What Should HP Do?

The news out of Palo Alto isn’t good.

Now, that won’t exactly come as a shock to most observers, as HP has been flat for some time. But CEO Meg Whitman yesterday acknowledged that the pain will intensify before the patient recovers, telling analysts that revenues would fall 11 to 13% over the next fiscal year.

In real dollars, that’s a drop of up to $16.5 billion, roughly the size of Jabil Circuit, or, the companies ranked No. 15 to 50 on the CIRCUITS ASSEMBLY Top 50.

Worse, Whitman said not to expect a turnaround before 2016.

Give Whitman credit for honesty, although keep in mind that, by setting the bar low, she raises the prospects for future knighthood should HP’s recovery come faster.

But what Whitman did not disclose is what, exactly, HP’s prescription for saving itself is. In all likelihood, that strategy will focus on paring of the company’s core product lines — servers, PCs and printer. Perhaps it will follow IBM’s lead and sell or spin off its PC unit, an idea that the company itself has floated in the past.

It says here, however, the company HP should be emulating is Apple. HP once was as respected as any business in the tech industry, admired for its stable and forward-thinking leadership, its commitment to research and development, and a manufacturer of the top rank. Today, that path is more remembrance than reality. The company has long since moved away from its manufacturing roots, outsourcing almost anything it could. (Foxconn has been a major beneficiary.) What HP, along with Dell and many of the other big PC makers, is learning the hard way is, you give away the family jewels at your own peril. By offloading its fixed assets — and that includes its people — HP also gave away its competitive advantage. It’s become a parody of itself, a business confined to imitation, not innovation. Sure, HP has to retool, but it should do so by going back to its roots, much like Apple did when Steve Jobs was welcomed back after 11 years wandering the desert.

“Invent” was a favorite marketing campaign of HP. The company should practice what it preaches, bring design and manufacturing back in-house, and strive to be the technology leader it once was. It can be done. But HP has to be committed to the task.


Thoughts for the New Year


I thought I would post a few short thoughts as the new year begins. Here it goes:

1. A billion hours ago the Stone Age was the future, a billion minutes ago Caesar ruled Rome, a billion seconds ago Jimmy Carter was the US president, a billion passives ago you took your last break (about 4 hours ago). As exciting as the latest quad core microprocessor is, the largest number of components that we assemble is passives, approaching two trillion per year. That is about six billion a day. If you lined up all the seven billion people in the world, each year you could give every man, woman and child several hundred passives from all of the passives that are produced. If two trillion passives (assume 0402s) were lined up end to end they would circle the earth 50 times!

2.    Schools in Indiana are no longer required to teach cursive writing. Keyboard skills are considered more important. Yikes! I’m all for keyboard skills, but I want my grandkids to be able to write in cursive. If not, how do they write their names? Are we less than a generation away from people writing their names as an “X?”

3. Thoughts on lead-free solder reliability in long-term mission critical environments from a NASA study:

“Test vehicles assembled with lead-free materials (notably tin-silver-copper) exhibited lower reliability under some test conditions.”

Some people would respond to this statement by saying, “I told you that lead-free solder was no good.” However, another way of stating the results would be, “Lead-free solder performed better in more tests than tin-lead solder did.” The ratio, by my count, was about 5 to 3 in favor of lead-free. However, I agree that lead-free is not ready for mission critical (>20-year) service life. The main reason being that, in some cases, when lead-free solder joints failed in these types of studies, the results were much, much worse than for tin-lead solder joints. These failure modes need to be understood and addressed. In addition, tin whiskers and pad cratering are looming problems in these, mission critical, long service life quadrant D applications as discussed in the US Navy’s Manhattan Project.

4. I had not planned on reading Steve Job’s biography , as I thought I knew quite a bit about him from reading recent articles in Forbes, Fortune and Business Week. But I went ahead and downloaded it to my Kindle anyway. This work by Walter Isaacson is a masterpiece. To share one tidbit from it that relates to those of us in electronic assembly:

In almost all cases electrical engineers first design the circuits that perform the functions of some device like a mobile phone or tablet. Mechanical Engineers are then left to fit the circuits into the “box.” (Hence MEs are often called “box stuffers” by EEs). Jobs completely changed this approach. He told the engineering team how he wanted the product to look and function first, then they had to determine how to make it work that way. I’m convinced that only through this approach are the revolutionary design concepts that Jobs and Apple came up with possible.

