HP Supplies Drop Less Troubling For Managed Print Services Partners

HP Inc. may be grappling with an unexpected drop in commercial sales of printer supplies due to online competition.

But at NWN, an HP partner based in Waltham, Mass., the print solutions business is business as usual—thanks to its focus on managed print services (MPS).

[Related: Vendors: If You're Ignoring Managed Print Services, You're Leaving Cash On The Table]

"We are seeing little impact today," said Skip Tappen, CEO of NWN, No. 73 on the CRN 2018 Solution Provider 500.

As a traditional reseller, NWN is not actually able to sell HP supplies as a general practice.

However, NWN is still able to benefit from providing supplies to customers as part of its MPS offering, Tappen said.

"One of the reasons we are driving MPS is because that encompasses supplies and enables us to bundle them into the service offering," Tappen said. "This is good for both NWN and HP since our MPS offering utilizes HP supplies."

While HP's surprise decline in supplies revenue is expected to be a major challenge for company throughout the year, solution providers focused on the contractual MPS model seem to have less to worry about.

As HP and other print vendors recently told CRN, many solution providers are missing out on major opportunities by focusing on product sales and ignoring the potential recurring revenue and margins that come from selling MPS.

Dan McDonnell, vice president of U.S. Print Channel for HP, previously told CRN that a lack of education of the sales force is one of the reasons that some partners are not more aggressively pursuing managed print opportunities.

But the danger is that if they don't act now, they will be out of sync with the needs of their customer base, McDonnell said.

"There is risk if partners are not investing in the right ways, if they're not educating and training their sales force to go after the managed print business," McDonnell said. "That's where the customer's going."

For HP's first fiscal quarter of 2019, which ended Jan. 31, print supplies revenue dropped 3 percent from the same period in 2018. And the Palo Alto, Calif.-based company said to expect a roughly 3 percent decline in supplies revenue for the rest of the fiscal year.

"More commercial customers are purchasing supplies online. And while we have leading share online, it's at a lower percentage than our share with traditional commercial resellers and in-store retailers," HP CEO Dion Weisler said Wednesday during the company's quarterly conference call with analysts.

"The omni-channel and the consumer preferences to buy online are definitely not new," Weisler said. "What we've seen is more commercial customers purchasing online."

Part of the issue is online competition from re-manufactured cartridges and third-party alternatives, Weisler said.

Weisler also said that HP had "incorrect supply share assumptions," which made it difficult to see the change in buying behavior during the company's fiscal first quarter.

HP's stock price fell 17.2 percent on Wednesday evening and Thursday following the earnings report, closing at $19.73 a share on Thursday.

HP is "taking action" in the supplies business including through additional targeted marketing and lowering its supplies inventory, Weisler said.

For its fiscal first quarter, HP reported that revenue in its print segment was essentially flat year over year at $5.06 billion in fiscal first quarter, compared with $5.08 billion a year earlier.

Net earnings during HP's first fiscal quarter came in at $803 million, or 51 cents per diluted share—down from $1.94 billion, or $1.16 per diluted share, during the same period a year earlier. Revenue for the quarter rose 1.3 percent, to $14.71 billion, from $14.51 billion a year ago.