What had me in the frame of mind to make this decision was the announcement from AMD on Asset Smart and several days with HPs very strong Printing and Imaging division.
For me AMD is representative of the post crisis US and the result was an amazing amount of innovation that corrected their own serious financial difficulties and left them with what now may be a competitive advantage.
HP was like the pre-crisis US, secure in its belief that changes would come slowly and that all that needed to be done was preserve the status quo. But change is always coming and the US is a good (well, maybe a bad) example of what can happen if you arent prepared for it.
AMDs Amazing Choice
The problem AMD had was terminal. They would run out of money in 24 months and their industry requires a massive investment in technology on a regular basis. This investment typically has to come years before the benefits arrive and AMD has been operating on near zero to negative margins for some time. So they simply didnt have the money to make the investments that needed to be made.
Even if they had the money, the market would have punished them for not maintaining profitability during the process. In short, even if they could have come up with the cash to build out the plant and equipment they needed to compete, the company probably wouldnt have survived the process with its executive team intact.
Intel, one of the few firms able to succeed with the current model, estimates that of the 20 companies that could do what AMD does, fewer than 6 are likely to be around in a few months because the costs of maintaining manufacturing capability are so high.
AMD, in order to initially and continue to survive, needed to change the game plan and that is what they did with Asset Light. They found a funding source in Abu Dhabi, basically Oil money, that was both deep enough and more than willing to wait for a future return.
They were able to cut a unique innovative deal which not only made them solvent, it leaves them with $2B in reserves and a lower breakeven point (meaning they will be more profitable going forward). They are the now most competitive, on paper, in terms of available resources than they probably have ever been. And had they not first dropped into crisis none of this likely would have ever happened.
HP Printing and Imaging
HP Printing and Imaging is far from crisis. This company within a company is a revenue and profit machine generating a massive amount of money for HP but only showing a moderate 8% growth.
The unit does innovate in terms of things like green technology and their high-end Indigo presses are rapidly replacing their analog counterparts in a variety of markets. At the event they announced an alliance with Tandberg to help drive their Halo technology (high-end video conferencing) more broadly into a market hungry to save money with travel alternatives.
But HP Printing and Imaging really isnt Printing and Imaging, it is more of a Printing company and imaging is probably where the future is. In addition, HP Printing is solidly in the two-dimensional color present where the future is three-dimensional and animated. In looking at the company Im reminded of the railroad industry just before the introduction of Transworld Airways, or the Gas industry as the first light bulbs were strung in demonstration, or the carriage industry the year before Ford figured out mass production. If you go to Times Square or drive down many freeways the billboards that catch your eye are not the static ones but the active ones and the prices for that technology is in freefall.
The hot news this last week was on the battle of the new eBooks. Second-generation Kindle information was leaked and Sony responded with their new touch screen reader. 3D printing continues to advance, cutting massively into the cost of prototyping and promising a future where we will be able to print some of the objects we use.
Most of what we read is coming to us by way of Google, Facebook, MySpace, and the Web and viewed on products like the iPhone and Archos. Snail mail is already in steep decline and an increasing number of us havent written a letter or published in a paper magazine in years. Esquire magazine has just published the first issue with a digital cover and got national recognition for it (though not all response was good). Still, the first light bulbs and commercial airlines were hardly great either and the issue evidently sold out at twice the normal cover price.