The book also points out his many flaws (e.g., Jobs would regularly park in handicap spots; the author reports several times that Jobs just didn’t think the rules applied to him, etc.). Another interesting thought (read it and see if you agree with me) that if Steve was not Paul Jobs’ adopted son, Apple would have never happened.

Dr. Ron

The Genius of Apple’s Supply Chain

A massive competitive advantage for Apple is its operations function. Specifically, its supply chain operations. Apple has a regimented core business vision — built around their supply chain.

“They have a very unified strategy, and every part of their business is aligned around that strategy,” said Matthew Davis, a supply-chain analyst with Gartner (IT), who has ranked Apple as the world’s best supply chain for the last four years, as quoted by Bloomberg/BusinessWeek in a recent story on same.

It’s well known that recently Google paid $12 billion for Motorola’s cultivated, global supply chain. That fact, combined with observations about the genius of Apple’s supply chain — genius which is apparently 90% perspiration and 10% inspiration, by the way — make it clearer why a supply line could be worth so much money.

This is the world of manufacturing, procurement, and logistics in which the new chief executive officer, Tim Cook, excelled, earning him the trust of Steve Jobs. According to more than a dozen interviews with former employees, executives at suppliers, and management experts familiar with the company’s operations, Apple has built a closed ecosystem where it exerts control over nearly every piece of the supply chain, from design to retail store. Because of its volume—and its occasional ruthlessness—Apple gets big discounts on parts, manufacturing capacity, and air freight. — Adam Satariano and Peter Burrows, reporters for Bloomberg

The bottom line, according to Satariano and Burrows, is that Apple plans to double spending on its supply chain, to $7.1 billion — continuing its focus on streamlining and controlling manufacturing.

Relative to Google’s $12 billion to procure part of a new one, once again it seems to make financial sense to invest in current accounts rather than invest in new.

Excellent article on Apple’s supply chain can be found here.

Why Cook Won’t Change Apple’s EMS Recipe

New Apple CEO Tim Cook will make no changes to its outsourcing recipe.

That’s my take, based on an assessment of the iPhone maker’s balance sheet.

Cook, of course, has been named to succeed Steve Jobs, who has been fighting a particularly deadly form of cancer.

Foxconn is telling reporters the change at the top won’t impact the companies’ relationship. I couldn’t agree more. It can’t. Much like the US-China relationship, Apple needs Foxconn, and Foxconn needs Apple. Apple carries some $11 billion worth of outstanding off-balance sheet commitments for outsourced manufacturing and components, plus another $1.6 billion committed to manufacturing equipment, presumably for the Foxconn-run plants.

Why would Apple commit all that cash to equipment purchases, when it does not have the internal capacity to build product itself? Because it owns the machines in the Foxconn plant. Although Foxconn has moved much of its Shenzhen campus operations inland to take advantage of lower labor costs, rumor has it the site remains open solely for the benefit of Apple. Apple is said to pay Foxconn roughly $6 for every finished working assembly.

With demand for Apple’s iPads, iPhones, Macs and iPods cresting, it couldn’t leave if it wanted to. If anything, Foxconn is in better position to absorb the loss of Apple than the other way around.

The Tao of Steve

What will Apple look like after Steve Jobs? And will it remain as successful as it has been over the past decade?

I’ll say it now: No.

Apple won’t sustain its success because its success is unsustainable.

This is a company that has achieved market share as high as 93% for some devices, and continues to dominate in the uber-competitive consumer electronics space. This is a company that has gone from being so close to the grave that none other than rival Microsoft ponied up $500 million just to keep them alive in order to fend off anti-trust regulators (think Bill Gates regrets that decision?) to being the world’s second-most valuable company.

There clearly is something associated with Apple that Sony, Samsung, Dell, HP and legions of other companies haven’t been able to identify, let alone bottle. But even if Steve Jobs were to live to 90 (he’s 56 now, and in failing health), Apple will slide because gravity has this funny way of bringing everything back to Earth.

It doesn’t matter who takes over for Jobs or what he or she does (or doesn’t do). Apple will always be Apple, but it won’t always be the reigning king of consumer electronics.