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Hewlett-Packard plugs the gap – Extended alliance with Canon brings MFP hardware to bolster expanding Hewlett-Packard MPS offering

Issue #0925/1 – Making the most significant announcement in some time, Hewlett-Packard revealed plans earlier this week to enable a more thorough Managed Print Services (MPS) offering – through an extended alliance with Canon for use of MFP hardware, which finally plugs the yawning gap in Hewlett-Packard’s printer and MFP hardware line-up, and the creation of a range of on-board MFP solutions designed to streamline and enhance the digital workflow in the enterprise.

With Hewlett-Packard’s year-on-year revenues having been on a downwards slide for three quarters now, and Imaging and Printing Group (IPG) revenues showing negative growth every quarter for a full year, the company must be concerned about the state of play. In particular, total hardware unit shipments were down by 23% in the latest quarter reported on top of a fall of 27% in the previous quarter, 33% in the first quarter of fiscal 2009 and 2% in the last quarter of fiscal 2008.

Year-on-Year Growth

Revenue and Shipments – Hewlett-Packard

Within this, it is the business printer shipments that have suffered most strongly, with a year-on-year unit loss of 42% in the last quarter. Also of huge concern is the loss of revenue from supplies – the last element to retain positive growth a year ago.

Clearly, one way that Hewlett-Packard can bolster both revenues and (business) hardware shipments is to expand the company’s MPS capabilities and coverage – but, this is a long-term strategy that requires considerable internal financial support in the short- to medium-term.

This is because Hewlett-Packard is not able to show MPS earnings until the Statement of Work has been signed off by the customer (the action that triggers invoicing). Therefore, we won’t see the benefits of these latest developments for quite some time to come.

An MPS pre-sales assessment can take a year to undertake and then the implementation stage could be a further year – but with staged sign-offs on multiple Statements of Work in each contract. So, what it means in practice is that any hardware installations that occur within the implementation phase initially must be financed internally by Hewlett-Packard until that Statement of Work sign-off allows the company to begin billing the customer and actually pulling in the revenue.

If these new and expanded offerings are successful, we should begin to see some financial benefits showing in the quarterly results for the company’s second or third quarter of 2011.

While this announcement is groundbreaking for Hewlett-Packard, it is actually nothing new in the industry! Hewlett-Packard is essentially playing catch-up on the solutions side and merely shipping in third-party hardware to plug a gap in its own hardware range.

HP PortfolioHewlett-Packard business hardware portfolio

Having said that, the alliance with Canon does, at least, genuinely give Hewlett-Packard access to the widest range of printer and MFP hardware available in the industry. Xerox previously held that position for business hardware but, as Xerox does not have a range of liquid inkjet devices for low-end business and consumer use, the company cannot claim leadership any more except insofar as all Xerox hardware is Xerox branded.

There must be potential for confusion among Hewlett-Packard customers when they see some hardware with Canon branding being installed and Canon personnel servicing the devices – all Canon hardware sold by Hewlett-Packard will be installed, maintained and serviced by Canon.

Although not finalised yet, the Canon models available to Hewlett-Packard will span the range from office MFP to production – essentially filling the gap between the Edgeline-based inkjet MFPs and Indigo production printers.

This alliance allows Hewlett-Packard to enter negotiations for MPS contracts with prospective customers in the knowledge that there is no printer or MFP hardware requirement that cannot be fulfilled, from business inkjet to high-volume production – a strong position to be in.

As mentioned above, any Canon hardware that is required within a Hewlett-Packard MPS contract will be installed, maintained and serviced directly by Canon, so there is no need for Hewlett-Packard to involve itself with technology or product training on the new hardware. This will certainly save money for the company but adds a level of complexity to the whole financial logistics issue.

In fact, the financial logistics could prove to be incredibly complex because, while Hewlett-Packard will own the account, there is not only Canon’s involvement to be compensated but all Hewlett-Packard’s IPG hardware and supplies also have to be accounted for with compensation made for its usage.

Furthermore, additional complication arises from the fact that Hewlett-Packard’s EDS arm will be a major sales channel for MPS contracts and will continue to own contracts that it sells.

Wisely, Hewlett-Packard has created a new business unit, Managed Enterprise Solutions (MES) to handle the expanded MPS capability, which draws into it several elements of the company that used to sit separately or in other business units. This will help to maximise efficiency and logistical integrity.

Hewlett-Packard’s involvements with MFPs go back about a decade to the original MOPier but even the more recent Edgeline MFPs have not enabled Hewlett-Packard to break into the kind of enterprise MFP market enjoyed by its competitors. This must partially be due to a lack of experience in the copier field. Whereas Kyocera made the wise and bold move to purchase Mita, and we saw the merger between Konica and Minolta following the acquisition of QMS by Minolta, Hewlett-Packard did not make any acquisition moves towards the copier end of the hard copy market. This has to have been an error in judgement and one that Hewlett-Packard has paid for dearly over the years.

On a side-note, the extended Hewlett-Packard/Canon alliance leaves Lexmark even more out in the cold than ever, with no solid MFP to production offering, despite its desire to be an enterprise player!

Turning to solutions, Hewlett-Packard has introduced nine new software solutions of its own:

    • HP Exstream 7.0
    • HP Social Services Case Processing Accelerator
    • HP Courts Case Processing Accelerator
    • HP Records Processing Solution for Law enforcement
    • HP Automotive Credit Application Accelerator
    • HP Manufacturing Time Sheet Collection Accelerator
    • HP Account Opening Accelerator for Communications, Media and Entertainment
    • HP Insurance Claims Transformation

In addition, Hewlett-Packard is partnering with a range of third party solutions providers such as Equitrac, Kofax and SafeCom.

While all of this is impressive, it only represents ‘catch-up’ potential for Hewlett-Packard, bringing the company more into line with other manufacturers that have been working with these partners for years.

Taking all of the elements into balance, regardless of the fact that these announcements largely only represent gap-filling and catch-up operations, these developments nonetheless place Hewlett-Packard in a very strong position to strengthen and expand the portfolio of MPS contracts already in place. Already positioned close to Xerox for MPS capability and market presence, Hewlett-Packard can now claim to be able to compete on a level playing field.

If we were to look for weaknesses, one area that could well be responsible for some potential customers looking in Xerox’s direction instead of Hewlett-Packard’s could be the fact that Hewlett-Packard is targeting hardware replacement within MPS contracts, whereas Xerox is taking a more measured approach with the offer of managing and supporting the customer’s hard copy fleet as it exists, in all its multi-vendor glory, if that is what the customer wants.

While there is nothing wrong with, and indeed there can be advantages to be gained from, a single-vendor environment, it is not entirely necessary to churn a fleet around instantly. There may benefits to be gained from running existing machines to end-of-life, replacing them with own-brand devices only at that point. In all probability this would be a lower impact transition for the customer, a faster transition for the vendor and one that would allow billing to begin at an earlier stage of implementation!

No doubt this new positioning from Hewlett-Packard can only be good for the industry, and for the enterprise environment as a whole because it provides clearer competition for Xerox than existed before and will help drive further development of solutions, services and management products.

As the extended alliance between Hewlett-Packard and Canon was only agreed in the last week or so of July (seven weeks before the announcement) – discussions between the two companies could well have been directly related to the worsening economic situation. Canon has acquired a new sales channel for its hardware, while Hewlett-Packard capitalises on high quality hardware that it does not have to develop and that presents a broader platform for its software solutions.

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