Early in 2008, just days before IBM agreed to shutter its printing business to focus more on enterprise software, Hewlett-Packard made what might have appeared to be a bold step in the other direction. It bought Exstream Software, a fast-growing printing business based in Lexington, Kentucky.
HP kept the lid on the price it paid for Exstream, but it was estimated to be close to $1 billion based on a deal just six months prior, in which the private equity firm American Capital Strategies bought a 60 percent stake in Exstream for $548 million.
HP’s willingness to stake so much on Exstream can be best understood by viewing Exstream not so much as a printing business, as a company that exists at the intersection of printing and enterprise software, two sweet spots for HP that will now become more closely joined to create new business opportunities in the future.
Exstream specializes in software to print and personalize a range of mass-produced business documents like brochures and financial reports for enterprise customers including banks and insurance companies. Although this is not a brand-new business for HP, the company said Exstream’s technology makes it easier to print large volumes of personalized documents where the basic format is the same but the contents of each individual document are different. Common uses for this sort of personalized printing include 401(k) statements and up-to-date loan applications containing the borrower’s most recent credit score.
HP, which is already the market leader in so many traditional printing businesses like inkjet printers, said the acquisition of Exstream should make it the market leader in this emerging area of personalized printing known as VDP (Variable Data Publishing ).
In that sense, HP is really just extending its push into the high-margin enterprise software space, in much the same way as IBM, while capitalizing on its longstanding strength in printing and imaging. Unlike IBM, which neglected its printing business so much that when it finally decided to exit, it fetched only $725 million for the printing division, HP has long regarded printing as a key area of innovation and has steadily invested in it.
Print Is an HP Cash Cow
Most analysts say the Exstream acquisition is a smart move for HP, whose printing and imaging business remains strong, but is not growing as fast as some other areas of the company. In the fourth quarter of fiscal 2007, for instance, HP’s imaging and printing division generated revenues of $7.55 billion, compared with total company revenues of $28.23 billion. During the fourth quarter of 2006, the printing business’ total $7.23 billion of revenue constituted a larger portion of the $24.56 billion total company revenues.
“Printing is still a cash cow for HP, but it is not as big a part of the company as it used to be,” said Shaw Wu, an analyst with American Technology Research.
Rob Enderle, a technology consultant with the Enderle Group, suggests that, unlike other printing assets such as inkjet printers and cartridges, the online document editing and sharing that Exstream helps enable will continue to have growth potential even if the world moves toward that proverbial paperless office in which documents are managed on computer screens and not printed on paper as often.
“We’re not paperless yet,” Enderle said, “but the market is starting to turn.”