How do you see the evolution of the printer market as others -- such as Dell -- enter the business?
(Dell) has made a lot of noise. They've made zero impact. If you look back at what they said they'd do last summer and what they've actually done, the difference is fairly startling. What they said they'd do last summer is drive down margins. They introduced four private label Lexmark printers and candidly, they've had no impact. How do you keep printing business going? No offence, but when people look at printers, it's like fax machines. They don't look too deeply. They only care when it breaks down. Are customers showing interest in value-added features, and how do you fit it in with your other businesses?
If you think about the last year, we got into the low-end of the business -- sub-$100, sub-$50 -- and took virtually 20 points of market share in the first quarter. We are now playing across the board -- sub-$49.99 all the way up -- and our margins have improved... Our $49.99 printer took 100 patents. People buy them because they work better than anybody else's -- and they keep working. People tend to think sometimes of printers as a commodity... when we introduced the first inkjet cartridge in the 1983-84 time frame, it deposited 1,000 drops of ink per second. Today it deposits 18 million drops of ink per second. When I came to HP four years ago, it deposited 12 million drops of ink per second. That is faster than Moore's Law. Every one of those drops of ink is heated to three times the temperature of the sun for two milliseconds. This is rocket science, truly. It is a precise, microprocessor-controlled piece of technology with a ton of intellectual property in the development and the manufacturing. And we manufacture millions of these things. So it's not just ink and plastic. But how do you leverage that rich legacy of IP to grow your business faster than Dell?
OK, let's look at notebooks as an example. We're the largest notebook player in the world, bigger than Dell and growing faster than Dell... The reason Dell is No. 1 today (in PCs) is because they're bigger in commercial desktops in the US. Commercial desktops is a big business; it's a good business but it's not where the growth is. The growth is in mobility. And there we lead, and are growing faster... Mobility is a place customers are willing to want some innovation. That also was Toshiba's claim in the 1990s. Nowadays Toshiba is somewhere down the food chain.
Right. Because it's not about innovation or low cost. It's about both. Our fundamental value proposition is high-tech, low cost. You gotta have both. But if you're spending so much on R&D, the margins are going to be lower than Dell's. Meanwhile, the servers and workstations that Dell offers work perfectly fine from the perspective of corporate customers.
I am not in any way saying customers will always pay more for innovation. In fact, that's why during the great controversy of the merger, one of the things that was said was, "Why does HP have to focus on low cost? Why don't they just focus on the high end?" It was fundamentally the opposition's strategy -- to the extent they had a strategy. It was "You know, you don't need to care about these low-tech things like industry standards." You do have to care. But on the other hand, do we have to make sure we are providing the right return on IT for our customers with industry-standard servers and Linux and PCs? Yes, which is why we think we're doing very well. At the same time, there's a big opportunity for us with a product like SuperDome... a product with very high innovation, very good margins -- and SuperDome delivers, as compared with a mainframe, better performance at about one-third of the price.