Enrique Lores

0:00Hiscox Small Business Insurance knows there is no business like your business. Across America, over 600 ,000 small businesses, from accountants and architects to photographers and yoga instructors, look to Hiscox Insurance for protection. Find flexible coverage that adapts to the needs of your small business with a fast, easy online quote at Hiscox.com. That's H-I-S-C-O-X dot com. There's no business like small business. Hiscox Small Business Insurance. The granddaddy of all Silicon Valley startups is Hewlett Packard. It was started in a garage in 1939, but in 2015 it split into two separate companies, Hewlett Packard Enterprises and HP Inc.

0:44Recently at the Economic Club of Washington, I sat down with Enrique Lores to talk about how he's led the successful personal computer and printing company following this split.

0:57So which company is better, Hewlett Packard Enterprises or HP Inc.? So as you can imagine, I have a very unbiased view. And I have to say, of course, HP Inc. It's not only that we do printers and PCs. We think we are the company that can enable a more flexible way of working to make employees productive, to make employees engaged. and this is what we stand for. So, but their main business is today is computers and to some extent printers as their main businesses, right? So I can tell from your accent you're not from Baltimore or Washington, D.C. Where did you grow up? I can say you're very astute.

1:41So you're really... Detecting that I'm not from the U.S. is very difficult, I know, but I am originally from Spain. Okay, so you grew up in Spain. I grew up in Spain. Now, how many companies in Silicon Valley are run by people who are born in Spain? One. One. So, all right, so you're born in Spain. Did you say, I want to run HP someday? Or what was your aspiration as a young boy in Spain? No, it was not my aspiration to run a company like HP. I joined HP as an intern in 1989. So I have worked for the company for a very long time. When I was studying, there was a group of HP engineers that came to my university in Spain, in Valencia.

2:24And they explained what it took to develop a printer. It was when printers were starting to be created. And I was amazed by both the technology complexity, but also by the passion these people showed about the printer. And in fact, I was thinking, how can someone feel passion for something so strange? I have to say though that 34 years later I have more passion for printers than these people had so I have learned and I have been converted to the religion. Okay so you you went to college in Spain and you got an MBA or an engineering degree? I got an engineering degree first. Okay so you're an electrical engineer?

3:03Mm-hmm. You moved to Silicon Valley or where did you move to? No actually the full story was I got this opportunity to work as an intern in HP and it was, I had the opportunity to go to San Diego. So we went to San Diego for the summer and when the internship was finishing, HP was opening an R &D center in Spain, in Barcelona. So they told me, you're from Spain, we are creating this new R &D center, you might be interested in joining. And I said at that point, yeah, maybe for a couple of years because we were living in a different city and in Spain, you don't change cities. You grow up, you are born in one place, You go to school in one place and you build, you live all your life there.

3:44So we said for a couple of years, it would be nice to go to Barcelona. 35 years later, we never came back. We went to Barcelona. Sometime later, we came to the U.S. and here we are. How long did it take after the split occurred in 2015 for you to become the CEO? What were you doing before you became a CEO? Before I became CEO, I led the separation of the company. So when Meg or the CEO decided to split the company, we created what was called a separation office. And there were two leaders, one from HPE and the other one from Hewlett Packard Enterprise, one from HPE Inc. I led the separation from my side.

4:21In fact, when I was asked to lead the separation, my immediate response was, no, I don't want to do that. And then Meg, that was Meg Whitman, that was the CEO at that point, after a few days, a week, and she called me home and said, Enrique, I need to talk to you. So I went to her home and she said, I know you don't want to do that. This is the opportunity of your career. You're going to learn things you will never forget. You should be taking this role. And when the CEO calls you to her home on a weekend, you know there is only one answer. Okay. Which was, yes, I will do it. And I have to say, I learned a lot.

4:57So what was the theory, the business theory behind why splitting up Hewlett-Packard, a very successful company, into two separate companies? Why was that going to be such a great idea? I think the main theory, which at least in our case has proven to be true, was focus. HP was a very big company. We were selling from printers to servers, data centers, all sorts of technology products. And the theory that the board had at that point was that focus was very important. Each market was moving in a different direction. We were competing with different companies. So being focused, being able to invest in our segments was the critical thing.

