printing group with its big PC division, partly inherited from Compaq, which it bought in 2002, in order to better pair sales of the products. "Carly leaned on him a lot," says Roger Kay, founder and president of industry consultant Endpoint Technologies Associates.

Five months later, after taking over as CEO following Fiorina's ouster, Hurd undid Fiorina's move, leaving Joshi in charge of printing and imaging. The marketing-savvy Joshi and the no-nonsense, micromanaging Hurd have distinctly different approaches, analysts say. "He's an idea guy," Baird's Noland says of Joshi. "Investors feel like he gets a lot a free rein to go and try lots of stuff. And that's not really Mark Hurd's style. …They're very different personalities."

Analysts also draw contrasts between Joshi and Executive Vice-President and Chief Strategy & Technology Officer Shane Robison. Robison, who came over in the Compaq deal, is responsible for cashing in on HP's sizable patent portfolio, and has flourished under Hurd. "He has the ear of the king," Kay says of Robison.

Still Dominating the Printer Market Joshi's organizational power could be less substantial than it was in the days when the printer group supplied nearly all of HP's profits. "With Mark Hurd's arrival, [the printing division's] importance has diminished," says American Technology Research's Wu. "Does it weaken VJ's position within the company? Maybe."

Asked whether he's on the hot seat from Hurd to fix the printing business, Joshi says it's "not true" he is feeling pressure, pointing to the printer group's revenue growth and operating profit. Indeed, HP is still dominant in consumer and office printers. In the office printing market, Joshi is moving the group into "printing services"—managing fleets of printers for customers including 3M (MMM), United Stationers (USTR), and law firm Wilson Sonsini Goodrich & Rosati.

At retail, HP's inkjet and laser models accounted for 54.4% of units sold at retailers in the first quarter, on par with the company's share the past two years, according to market researcher NPD Group. To keep profits high (they're about 16% of sales), HP hasn't spent excessively to increase its share, says Stephen Baker, a vice-president at NPD.

But consumers' reluctance to print lots of photos at home, combined with competition from Eastman Kodak (EK), which in 2007 introduced a line of home printers that use lower-priced ink, has forced HP to cut prices steeply for some of its ink cartridges, some to as low as $10 to $15, according to NPD's Baker. "They don't want to leave all those dollars sitting inside their printers," he says. It's important for HP to keep ink sales humming: Ink, paper, and other supplies accounted for 63% of the printing group's second-quarter revenues.

An Internet-Oriented Future HP is investing for the future as well. It's treading into the world of the social Web, trying to build photo-sharing communities like Tabblo, acquired in 2007 (BusinessWeek.com, 11/15/07), to spur consumers to create printouts and craft projects. HP is spending $300 million this fiscal year on a multiyear ad campaign (BusinessWeek.com, 8/28/07) aimed at getting consumers to print a broader array of material, including announcements, greeting cards, and scrapbooks.

"When you look at all of the Web applications, printing is often an afterthought," says Joshi, who also sits on Yahoo's (YHOO) board. HP's Snapfish, an online photo-printing service, already sits behind the photo sites of Wal-Mart Stores (WMT), Walgreen (WAG), and others, and represents the group's Internet-oriented future. HP is also incubating new businesses in its labs. A project called BookPrep aims to let consumers purchase scanned copies of out-of-print books, annotate them with their own content, then print out the results.

With the clock nearing midnight in Düsseldorf, Joshi looked back on his good fortune. "I've been with HP 27 years and I love HP," he says. "We've been very successful." If the success is to continue, VJ's new bets will need to pay off as well as his old ones have.

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