Call him Mr Nice Guy. One can’t help wondering how it is possible to retain a sense of humanity when you are steering a company with a $60 billion ($US38 billion) turnover through a process of constant change. But somehow Lew Platt, CEO and 31-year veteran of Hewlett-Packard, manages at least to give an impression of calm.
No only that, he even speaks kindly of his competitors. And when he talks about his staff, it is with a sense of affection. Give people a sense of being partners in the business, he says, and they will reward you with trust and loyalty.
Eh? Can this man be real? We are talking about the computer industry, after all. We are talking about the devil incarnate, Bill Gates, and his arch enemies, Scott McNealy and Larry Ellison. We are talking about an industry which destroys its creators as fast as it turns them into idols.
Speaking during a 24-hour stopover in Auckland after opening HP’s new assembly plant near Sydney airport, Platt speaks expansively about his time at HP. When he joined the company, HP’s income was supplied purely by its instruments and measurement business, he says. Now more than 80% of the company’s income is derived from computing.
Coincidentally, 30 years ago — one year after he joined — HP introduced its first computer, one of those monsters with laughable capacity by today’s standards. It had 8Kb of memory. Talk to young people today about kilobytes and they won’t understand you, says Platt. “Young people have never heard of the term kilobytes in that way,” he says. Today it’s all megabytes and gigabytes and terabytes.
Platt says one of the astounding things about the computer industry is the way it has introduced a new economic model based on continually lowering prices year after year. “We don’t raise prices, we lower prices,” he says. No other industry in the history of the world has managed that. “This industry is still capable of delivering twice as much capability every 18 months, and that won’t change five to 10 years ahead.”
Platt reckons that computer technology will continue to increase in power for the next 30 years in tune with the Moore’s Law dictum on the rate of change. “We will see profoundly powerful computing, with pocket-sized machines that a little while ago would have been in the mainframe class. This power will have an impact on every area of our lives — in the way we work, shop and get our entertainment.
“Consider this interview. In the future you will use a microphone like this,” he says, indicating the television microphone attached to his shirt. “You will use a hand-held computer, and out will come a complete transcript. It’s not that far away.”
The only factor delaying such technology is computing power, but Platt believes such power will be achievable in only four to six years. In fact, he sees an era of incredible growth and change ahead. That change won’t occur only in computing. HP is also involved in biotechnology, and Platt sees a time when engineers will create bugs that eat garbage and chemical computers that mimic the way we think. “The brain is a wonderful relational computer,” he says. “It’s pretty good at creating relationships and conclusions. Computers can’t do that today.”
Closer to the present, Platt says HP’s partnership with Intel on the next--generation 64-bit Merced chip is well on target. The first public disclosure on Merced will be made shortly at the Microprocessor Forum in the US, he says.
In the meantime HP is looking at expanding growth by developing into new areas. Platt acknowledges that a few years ago he made a point of warning investors not to expect 25%-plus growth in the years ahead. Sure enough, growth dropped to single digits for a short period but is now rising again. Over the long haul, HP expects growth to be more like 15% and up, he says. “Keep in mind that 15% on $USS40 billion turnover is $US6 billion — and that’s the size of one Sun Microsystems.”
One key area of opportunity is in the printer business, says Platt, at the same time acknowledging that competition is increasing and HP’s laser business has taken a hit in recent times. He is particularly bullish about the inkjet market. “We are targeting the photo market,” he says. “And a large part of the Web is about distribution and printing.”
Platt sees a great future for “mopier” — multiple original print — technology as consumers use printers to output only those documents they want to read, rather than entire texts. Currently computers handle only 2% of all printed output, he says. “We have a huge opportunity to expand the market.”
On the PC front, Platt’s ambitions are clear: HP aims to be number one by the end of this decade. In the US he has predicted that a troika of computer makers — presumably HP, followed by Compaq and Dell or IBM — will eventually head the world’s PC market, and he is not averse to considering going direct if the market demands such a move. As for the troika, he now acknowledges he doesn’t know which or how many computer companies will be most likely to succeed — but they will be few in number.
In the meantime going direct is not an option. Current distribution and dealer channels still have a good opportunity to add value, he says. “We’ve told our partners they will have to continue to work to add value in the consumer market. If, over a long time, they can’t add value, we will have to change our business model.”
Asked how he can continue to differentiate his PC line when it has become a commodity business, Platt blanches: “Commoditisation — we hate that word at HP,” he says. “It implies we have no way to differentiate.” He does acknowledge that the “commodisation” of computers with Intel chip technology is leading to price falls in the low-end server market in much the same way as PC prices have declined.
On the Microsoft front, Platt describes the partnership with HP as satisfactory, while acknowledging that the company is regarded with some ambivalence by many people. “Microsoft is a good partner,” he says.
The alliance means HP is now a major supplier of Windows NT systems in markets which were once occupied by its traditional Unix hardware. In line with the way most businesses operate, HP aims to be a leader in delivering mixed environments, says Platt. “NT is where a lot of rapid growth will come from.”
On the NetPC versus NC front, Platt resorts to Shakespeare: “It’s much ado about nothing. Today we have said we are not going to ship an NC — but we are shipping a NetPC for under $US1000.” He believes HP will be able to drive NetPC prices down more quickly than its NC opposition. “The real issue is cost of support. A Gartner Group study has put that at more than $US8000 over the life of a PC. That sounds high to me — our support costs are more like $US2000.”
Platt doubts the future of the NC — “I would still argue that people will want to use their computers locally,” he says. “Undoubtedly we will see both NetPCs and NCs sold. We will supply NCs if in a year from now they are sweeping the world.”
Platt describes a NetPC as a stripped-down PC with some functionality removed and other ease-of-use issues addressed, including set-up and networking. HP also expects to introduce smartcard technology into its NetPCs. Eventually users will be able to plug their cards into any HP NetPC to establish their custom set-up at any point around the world.
On the professional services side, Platt says this makes up about 15% of revenue at present. Platt describes the business as technical consulting — not business consulting — including outsourcing, technical financing and technical refurbishment. “A lot of customers are saying they are having trouble keeping up with technology change,” says Platt. “Instead of buying computers, a company will buy X thousands of dollars to keep its technology fresh. We own and support the technology — what the customer does is pay per seat. People don’t have to know about the technology at all.”
Platt is presumably being critical of IBM as he suggests that the services business is where computer companies go when they are failing. “The difference for us is that this is one of several businesses.”
On the e-commerce front, Platt is openly critical of the US government. The US government has the wrong notion in trying to control encryption, he says. “It is not going to work that way. I would argue that the US is not even a leader in encryption,” he says. “Attempts to control encryption are limiting our ability to export. Customers want strong encryption.”
On the telco front, Platt says bandwidth is a pressing issue, although he predicts a “huge leapt forward” in a few years.
Meanwhile HP is continuing to focus on e-commerce through its takeover of Eftpos leader Verifone. He sees no reason why a cellphone, with a smartcard slot, couldn’t be used as a banking machine. HP also supplies chip technologies for cell-phones.
Finally, Platt says that while HP is proud of its engineering excellence, the company is planning to make a strong push to strengthen its brand. It will continue to push prices down, while at the same time endeavouring to reduce internal costs by about 1% to 2% a year.