5:34and in our case has proven to be true. All right, so when the company split occurred in 2015, many people thought that Hewlett-Packard Enterprises, which was in the sexier area of software and services, would become more valuable. But actually your company now has a higher market capitalization than Hewlett-Packard Enterprises. Does that make you sad or happy? I'm only concerned about what happens with our company. And as I said, the separation has been good for us. We have proven that we can create value to shareholders. Our TSR in the last seven years has been 200%, significantly higher than the average of the market.

6:14So we have done well. And what is most important, we have a lot of opportunities and ideas on how to continue to make the company better. You compete against, I guess, Dell and Lenovo, and also Apple, I assume. So which of those companies makes the best personal computer, would you say? HP. Really? And what makes your computer better? Why should I want to buy yours over somebody else? Aren't they all really pretty much the same at this point? I think there are three big differentiations for our products, especially in the PC space. One is security. Cyber security is every time more important, and we build both software and hardware in our PCs to make them more secure.

6:58Second big differentiation is industrial design. We have made a big effort to make our PCs the best-looking PCs, the most attractive and the ones that have the better use model. And finally is sustainability. Within that sustainability is really important and we use in our PCs all type of materials that are environmentally friendly from plastic that we get from the oceans to coffee beans. You can look at our portfolio and see any type of material. Where do you sell them? You don't have HP stores the way Apple has stores, so where do you sell your computers? It actually depends country by country.

7:37In the U.S., for example, we sell online on hp.com or on Amazon. You can buy our products in any large consumer electronics retailer like Best Buy. But also for commercial customers, we have a big network of resellers, commercial resellers that will sell our product. And for our top customers, we have a direct sell force. In other countries, we have our own stores. Oh, you do? For example, in India, we have more than 500 stores that really we used to cover the market. Why does India rate 500 stores and the U.S. rates none? Because of the structure of the distribution and retail model. In India, there is not an electronic retail network in many of the cities, so we had to build our own to be able to really reach consumers anywhere in the country.

8:24And we continue to expand because we continue to see a big opportunity. So, Bose, I buy one of your computers, and then a year later you have another model. Can I trade it in and get a discount like a car? I can trade it when I buy a new car. You don't have trade-ins or anything like that? Today we don't, but this is one of the businesses that we are starting to develop, both because we see we can really help customers to always stay on the latest technology, but also because from a sustainability perspective, recycling and refurbishing is a very important thing to do. So we are going to be building that model at scale.

8:59All right. So where are your computers manufactured? Today, majority are still produced in China. China. And are you worried about somebody putting a chip in there that can enable the Chinese government to listen to what you're doing? Is it you're worried about that, or should I worry about that? You should not worry about that, because we worry about that. Okay. And what we have built is what we call a secure supply chain. So across every step of the manufacturing process, we control anything that is inside our printers, inside the chips, inside the software, to make sure that the PCs or the printers are secure.

9:33Are you worried about being too dependent on China for your manufacturing? Because there could be U.S. problems with China. Who knows what could happen? Why not diversify? Actually, we are diversifying. we realized and learned painfully during COVID as many other companies that depending on a specific territory or having too much dependency was too risky. And that what we had done over many years of really pushing for cost and therefore concentrating on manufacturing in one place created some issues from a resiliency perspective. So since then we have been diversifying to increase resiliency and this is a process that we embarked a few years ago that is going to take some time but clearly we are doing that but the key is the semiconductors of the chips and where the chips made in China or they're made in Taiwan or US or majority a today are still built in Taiwan we are working with all the key chip providers to make sure they we diversify with the location and this is why for example last year we were very supportive of the chips act because getting government funds to accelerate a change, we think, is very important.

10:43So when you're at your home and you're working on a computer, do you ever use the opposition or the competitors to see what they're doing, or you only can use HP? I use both. As you can guess, I have lots of HP PCs at home because every time there is something new, the team wants me to train, and sometimes they don't like it because I find things they didn't like me to find, so I give a lot of feedback. But of course, I test also the latest innovation from our competitors to make sure I understand. Do you ever look at your competitors' computers and say, why don't we have this? And how come we don't have that?

11:18You ever ask? Yes, and the team hates it. And how do you protect against hacking? And how do you kind of give your people who are customers warning about what they're going to see if a hacker is coming in? What we have done is we have developed both software and hardware to protect our PCs. For example, in any of our commercial PCs, we have a chip embedded in the board that detects if the BIOS has been modified. The BIOS is kind of the brain of the PC, so we can detect if there has been an intrusion in the BIOS. And if we detect that, we can restore it to the original level. This is a unique technology that HP has that really helps to protect our PCs.

