Printing’s Not Dead: The $35 Billion Fight Over Ink Cartridges

The HP 63 Tri-color ink cartridge retails for $28.99 at Staples. Stuffed with foam sponges drenched in a fraction of an ounce of cyan, magenta, and yellow dyes, this bestseller, model No. F6U61AN#140, can spray 36,000 drops per second in the Envy printers made by HP Inc. The 63 Tri-color cartridge may not look like much, but that ink, which needs a refill every 165 pages, is ridiculously valuable. HP’s printing supplies business garnered $12.9 billion in sales last year, and the printer division overall represented 63% of the company’s profits. Here in the year 2020, proprietary ink cartridges remain important enough to spark a fight worth at least $35 billion.


With backing from Carl Icahn, Xerox has been trying to buy the much larger HP for what the target says is a laughable bid. On Monday, HP Chief Executive Officer Enrique Lores moved to protect his hold on F6U61AN#140 and its toner brethren. During his report on the company’s latest quarterly earnings, which met Wall Street’s expectations, Lores announced that HP would triple its share buyback program to $15 billion over three years as part of an effort to fend off the hostile takeover. While Lores said he was open to exploring new merger frameworks, he dismissed the size and technology of Xerox Holdings Corp. and stressed that HP already had a winning strategy.

“I am pumped up,” the CEO tells Bloomberg Businessweek in an interview shortly after the earnings call. “We have a great plan.”

Lores, who’s spent three decades at HP, has survived his share of existential threats. Before he took over as CEO in November, he’d led the printer business to a streak of revenue gains after even his bosses had left it for dead. But last year also saw HP’s share price fall by a third from a February high. The company announced thousands of employee layoffs as it struggled to compete with cheaper ink cartridges from Asia. That public floundering has left HP freshly vulnerable to activist investors such as Icahn, who owns 11% of Xerox and 4% of HP. Icahn snarked in December that HP appears in danger of following “the road to the graveyard.”

For decades, HP and Xerox ranked among the most powerful forces of invention in Silicon Valley. Now they’re arguing over who has the superior vision to acquire competitors, jettison workers, and jealously guard the tech specs of their aging intellectual property.

It’s unclear whether either company’s leaders will be able to repeat the miracle Lores’s team managed a few years back. Consumer and office printers still churn out an estimated 3.2 trillion pages a year, according to market researcher IDC, but Toni Sacconaghi, a tech analyst at Sanford C. Bernstein, warned in a client note that the “traditional printing and copying business is slowly collapsing.” Recalling the image that critics deployed in 2002, when HP tried to acquire its way out of trouble in the PC business by buying Compaq, Sacconaghi wondered if the company is facing another deal that looks an awful lot like “two garbage trucks colliding.”

Among the HP faithful, however, the response is, yeah, well, waste management makes a ton of money, too. “Garbage trucks are still really big,” says a longtime HP printing executive who recently left the company and spoke on condition of anonymity, like many sources in this story, because of nondisclosure agreements and fear of reprisals. “The industry may not be sexy, but it’s not going anywhere.”


It’s tough to overstate how strange it would have seemed a half-century ago to watch Xerox and HP fighting over who can pinch pennies the best. These were temples of engineering. Xerox’s Palo Alto Research Center laid the groundwork for software innovations later “borrowed” by Steve Jobs and Bill Gates. (Think graphical interfaces.) HP’s Bill Hewlett and Dave Packard pioneered groundbreaking circuits, calculators, LED screens and, of course, the very idea of starting up a company in a garage, which they did in 1939. HP eventually codified its founders’ ethos as the “HP Way,” a mission statement centered around respect for employee creativity and the development of innovative products in a wide range of fields.

By the 1980s, a string of advances in robotics led to HP’s line of inkjet and laser printers, which might as well have been printing money. In the three decades following the company’s introduction of the desktop laser printer, in 1984, the division wrangled in well over a half-trillion dollars of revenue. HP dominated the market by reinvesting billions in printhead physics, color science, and other feats of engineering. Inkjets today are synonymous with frustrating paper jams and empty trays, but their intricate gears and high-precision nozzles were far beyond what many competitors could muster. The devices had such monstrous sales potential, they were given codenames like Godzilla and Ghidorah (Godzilla’s hydra foe).

