Charles R. Goulding and Preeti Sulibhavi dig into post-Xerox-bid HP and what that future might look like from the 3D printing perspective.
Before COVID-19, HP, Inc. was on the cusp of succumbing to a hostile takeover by Xerox. Xerox has now withdrawn its offer and HP has escaped its clutches.
Now HP is experiencing unanticipated high levels of PC sales. HP’s two largest businesses are computers and printers — and that includes 3D printers. HP is the world’s largest seller of desktop PCs and portables. Customers need more computer equipment to work remotely and so students in K-12 schools and colleges can continue their education with online courses.
In a March 11, 2020 Barron’s article, Enrique Lores, HP’s new CEO, stated that there weren’t any business synergies with Xerox, due to there being limited product overlap. He also questioned and touted the overall magnitude of cost-cutting and commented that it could be achieved stand-alone by each company anyway.
On March 31, Xerox announced that it was withdrawing its bid to takeover HP.
Enrique Lores has been with HP since he was an intern in 1989, where he came up through the ranks of the printing side of the business. In 2017, Lores spearheaded the acquisition of the Samsung Electronics printer business.
This writer is hoping that HP will capitalize on this sudden unexpected change in events and redeploy the computer sales windfall for 3D printing future growth.
Growth investments for its 3D printing segment can be in R&D, and perhaps even the acquisition of an emerging high-growth 3D printing player like ExOne, Carbon, Markedforged or Desktop Metal.
New and improved investments can be supported by R&D tax credits:
The Research & Development Tax Credit
Enacted in 1981, the now permanent Federal Research and Development (R&D) Tax Credit allows a credit that typically ranges from 4%-7% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:
- Must be technological in nature
- Must be a component of the taxpayer’s business
- Must represent R&D in the experimental sense and generally includes all such costs related to the development or improvement of a product or process
- Must eliminate uncertainty through a process of experimentation that considers one or more alternatives
Eligible costs include US employee wages, cost of supplies consumed in the R&D process, cost of pre-production testing, US contract research expenses, and certain costs associated with developing a patent.
On December 18, 2015, President Obama signed the PATH Act, making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit has been used to offset Alternative Minimum Tax for companies with revenue below $50MM, and startup businesses can obtain up to $250,000 per year in cash rebates applied directly toward payroll taxes.
Conclusion
Corporate takeovers are part and parcel of today’s business environment. Time will tell whether HP, Inc. has snatched victory away from the jaws of defeat. If so, Xerox may have snatched defeat away from the jaws of victory.