12:02And we have many other software developments in other layers to do similar things. Do you make servers as well? No, we only do PCs. You don't do servers? We do workstations, which is a very high-end type of PC, but we don't do servers. Right. You make cartridges, right? Mm-hmm. And printers. So on printers, is one printer really different than another from your competitors? Aren't all the printers pretty much the same? Printers are fairly different. In fact, there is more difference printer to printer than PC to PC because printers are a totally integrated business. So we developed the printer, we developed the ink, we developed the cartridge.

12:38It's a much more vertically integrated model that drives more differentiation. Is the printing business a growth business? Because people are now not printing stuff as much. They're just sending it by email or computer digital means to other people. So is printing a growth business or it's kind of a shrinking business? In printing, there are three very different segments. There is what we call home printing, so printers you will buy to use at home to print photos or to print email. This is clearly a not-growing business. Then we have an office segment, people, copiers, printers that you will use in the office.

13:13That's a market that is stable. It's declining in more developed countries. It's growing in emerging countries. And then we have a third segment, which is industrial printing. industrial printing means printing labels, packaging, this type of... And this is a significant... So I actually do have an HP printer, but the cartridge is always running out. I'm running out of ink all the time. So is that a problem? How do I know when my ink is going to be out, and I'm right in the middle of printing something? Is that a big problem that you guys have? What do I do about it? When we talk to customers, they always have two concerns.

13:53about printing. One is what you just said, I want to print, my kid has finished homework, I need to print homework, the printer is not working because the cartridge is not working. Second complaint that we have is printing is expensive. I really hate paying$50,$45, $55 for the cartridge. And we have a solution for that. We have created a subscription model where we monitor the amount of ink that is being used in the printer. Customers pay us for the number of pages they print per month. And before the printer runs out of ink, we send a new cartridge to customers. And by doing that, depending on your volume, you can save up to 70 % of, I mean, you print 70 % cheaper.

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15:20Because of the products that we build, we use a lot of plastic. So we have an important initiative to use recycled plastic in any of our products. We are also, I mentioned before, we are going to be changing business models to move into refurbished products. So we give our products to our three lives. And finally, and one of the things that I feel most proud of in this space is people always associate printing with paper, paper with trees, and therefore if you print, you're doing something wrong for the environment. So what we have is an initiative that we call forest-positive printing. So we look at the amount of print paper that is used in our printers.

16:04If that paper is not coming from recyclable forests, for forests that have been planted to create paper, We plant trees, and we have programs of reforestation to compensate for that. Silicon Valley companies are not famous for diversity. So what do you do in that regard? Do you have a program that ensures you have a fair amount of diversity? We take it extremely seriously. And, for example, my compensation and the compensation of my direct team is dependent on the progress that we make on diversity. Suppose I want to buy a computer, but I want to have AI in my computer. I want to be really up to date.

16:40Do you have AI in your computers yet? Not yet, but it's coming soon. And we think this is going to be one of the largest transformations in the PC industry in decades. What will be possible starting this summer is to run large language models in AI PCs, which means that what today all of us are doing in the cloud, where you use any of the applications that you can, you will be able to do it locally. And what this means, which is why we think this is important, is it will be much better from a cost perspective because running models in the cloud is expensive. It will be better from a security perspective because you will be able to use the model with your own data locally without having to upload your data to the cloud, and you will be able to do it anywhere in the world.

17:31And also for applications where speed is important, where latency is important, you will be able to do it locally much faster. For example, in gaming, where the game needs any resource the computer has, it will be a much better model. So it's going to be a big change starting this summer. At the same price, too. Slightly higher price, but if we look at the increase of price versus the increase of value, not comparable. One of your competitors, Apple, has recently come out with a product that they call it spatial computering, I guess it is. It's like a virtual reality. Do you have that kind of product yet?

18:04We have had a similar product for some time focused on two spaces. One was gaming, one was in some commercial uses. And we think that over time, this category is going to grow. But what we really think is that computing is going to become, we call it immersive. That today we interact with computers through a screen or through a keyboard. More and more, we are going to interact with our full body, with our gestures. and this is the trend that we are pushing for. You will see this in some models like what Apple has done. There are also very interesting concepts where you interact with holograms and we are really exploring a multitude of different things.

