Posted by: Peter Burrows on August 12, 2005
In recent weeks, the world has gotten a much better sense of HP CEO Mark Hurd. If Carly Fiorina liked sweeping visions and bold growth strategies, this guy is pure pragmatism. That’s why he’s killed high-profile R&D projects, such as one effort led by former Xerox, Apple and Microsoft luminary Alan Kay to create a kind of next-generation Internet browser. And that’s why he walked away from a high-profile deal to sell Apple’s iPod, which was never going to be a big money-maker for the company. Even though HP is contractually locked out of the digital music player market for another year or so, Hurd evidently felt there’s no time like the present to stop investing time and money in something that’s not critical to the company’s future.
That’s all fine. But now that we know what he doesn’t want HP to do, what does he want?
We got a clue yesterday, when HP purchased Israel-based Scitex Corp Ltd. The company makes industrial-strength digital printing presses used to do large-format printing used to create product packaging, billboards and such--all the way up to those mega-advertisements that cover buses and buildings.
It's not a huge market, to be sure. But the acquisition implies that HP may be ready to take the gloves off and finally get after its biggest single opportunity: expanding its printer empire. Today, HP dominates the market for inkjet and laser priniters used by consumers and in offices. But more than 90% of printed pages--from newspapers, to brochures, to junk mail--are handled by more industrial strength equipment. This is a $200 billion-plus market, making it one of few potential markets big enough to matter should Hurd want to make HP a growth company again. But besides lots of nifty slideware, HP has made very little real progress.
Buying Scitex indicates a change--particularly with regard to how HP hopes to make its move. Over the years, the company has spun a vision in which its homegrown thermal inkjet cartridge would single-handedly conquer this vast new world. It was an understandable ambition. Since this tiny device spit out its first image in a closet in an HP R&D center in Corvallis, Oregon in the early 1980s, the diminutive device has turned into one of the great profit engines any company has ever known.
But many experts say the thermal inkjet cartridge has pretty much reached its full potential. For starters, HP would have to figure how to line up hundreds of thousands of tiny nozzles (rather than the few thousand that are in HP's most advanced current products) to crank out pages nearly as fast as other approaches. What's more, thermal inkjets used inks that are water-based. Skeptics say that means thermal inkjet-based output is never going to be as long-lasting or rain-proof as other printing techniques can offer.
To be sure, HP hasn't given up on its dreams for thermal inkjet technoloogy. It recently unveiled a new scaleable printing technology, on which it spent $1.4 billion over five years, which it claims can be used for commercial printing and possibly in photo-processing gear.
But buying Scitex shows that HP is losing its thermal inkjet religion to some degree. That's because Scitek's gear is based on a piezo technology that uses electricity to force droplets of ink onto the page (thermal inkjets, such as HP's, use heating elements to vaporize the ink for a few micro-seconds, so it can be shot onto the page). It's not the first proof point of the changing philosophy. Just days before it bought Compaq Computer in 2001, HP bought a digital press company called Indigo Ltd, whose high-speed printers use a liquid ink more similar to the type used in traditional offset printing presses.
But Hurd's backing of the Scitex deal suggests that he agrees with this approach. To be sure, hedging its bets by developing many different print technologies simultaneously may not be the most efficient way for HP to proceed. But if HP is serious about expanding its printer empire, and printing big profits rather than just slideware, it's the approach that's most likely to succeed.