HP CEO Lores On As-A-Service 'Acceleration' And Combining Managed Print With Instant Ink

The ongoing emphasis on work-from-home is continuing to create new growth opportunities for HP and its channel partners, including a re-imagining of managed print services for home offices, CEO Enrique Lores said in an interview with CRN.

Lores On The Record

While HP Inc. has been emphasizing the shift to services for years now, the COVID-19 crisis has brought the opportunity to the forefront for the company and its channel partners, HP CEO Enrique Lores told CRN. Across both the personal systems and print businesses at HP, the move to as-a-service models is seeing "acceleration" with countless businesses continuing to work from home and customers looking to reduce costs, Lores said. That has meant more demand for Device-as-a-Service on the PC side and new approaches in print such as combining Instant Ink subscriptions with managed print services, which are often delivered by partners. "What we have seen as a consequence of the pandemic is significant growth in anything that has to do with as-a-service--whether it's Device-as-a-Service, managed print services or subscriptions," Lores said in the interview with CRN. "Clearly, customers are shifting in this direction very fast."

Ultimately, "we are looking at the current environment as a way to accelerate our plans, which will have a positive impact for us long-term," Lores said. During the interview, Lores also discussed the progress in meeting notebook demand, how HP is approaching the return to the office, investments into sustainable impact and why HP last week terminated its shareholder rights plan ahead of schedule. What follows is an edited portion of the interview with Lores.

Are you seeing the big demand continuing for notebooks through the rest of 2020? And are you still on target for fulfilling your backlog in your fiscal Q3?

We are seeing things evolving as we were expecting. Clearly, there's lots of demand for notebooks, driven both by working from home but also by learning from home. But I think it's important to acknowledge that we live in very dynamic times. There are opportunities like what we're seeing with notebooks, but as the situation evolves, we continue to see challenges in other parts of the business. There's a dynamic environment around us in many, many different areas.

The factories have been up and running since April. So, from a manufacturing perspective, we haven't seen any disruptions during the quarter. Things are going as planned. We are seeing strong demand in some areas. As you talk to partners, they will tell you, "we wish we had some more notebooks in some areas, or we had some more Chromebooks"--because there is a lot of demand for those products. But overall, the situation is very different from what it was in [HP's fiscal] Q2. The factories are working, and we are meeting the majority of the demand we are getting. We don't expect it to change again--though we acknowledge that this is all dependent on whether there is another crisis or not, or another huge outbreak. But if nothing severe happens, we should be in a very good position through the end of the year.

Some places are seeing a resurgence in cases, especially in the U.S.--how are you factoring that in as part of your decision-making?

From a manufacturing perspective, we have taken all actions that we considered were necessary to mitigate the impact of a second wave. Those actions are in Asia more than here. I think we have been preparing ourselves to make sure we can cope with the situation. The key thing at this point is that we have learned a lot about what to do and what not to do. And as we look forward, we have really changed some processes and changed some plans to make sure we can respond to another outbreak. In the case of the U.S., of course, our No. 1 priority is to protect the safety and health of our employees. As we look at what is happening in some states, we are taking a very cautious approach of going very slowly back to the office--to make sure that we protect our employees, and nobody gets sick because of going to the office too fast.

How are you judging when and how to return to the office?

I can share some of the principles we are using. Again, our No. 1 priority is the safety and health of our employees. And we are redesigning our plans with that as a key priority. We are looking at those jobs that we think productivity is impacted by not being in the office--which are many jobs around R&D, many jobs around manufacturing. And we're giving priority to these employees as we plan to return. We are doing that with lots of measures and actions to protect their health--social distancing, seating them in a bigger distance in the office, temperature checks, much more frequent cleaning of the offices. Any action that we think is necessary, we're taking it to protect the employees. It's going to be a small percentage of the total number of employees. Those that can do their work from home, they're going to be coming to the office very slowly. In some cases during the summer, in some cases in the fall, in some cases early next year--because we don't want to take any unnecessary risk from that event.

How is the opportunity evolving around work-from-home printing?

Because we have a very strong home office printing business, many clients are now asking us to enable their employees to be able to print from home. That is, they are working from home and they want to be able to print, and they want to make sure that the cost of printing is paid by the company--and also that the printing happens in a secure way. For example, we are integrating Instant Ink with managed print services. So, both us and our partners can sell the combination of both. And this is clearly helping us to mitigate the impact that we see of employees not being in the office, by allowing them to print those pages at home.

We have created some special configurations and special processes for [managed print services partners], so they can enable [Instant Ink] and take advantage of the opportunity. It's clearly a growth opportunity for them. Things are changing fast, customers' needs are changing, and we need to change with them and take advantage of the opportunities. And this example of printing from home is one that, because of the breadth of our portfolio, it works in our favor. And we're going to continue to drive that going forward.

Are you seeing an increased interest in Device-as-a-Service on the personal systems side?