Then there was the ink. The solvents and pigments HP scientists concocted were so overpriced that the company could afford to sell its hardware at steep losses and make it up in ink and toner sales. The 1,000-liter vats of ink at HP’s manufacturing hubs might as well have been filled with Dom Pérignon.

This was the HP Lores joined as an engineering intern in 1989. He was there when the company’s products became fixtures of a new generation of digital home offices—and, a couple decades or so later, when they began to suffer in the shadow of the iPhone and Gmail. By the late aughts, printers looked like a relic of a bygone era, and then-CEO Meg Whitman spun off the PCs-and-printers division as HP Inc. in 2015. She kept artificial intelligence, cloud, and consulting—you know, the sexy divisions—for herself under the banner of Hewlett Packard Enterprise Co.

“We all thought printing was dead,” says a former vice president who worked closely with Lores. “HP was running the same playbook since they invented the category.” Likewise, Wall Street and the press broadly assumed the old hardware was doomed and Whitman was smart to cut ties. Pretty much the opposite happened: Inc. and Microsoft Corp. crushed Whitman’s cloud services, and frumpy old HP Inc.’s stock climbed 67% through the end of 2018. “Not many people thought we could grow, but we proved everybody wrong,” Lores says.

As the printer team’s morale improved, Lores ordered up improvements to his core lines, such as adding more smartphone and cloud connectivity; a subscription ink service, which now has 6 million members; and efforts to develop 3D-printed goods ranging from clothing to food. Between 2016 and 2018, sales at the PC business shot up 26%, and print sales rose 14%. Mostly, though, Lores and Dion Weisler, the boisterous Australian who preceded him as CEO, focused with a singular zeal on cutting costs throughout their PC and printing supply chains.

Alex Cho, the president of HP’s personal systems business, says the company was maniacal in that pursuit. “I remember a review where one person said, ‘We only have these items that could save us $1.50.’ I was like, ‘What about [the parts] under $1.50?’” he says. “We needed a culture of going after that stuff.”

Far from the grand vision of the HP Way, the executive team spent a significant portion of its research and development budget on stopping product lines from wasting microscopic amounts of ink, or on ways to make its printers less compatible with other companies’ cartridges. Accounting tricks weren’t out of the question, either. Two former printer division employees say the company often raised hardware prices near the end of a fiscal quarter to make short-term losses from printer sales look less severe. An HP spokesperson says the company doesn’t prevent the use of refilled cartridges that have a genuine HP chip, and that the company manages its printer hardware and supplies “based on a wide variety of factors.”

An obsessive focus on quarterly margins put a low ceiling on the company’s ability to plan ahead, says the longtime HP printing executive: “What HP now thinks is innovation is overwhelmingly incremental vs. disruptive. They squeezed the lemon to the last drop.”

When asked about these charges, Lores invites Bloomberg Businessweek to visit HP’s research labs to witness his company’s commitment to revolutionary R&D. While he said on the Feb. 24 earnings call that “reducing cost is a neverending task,” in the one-on-one interview, he pledges that these cuts “will not jeopardize investments in long-term technologies.”

In February 2019, HP projected its first decline in quarterly printer supplies revenue in years. This wasn’t some isolated issue. A critical mass of fed-up customers finally seemed to be sick enough of HP’s high cartridge prices to try generic ink resellers or, in some cases, counterfeiters. Weisler vowed to fight off the other ink producers, and later, the company said it would stop discounting certain pricey printer lines and make sure the deep-discount models couldn’t use non-HP ink.

The company was already shipping certain staffers to less costly offices in Texas and Idaho, where they had to accept lower salaries, and was in the process of laying off 5,000 employees, roughly 9% of its workforce. Some revered engineers who’d stuck it out since the good old days took buyouts or pay cuts. A couple of quarters later, Weisler was out, too. Lores’s first act as incoming CEO was to begin dismissing as many as 9,000 more employees.

In swooped Icahn and Xerox, the 113-year-old company struggling to maintain its photocopier sales. In 2018, Icahn had used his position as a leading Xerox shareholder to urge the ouster of the company’s CEO and scuttle its attempt to sell itself to Fujifilm Holdings Corp. At first, Icahn and John Visentin, Xerox’s new CEO, just wanted some kind of expanded partnership with HP. 

