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HP (HPQ) Apologizes for Blocking Third-Party Ink Cartridges

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HP Inc. (HPQ - Free Report) apologized last week for a software update that restricts owners of certain models of printers from using third-party ink cartridge by the world’s largest printer manufacturer. The company’s apology came after a group of consumers and the Electronic Frontier Foundation (EFF) blamed it for interfering too much on the consumers’ right to choose ink suppliers.

Source of Dissent

The matter came into limelight after users of HP Inc.’s OfficeJet, OfficeJet Pro, and OfficeJet Pro X printer models updated the software, prompted by the company, in early September. After the upgrade, they found that their printers are not supporting ink cartridges of companies other than that of HP Inc.

Notably, HP Inc. installs a security chip in its ink cartridges which is recognized by its printers. Earlier, if customers used any other third-party ink cartridge, the company’s printers would display a notification but not block them. However, with the latest software update, the printers directly restrict the use of third-party ink cartridges.

The restriction did not go down well with some of its consumers who along with EFF complained that the move is against the tech user’s rights. Therefore, HP Inc. has now announced that it will come with another software update soon, which will have the option of reversing the technical difficulty.

Safeguarding Ink Cartridge Business

It should be noted that the company’s ink cartridges are much more expensive than those of its competitors or local manufacturers. Due to this, several users of HP Inc.’s printers use third-party ink cartridges.

Therefore, we believe that HP Inc.’s recent controversial software update was an effort toward safeguarding its ink cartridge business, which happens to be one of its most profitable ventures.

Although, the company has apologized for the software update, it has justified the same by saying that the use of third-party ink cartridges is an infringement of its patented technology. HP Inc. has further stated that it will continue to use “authentication measures” to protect its patented services.

Bottom Line

Over the past few months, HP Inc. has been putting a lot of efforts toward turning around its printer business. The company is looking at every aspect of growth including product innovation and differentiation, and acquisition or expansion of 3D printing capabilities.

In the product innovation and differentiation space, last month HP Inc. launched a smart pocket-sized printer for smartphones and tablets called Sprocket, which is much cheaper than Instax Share SP-2 by Fujifilm, a similar product.

Around the same time, the company entered into an agreement to acquire Samsung’s printer business, which is expected to help HP Inc. in further expanding its market share.

Furthermore, the company is focusing on enhancing its 3D printing business capabilities. Note that, even though HP has been operating in this space for almost five years now, the company lags behind 3D Systems Corporation (DDD - Free Report) and Stratasys Ltd (SSYS - Free Report) .

Thus, in order to strengthen its presence in this space, HP Inc. has collaborated with various companies like BMW, Nike Inc. and Autodesk Inc. with an aim to develop more advanced 3D printing technologies for a wide array of industrial use.

Although, HP Inc.’s efforts to revive its printing business have been commendable, we opine that the company’s recent controversial move may lead to loss of customer faith. If the company continues to restrict customers from using its competitors’ ink cartridges, they may be discouraged to buy its printers and instead opt for its rival’s products, which have no such restrictions.

Currently, HP Inc. carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked stock worth considering in the broader technology sector is Ambarella Inc. (AMBA - Free Report) , sporting a Zacks Rank #1. The stock has witnessed upward estimate revisions in the last 30 days and has a long term EPS growth rate of 14.8%.

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