What we have seen as a consequence of the pandemic is significant growth in anything that has to do with as-a-service--whether it's Device-as-a-Service, managed print services or subscriptions. Clearly, customers are shifting in this direction very fast. It's clearly becoming more and more important, because customers want to buy as-a-service, and want to have the flexibility that buying as-a-service provides. And we think this is going to stay--it's not going to be temporary. These are the opportunities that we will continue to evolve and continue to grow in the future. [Device-as-a-Service] is accelerating, as part of the overall acceleration of subscription-oriented businesses.

Overall, do you feel that the events of this year are more of a headwind than a tailwind for HP? At least over the longer term?

I think overall, in the long term, it will be neutral or positive. We are looking at the changes that are happening as a way to accelerate the transformation that we have already started--whether the transformation is the evolution of the business models that we were driving to as-a-service, the expansion into 3-D printing, the fact that now PCs have become essential. If you want to work efficiently from home or if you want your kids to learn efficiently from home, it is very clear you need a PC. And this is a big long-term opportunity for us. Remember in the past when the goal was to have one PC per household? We're evolving that goal to be to have one PC per person--which, in the long term, opens up big opportunities for PCs. We have also seen a big adoption of 3-D printing to print medical products, and this has shown the value that this technology has. So, also long-term, this is a good opportunity for us. This is helping us to accelerate many of the internal transformations we were driving to be more digitally oriented. We are looking at the current environment as a way to accelerate our plans, which will have a positive impact for us long-term.

How are you seeing sustainable impact increasingly being a business driver?

For us, making a sustainable impact has now become a business imperative. We estimate that last year we generated more than $1.6 billion because of it. And clearly we see more and more of our customers that really care about this--whether they're big corporations that want to know what our sustainability programs are, what our diversity and inclusion programs are. But it's also important for consumers--more and more they really want to know what we are doing to protect the environment or to protect or to help our community.

When we think about sustainable impact, we look at it from three angles--what are we doing with our people and how are we making progress on that front? What are we doing on the planet, in terms of the materials we use and the programs we put in place? And finally, what are we doing to support the community where we operate? We are making good progress across the board. We have made good progress in terms of diversity, especially [hiring of] women. We have been making progress in hiring underrepresented minorities. For example, 63 percent of the new hires are underrepresented minorities in the U.S. We have been making good progress in using ocean-bound plastic. We have been making good progress on our initiatives to plant trees to compensate for paper that is not coming from sustainable forests. But we also acknowledge that we need to do much more work. Clearly we all have learned, during the last weeks, that the situation in terms of systemic racism needs to be addressed. And especially in the area of Black and African American employees in the U.S., we acknowledge that we need to continue to make more progress going forward.

You announced that you are terminating your shareholder rights plan early -- what is the significance of that?

It's a confirmation or what we said when we put it in place. We said it was a temporary action that we were taking because of the situation [with Xerox's] hostile takeover. We said it was a reaction to that takeover, and that this was not something we were planning to maintain in the long term. And we had a board meeting last week, and we evaluated the situation--and we decided that, given the new situation, we didn't need to have it. And we removed it. When we needed it, we put it in place. And now that we don't, we removed it.

Is it fair to take away from this that you are pretty confident Xerox will not revive its hostile takeover?

I would never say never, because things can change. But clearly, when the [Xerox] deal was put on the table, we said there were several things that were a big problem. One was the exchange rate between the value of the two companies. This has dramatically changed. When you look at our stock price, it is basically the same that it was in November, within that $16-$17 range. Xerox was $35, and now it's $15-$16 per share. So, the exchange rate has dramatically changed. Availability of credit to finance [an acquisition] like this has also changed dramatically. And third, and probably the more important--the proposal they were making was creating a company with higher leverage, between four and five times debt to EBITDA--which in a situation like this is incredibly risky. So, the same reasons we shared a few months ago that supported the fact that it didn't make sense, are even more relevant now. So, it's hard to predict what others will do--but clearly if it didn't make sense before, it makes even less sense now.

Overall, what is your message to channel partners right now?

We continue to see our partners as a key part of how we go to market. With the changes we are going through, we're looking at them as an opportunity to accelerate the changes that we need to drive in our company. I would encourage all of our partners to take a similar approach. I think the partners' landscape is going to change as more and more business is being done online and much more business is being done as-a-service. I think it's very important that our partners embrace those two changes, and evolve their businesses toward online and toward as-a-service--because we think this is where the future is going to be.

As a company, we think these situations are opportunities where strong companies get stronger. For us to get stronger, we need our partners to get stronger. And we will continue to support them with innovation--we just introduced new families of PCs and printers. We will support them financially. And we will support them with our programs. And we are looking at how to evolve our programs, so they're adapted better to the situation we are living in. And again, our goal is to become a stronger company, and for us to become stronger we need our partners to get stronger.