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HP is selling its Weihai, China-based laser printer/MFP manufacturing site to Foxconn, the world’s largest contract manufacturer and majority owner of Sharp. In the deal, Foxconn will take over the operations at the plant and manufacture products for HP. More specifically, Foxconn will produce several components, including printed board assemblies, and manage the assembly of products on their own.
In a statement to Keypoint Intelligence, the company said the deal was largely motivated by improving operational efficiency. HP said that, “as we continue to execute against our strategic priorities, we have made the decision to sell our Shandong Manufacturing Centre to Foxconn, one of the world’s largest providers of electronics manufacturing services and one of our preferred, long-term manufacturing partners globally. Leveraging the expertise of a strong global manufacturing partner like Foxconn enables us to further enhance our ability to meet customer demand for our technology while driving operational excellence and cost efficiency.”
The Times They Are a Changin’
HP initially acquired the plant when it purchased Samsung’s printer business in 2017. At the time, the newly formed HP Inc. saw the A3 office MFP market (with annual worldwide revenues of around $55 billion) as an excellent growth engine for the business. So, HP ponied up $1.05 billion and bought themselves a line of A3 technology that could be brought to market immediately. HP also acquired thousands of patents and an R&D department with over 1,000 employees.
But the A3 print market is in a much different place now than it was in 2017. Even before the average person knew what a coronavirus was, office print volumes were already in a slow and steady decline because of digital transformation—about 1% to 2% a year. The global lockdowns cartoonishly accelerated those trends, sending office print volumes off a cliff.
Even as office print volumes recover in the short term, Keypoint Intelligence analysts predict that they will never return to pre-pandemic levels. COVID hastened the adoption of digital transformation, and more and more business processes that were once handled in paper will become entirely digital. This does not mean that A3 MFPs are going extinct, but it does mean that a customer that required five centralized machines in 2019 might only need three in 2021. (You can see how owning an A3 manufacturing facility might not be in HP’s best long-term interest.) Moreover, HP already has had a long—and successful—track record with contract manufacturing firms with its Personal Systems division (PCs, laptops, and displays). Selling this facility to Foxconn converts the capital expenditure of owning, staffing, and running a factory into an operating expense of purchasing the plant’s products on an as-needed basis—even if demand for those products declines.
What About Canon?
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