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Amid Layoffs, HP Inc. Needs Another Revenue Stream

Amid accelerated layoffs, HP Inc.'s latest financials prove that the PC and printer company needs a third leg -- in a growth market -- to stand on.

Indeed, HP Inc.'s first quarter revenue dropped 12 percent. Within the company's two primary markets, PC revenues dropped 13 percent and printer revenues fell 17 percent vs Q1 the previous year. Even ink and consumables -- the lifeblood of HP's printer business -- fell 14 percent. The amazing part of those bleak numbers: HP Inc. results, delivered yesterday, met Wall Street's very bleak expectations.

And that's exactly the problem. Generally speaking, HP Inc. does not compete in growing markets. Instead of pursuing blue ocean opportunities, the company seems fixated on shrinking markets. A case in point: During last night's earnings call, CEO Dion Weisler said the company recently unveiled new innovations at the CES conference in Las Vegas -- including the award winning EliteBook Folio -- the world's thinnest and lightest business class notebook.

It's great to see HP Inc. delivering strong PC products. But seriously: How the heck is HP Inc. going to generate sustainable growth?

Managed Print, 3D Printing & A3 Copiers

Of course, there are some bright spots within the company's business. Chief among them is managed print services -- where new business total contract value was up double digits year-over-year, and renewal rates remained strong, according to CFO Catherine A. Lesjak.

Also of note: HP Inc. is preparing 3D printer launches and an A3 copier launch. Referring to those efforts, Weisler said:

"We remain on track with both our 3D printing launch as well as our A3 product lineup. We're excited by those opportunities. We recognize that the A3 copier space is probably a shorter-term upside market. It's a $55 billion market where we have a very low market share, as you well know. And we're excited about entering that space. 3D printing today is still relatively nascent as a market, but we believe we have groundbreaking disruptive technology that will address both the production and prototyping space of the commercial markets. We're on track. I was recently in Barcelona doing a review with the team where it was developed, and there's some super-exciting stuff going on in here, and we look forward to unveiling it at the appropriate time."

Managing Costs, Not Growth

Still, the overall message from HP Inc. involved tight cost controls and an accelerated layoff plan. Instead of cutting 3,000 positions over three years, the company will complete those cuts in 2016.

Tight channel inventory management also is in place, added CFO Lesjak:

"We tightly manage our channel inventory overall and we are in a healthy position, but we also manage our channel inventory very carefully from an aged perspective. I think Dion at one point gave an example of or alluded to aged channel inventory as rotting fish, and we're not in that situation. We are actually in a very nice position. That may be different than some of our competitors out there, where we're hearing that there is still a fair amount of channel inventory. So I think we're well positioned."

Listen to the overall earnings call, and you may even notice that the words "software" and "cloud" were never mentioned. Not once. And therein resides the problem: HP Inc. remains a hardware-driven company in commoditized markets that are shrinking. 3D printing and the A3 copier lineup may help to offset those challenges a bit later this year.

But overall, I'm not sure whether HP Inc.'s product portfolio can fuel dramatic growth for the company and its channel partners.

PS: Sister company Hewlett Packard Enterprise will deliver results in March.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.