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Friday, July 29, 2005

HP is less stupid now (HPQ)

**Update: I've edited this post to clear up the confusing language. (Maybe we should consider the "Save as Draft" function until we've proofed the material, eh? - ed.)**
Sometimes companies will tell you how dumb they are (were). Take HP's recent announcement to unwind its partnership with Apple to resell the iPod. The coda to the divorce is that HP can't sell a competing product in the market until Aug 2006.
This divorce is actually a good thing, but it only gets HP back to ground zero and demonstrates how badly their strategy was. This partnership is an illustration of why Fiorina was better at garnering media attention than she was at building a business that makes a profit in the long term. Why?
Well, let's see, if Apple's iPod strategy was to use the media player to attract PC buyers to their computing platform, then every converted Apple buyer is one less PC buyer. Good thing HP doesn't sell PCs or laptops...oops. Therefore, HP agreed to actively undercut their own technology platform by distributing Apple's Trojan horse. The best part? It's reported that HP didn't even make much margin from their iPod sales. This is an amazing illustration of Really Bad Strategy (TM). I know what Fiorina was Trying To Do (TM) -- she wanted to show consumers that HP "got" the new digital media world and demonstrate that knowledge by allying with the best media player in the market. What she didn't understand is that the whole "building a connection with consumer" market B.S. touted by marketing consultants doesn't necessarily mean you're going to make a profit. Selling proprietary products for more than it costs to make them does.
Interestingly, HP has shown signs of strength recently. I think this comes from the Turn Around at HP. The unwinding of the above partnership demonstrates they have leadership that now understands Basic Strategy 101. And we know that investors love a turn-around story. Unfortunately, people don't understand how long or arduous turnarounds really are. As a kicker, I wonder if HP will see additional competition in its remaining core market: Printers. But I'm not saying anything new here, just staying the course.


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