18:46Which one will win at this point is difficult to see, but clearly immersive is the future. If somebody comes in and says, look, I don't really care about price, I'm not price sensitive, sell me whatever you got, give me your best stuff, what's somebody going to spend,$5 ,000 or something? For a consumer? $5 ,000. So we have products at$5 ,000. For a business customer, if you want to buy the top of the line workstation with a top of the line processor,$10 ,000,$15 ,000. Wow. So if somebody goes into one of your stores in India and they spend$5 ,000 for a personal computer, they call you up and say, we just sold somebody a$5 ,000 personal computer.

19:23They don't call you about that? Since you mentioned it, this summer we were in India. So I decided to go to some of our stores without telling them who I was. So you should see the faces when I went to the store. They look at me. I asked them about what products they were selling. And at some point I said, well, you know, I'm the CEO of the company. And they became white. First was like surprise. They didn't believe it? After a while, they believed it. Some of them looked at the web to make sure it was me. Why should somebody want to join Hewlett-Packard as an employee? Why is it better than working at Apple or one of the other competitors that you might have?

20:01Yeah. So when I became CEO, we defined four objectives for the company. And one of the four objectives is to become a school of talent. And our value proposition to employees is that they can join the company. They will learn their job. They will be able to experience multiple businesses, multiple functions. If they want, they can live in multiple countries just because of the presence that we have. So we really focus on employee development as the key value proposition to the point that we say when someone leaves, we celebrate their graduation because really that person has learned from us and has developed.

20:41And this also gives us the opportunity to bring someone new, to bring someone younger, to continue to refresh. So that's one of the key values that we have. So if somebody wants to work at a company like yours, what's the best way to get a job? Do you get an engineering degree from a good school or not a good school? Is being an engineer the best way? I think there are multiple ways. Clearly, there are a lot of engineers in the company. So studying engineering and graduating from a good school is important. But we hire people that graduate from marketing. We hire people from law schools. I mean, we are a very large company that has any function that you can think of in the company, so we have lots of people.

21:23The average person you hire, does he or she last one year, two years, five years? How long are your average people? In general, we are a company with long tenure. I mean, I said before I've been more than 34 years in the company. You will find people that have been in the company for a long time. Would you say that the computing business is one that is likely to increase in value, or as more companies come in, or as computers become more sophisticated, or do you think that it's pretty much a solid business but not going to be a high-growth business? It depends on what you mean by high-growth. It's a business that we think is going to grow between 2 % and 4%, but it's a$400 billion business, so 2 % of$400 billion is a lot of additional business every year.

22:07In your business today, would you say that your biggest problem is what? Your biggest concern is competition, government regulation, the economy. What is your biggest concern? I think one is all the geopolitical changes that we are seeing. I think when we have had a very stable environment for the last 20 years, it was very clear how to manage the company to be successful. Things have changed extremely fast. And this is having significant impact on our business. And the second is to make sure that we stay in the lead from an innovation perspective. The pace that technology is changing by is faster than ever.

22:51So making sure that we are making the right technology bets, that we hire the right people to develop those technologies is one of the challenges. And today, do you get a lot of people coming to you with great ideas about what new businesses you should be in? or you generate your own ideas of new businesses that can expand your business base? It's both. We have teams in the company that are constantly exploring new ideas, but we also have a small venture fund that looks what is being invented, what is being created in startups, and then we invest in those. The innovation model has changed a lot in the last 30 years.

23:3330 years ago, companies like us used to have big central labs that were the ones creating new things. The model is way more decentralized today. And the combination of universities, startups, is really now driving the innovation. So we need to be much more external focused than we were before to continue to stay on the lead. So what is the most important message you would like to convey to anybody watching here today about the personal computer world? Is it that it's a great thing for society and that they should buy more personal computers? And what is the most important thing you want to convey about HP, Inc.?

24:10About HP is that it's a company that really cares about helping society, that we have a big opportunity to enable our employees to be more productive, to be more engaged, and that we see a lot of opportunities to innovate, to make it happen. and also that is a company with very strong values and strong principles. Since the company was founded in 1938, Bill and Dave defined before all the conversation about sustainability or diversity even existed, they defined the values of the company. They defined that the company, great companies create a lot of value for shareholders but also have a positive impact for our communities.

24:55And since then, we have been driving both. Thanks for listening. To hear more of my interviews, you can subscribe and download my podcast on Spotify, Apple, or wherever you listen.