Most printer companies hold at least a few patents that all their rivals need, so these kinds of frenemy deals are fairly common. But when one executive suggested that Xerox, at one-third the size of HP, should just try to buy the company, Visentin’s team fixated on the idea. Such a deal could create a more enduring superpower in a printing industry that’s about due to thin out. Icahn, infamous for loading up struggling companies with debt and selling off valuable assets for short-term gains, was an easy sell, too. Visentin and Icahn declined to comment.

Last November, Visentin proposed a cash-and-stock deal valued at $22 a share, fueled by colossal bank loans. Icahn lobbied Lores to make the deal or variations on it, including letting HP buy Xerox instead. (He’s since said Visentin would have to run the combined business.) Lores didn’t bite. He felt the offer significantly undervalued HP and would saddle both companies with billions of dollars in debt. Visentin launched a proxy battle for control of HP’s board, nominating a slate of directors who’d favor the deal. He also raised Xerox’s bidding price to $24 a share, or $35 billion. Xerox has personally courted key HP shareholders such as asset manager Dodge & Cox.

Over the past few months, members of Lores’s team have sought to quash the deal by promising big cost savings and shareholder returns. Lores’s latest counteroffer to shareholders suggests his management team is hellbent on keeping control of HP. “They’ve planted their flag,” says Sacconaghi, the Bernstein analyst. “But printer supplies, the majority of the company’s profits, have gone down for the last three quarters. HP said it’s going to get better, but if the problem persists, it’s going to make it hard for HP to meet their targets.”

To recap, a onetime innovation factory now finds itself so focused on the coming year’s results that it’ll be hard pressed to return to making serious bets on the future. In other words, HP appears trapped in a classic innovator’s dilemma. The company’s executives vehemently disagree. Chief Commercial Officer Christoph Schell says HP’s forays into 3D printing are as ambitious as anything it’s attempted. “I don’t think we have an innovator’s dilemma,” he says. “We are trying to disrupt how mankind does manufacturing,” which, the company has said, is a $12 trillion industry.

So far, the company’s big investments are in machinery that can “print” production-grade plastic and metal components, technology that has won over corporate customers including GE Transportation, Volkswagen Group, and BMW Group. Last year, the advanced printing group manufactured more than 18 million parts, a tally set to double this year. It’s a sign of rapid growth in 3D printing, but also a scary reminder of how much further HP’s effort has to go to catch up to its paper-and-ink business.


Xerox has only made it more difficult for Lores’s team to find its HP Way. Several people familiar with the matter say the past year’s pressure to revive printer earnings has made futuristic products less central to the team’s focus. “Carl Icahn could probably buy HP himself, lay off more employees, and shut down R&D, and just make all his money back by continuing to sell ink and toner,” says a former HP printing executive who was involved in acquisitions.

At the moment, HP and Xerox seem unlikely to regain anything resembling their 20th century R&D aura. Tolga Kurtoglu, CEO of Xerox’s research center, says it’s investing significantly in 3D printing, AI, and data analytics, including ways to predict when Xerox hardware will need maintenance. “But that doesn’t change the fact that paper is being used less and less,” he acknowledges.

When Lores joined HP in 1989, its annual report that December, signed by a 77-year-old Dave Packard, talked up the major challenges the company faced in the years ahead but also gleamed with optimism about the ideas on the horizon. “New products are the lifeblood of our company,” the report read. Today old products are arguably the lifeblood of the company. In 1989, 10% of HP’s revenue, about $1.3 billion a year, went to R&D spending. Today the company spends just 2.6% of sales on R&D, or $1.5 billion, a tiny fraction of what Amazon, Apple, and Google invest in their futures.

Lores, HP’s first lifer CEO in more than two decades, says it’s unfair to compare the company he joined in 1989 to the “much narrower set of businesses” he runs today. Still, he argues that the spirit of Bill Hewlett and Dave Packard’s corporate culture has a lot more in common with his own strategy than nostalgia might suggest. After becoming CEO, he took his first meeting in Packard’s old wooden garage at 367 Addison Ave. in Palo Alto, now a historic landmark with a sign that dubs it the birthplace of Silicon Valley. “Bill and Dave were extremely focused on results,” Lores says, “driving significant innovation but staying cost-competitive.”

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