5 Reasons HP Might Oppose The Xerox Takeover Bid

While HP is looking for ways to boost its printing business, the company also has massive potential in the PC and 3-D printing markets, executives have said.

Xerox's takeover offer for HP Inc. is reportedly 23 percent higher than where HP shares started the month, and would bring together the leaders in A4 and A3 devices at a time when the print industry is ripe for consolidation.

HP, however, is much more than a print company, as the No. 2 maker of PCs worldwide and an up and comer in the realm of 3-D printing. There are plenty of reasons why HP's leadership, including brand-new CEO Enrique Lores, might not welcome the idea of being absorbed by its smaller print competitor Xerox.

[Related: 5 Things To Know About A Potential Xerox-HP Deal: ‘The Copier King And The Printer King Combined’]

What follows are five reasons why HP might oppose the acquisition offer by Xerox.

PC Business Strength

While HP is the world's largest print hardware manufacturer, the company's PC business is a significantly larger source of revenue.

HP's personal systems business generated $28.27 billion during the company's latest three quarters, up 2.4 percent year-over-year.

By contrast, HP's print business generated $15.08 billion during that time period, down 2.7 percent year-over-year.

Putting together the print and copier businesses of HP and Xerox would have clear advantages, and Xerox said in a statement that the industry is "long overdue for consolidation."

However, some solution providers have questioned whether Xerox makes sense as the steward of HP's massive and growing PC business.

“The PC is the view into the cloud and is more alive than ever,” said Bob Venero, CEO of Holbrook, N.Y.-based solution provider Future Tech, No. 101 on CRN's 2019 Solution Provider 500. “The PC is one of the enablers of the cloud. Making a statement that the industry is long overdue for consolidation doesn’t recognize the value of the PC business.”

In an interview with CRN last week, Lores said the company's leadership is "very optimistic about the future of our personal systems business."

"As you know, we have had a lot of momentum during the last quarters. And we think that that momentum is going to continue," Lores said.

Print Business Strategy

Even in print, there are reasons to think HP might be interested in continuing to chart its own course.

The company has put a substantial amount of effort into retooling its print strategy, with executives last month disclosing plans to overhaul the company’s longtime print business model. The move is partly a response to HP’s declining print supplies business.

"In our current print model, we lose money any time we sell a printer, and we make money on supplies. We are going to be pivoting this model," Lores told CRN last week.

Starting toward the end of HP's fiscal year 2020, which ends in October 2020, the company will begin shifting to a model where subsidized printers will only be available if they are locked to HP-branded supplies.

The company said it will still offer printers that can use third-party supplies—but those printers will come with a higher price tag than in the past.

"Today we make most of our money on supplies, because we are very aggressive in the pricing that we have with printers. And this is going to re-balance that," Lores said. "This is really our goal—to remove our dependency on supplies from a profit perspective and rely on the other components of the system, especially in those areas like hardware, where we have a strong competitive advantage. We think that this will help us to really show customers the value that hardware has, that the printers themselves have."

Major Restructuring And Reorganization Underway

As Lores took over as HP CEO for Dion Weisler on Nov. 1, the company also began to roll out a new commercial organization and restructuring plan.

The moves will make HP more efficient, enabling closer dealings with channel partners and customers, while also supporting greater investment in product innovation and services, HP executives have said.

The new commercial organization will see the company shifting from a three-region organizational structure to a set of 10 geographic markets, while the restructuring will involve a staff reduction of as much as 16 percent by 2022—with between 7,000 and 9,000 employees affected.

From one perspective, a combination with Xerox might make sense for HP since the company is already at a turning point anyway. But at the same time, HP's hasn't had a chance to see the fruits of its new leadership and restructuring and reorganization efforts—which conceivably could increase the value of the company if successful.

Channel Differences

While both HP and Xerox depend heavily on indirect sales, HP has more of a focus on solution providers—which could lead to confusion and conflict in the channel if the two companies joined forces with Xerox calling the shots, partners told CRN.

"While there might be some alignment in terms of print technology, there is a very significant difference in approach when it comes to the channel and front line strategic sales," said one executive at a partner of HP, who asked to not be identified. "The Xerox approach is traditionally direct, or to use an agency model, and this agency type model would likely not be adopted by the very strong and mature IT channel that HP is partnered into, and that has other options than HP on the end user computing front."

3-D Printing

There is also reason to think that Xerox's takeover offer for HP might not be accounting for the potential value of HP's 3-D printing business.

HP has brought forward a wide array of Jet Fusion 3-D printers in recent years that aim to disrupt the traditional manufacturing business with high-quality, high-speed 3-D printing of parts at a comparatively lower cost. The company has said it sees an opportunity to transform the $12 trillion manufacturing market with its 3-D printing systems, which now cover everything from prototyping to short runs to volume production of plastic parts. HP is also developing a 3-D printer for metal parts.

Overall, "we are starting a new chapter," Lores said last week in the interview with CRN. "And the key elements of the chapter are our ambition to advance our leadership in personal systems and print, and the opportunity that we have to disrupt some key industries."