HP went from takeover bait to becoming one of Warren Buffett’s top tech bets. Here’s how CEO Enrique Lores is reviving the PC company

As one of the two companies spun out of Silicon Valley tech pioneer Hewlett-Packard in 2015, HP Inc. was viewed by many observers as the company that drew the short straw. While Hewlett Packard Enterprise—the other spinoff—was positioned to sell its infrastructure gear to the booming cloud computing and data center industries, HP inherited the sluggish personal computers and printers business. The $50 billion business seemed likely to only get smaller.

A hostile takeover attempt in 2020 by Xerox and activist investor Carl Icahn, although ultimately unsuccessful, reinforced the notion that the newly independent HP Inc was destined to be picked apart, or swallowed up, by rivals.

Then came the pandemic, and the hordes of remote workers who rekindled sales of laptops, printers, and other home-office gadgets. Analysts now expect HP’s revenue to reach $66 billion in fiscal 2022, up roughly 13% from before the pandemic. Its stock is trading higher than at any time since the spinoff, even after the recent market downturn.

In April, HP got the ultimate vote of confidence when Warren Buffett’s Berkshire Hathaway revealed that it had amassed an 11% stake in the tech company, making it HP’s largest shareholder. It’s Buffett’s second largest tech bet after Apple.

“We took it as a recognition of the value that the company has,” HP CEO Enrique Lores tells Fortune. “The fact that he decided to invest is proof” HP shares were undervalued, Lores says of Buffett.

If Lores is happy to trumpet the Buffett endorsement, he’s not about to take a victory lap. The company acknowledges that the recent pandemic-driven spike in revenue is not sustainable. 

“We are not going to continue to grow almost 40% as we have grown during the last two years,” Lores says. But, he notes, “we think there’s going to be steady growth from a much higher point than where we were before.”

To keep the momentum going, Lores is steering the business into promising new markets like gaming and hybrid work, snapping up key assets through acquisitions, and rebuilding the HP brand by emphasizing things like sustainability and workforce diversity.

It’s less a reinvention than a recalibration. Fortune talked to Lores and some of his lieutenants to learn more about the plan to reset HP for a post-pandemic world.

Life after PCs

Lores knows PC and printer sales alone won’t keep the company growing, so he’s making bets on gaming, hybrid work, and sustainability.

HP acquired HyperX, a gaming peripherals brand, in June 2021, and in October completed the acquisition of Teradici, a virtual desktop software provider. In March 2022, it added another peripherals maker in Poly, a company formed from the merger of Plantronics and Polycom that makes video and audio equipment.

President of personal systems Alex Cho says HP believes the shift to hybrid work will be “a huge growth driver for us.” New offerings like HP Work From Home combine cloud-based printing capabilities and IT support to help companies manage remote employees. High-end microphones from the recently acquired HyperX brand, meanwhile, give HP new ways to reach both home-office workers and gamers, who might then fill their shopping carts with other items in the HP catalog.

Such products are well suited to the changing times and consumer tastes, but HP will need to find a lot of remote workers and gamers to sell to as it seeks to keep its topline growing. That’s because personal computers, including notebooks, desktops, and workstations, account for roughly two-thirds of HP’s overall revenue. The pandemic provided a brief bump in PC sales, but the long-term picture is grim: Global PC sales were down almost 7% year over year from Q1 2021 to Q1 2022, and were in steady decline from 2016 to 2020 before the pandemic spurred a recovery, according to Gartner.

To diversify its business, HP is increasingly looking to sell services, which have recurring and predictable revenue streams—and which tend to boast higher profit margins than the hardware business. The idea is similar to Apple’s efforts to supplement sales of iPhones and Macs with subscriptions to music, streaming video, and customer support services. In HP’s case, the push into services includes things like 3D-printing services and Instant Ink, a subscription printer ink offering.

HP reported that gaming, peripherals, consumer subscriptions, workplace solutions, and 3D printing collectively generated $5.6 billion in revenue through the first half of 2022, on pace to exceed a $10 billion annual goal.

“Looking forward, yeah we’ve got a big PC business, but my ambition is that you don’t think of us in a couple years as a PC business. We’re gonna be the leaders in hybrid work. We’re gonna be the leaders in gaming. Those are experiences, those are solutions,” says Cho.

Aligning employee and customer values

HP also hopes to set its products apart by putting sustainability efforts at the forefront.

According to Cho and Ellen Jackowski, HP’s chief impact officer, the company is building off a strong track record in the field—“We were the first company to publish our comprehensive carbon footprints in the IT industry,” Jackowski says—to integrate sustainability goals and thinking into the product management process.

“For every direct report that [CEO Enrique Lores] has, there is a member of that leader’s organization who has responsibility for driving sustainable impact inside that part of the organization,” she says. 

For PCs, that means a special group that works with Cho’s team, focusing on the industrial design of the machines and the packaging the products are shipped in. The company’s sustainability report highlights a 44% reduction in single-use plastic packaging since 2018, and in 2021 HP reported that 39% of its product and packaging are recyclable or come from recyclable products, setting a goal to reach 75% by 2030.

Cho says his group’s costs went up in the short run because climate-friendly plastics and packaging tend to come at a premium. But he’s confident that aligning the values of employees and customers will translate into a payoff down the line. 

Some of the benefits are already showing up: In a June report, HP said that it attributed $3.5 billion in 2021 sales to its sustainability and impact efforts. This estimate is only from sales in the commercial division of the company, and does not include consumer market sales.

HP’s “School of Talent”

When the company emerged from the split in 2015, Lores and the executive team encouraged all employees to consider themselves founders. That spirit helped them stay afloat amid negative commentary, decreasing revenues at first, and a slipping stock price. They banded even tighter through the takeover attempt by Xerox. Lores said the leadership decided to split in half, with one group managing the business and another handling the takeover response. “It created a lot of work,” he recalls.

The spinoff also meant implementing new systems for payroll, supply chain management, and other processes. But HP’s leadership, based on the results of employee surveys, made a decision to retain certain elements of the original company culture.

“Bill Hewlett and Dave Packard established a really solid foundation,” chief diversity officer Lesley Slaton Brown tells Fortune of the cofounders who famously created Hewlett-Packard from their Palo Alto garage more than 80 years ago. “They were two leaders who really cared about the humanity of people, and they were doing things very progressively.”

As with most tech companies, HP’s workforce and management are not anywhere close to being representative of the broader population when it comes to gender and racial diversity. According to HP’s 2021 diversity data, women represent just 22% of its engineers worldwide, and 28% of its executives. In the US, racial or ethnic minorities represent roughly 31% of HP’s employees.

But HP points to signs of progress under Lores. Employees from diverse backgrounds, meaning women or racial or ethnic minorities, accounted for 44% of new hires in the U.S. in 2021, versus 34.5% in 2017. HP is also using its influence outside its walls, with law firms contracted by HP required to meet diversity goals in its staffing.

In HP’s most recent employee survey, 94% of respondents said they believe the company values diversity, and 87% said they feel they can be themselves at work. On Glassdoor, 93% of reviewers approve of Lores as CEO and 88% would recommend working at HP to a friend. In the tech industry’s neverending war for talent, that’s an important achievement.

While HP may not be as flashy or offer as large a compensation package as some others in Silicon Valley or Seattle, Lores believes the experience and training the company offers are a unique draw. HP’s so-called school of talent is “a place where you can come learn on the job. Whether you want to be a leader or you want to grow in one of the different functions, HP is a company that will offer you the possibility of making that real,” Lores explains.

He would know: Lores himself is a product of that school. He joined the company as an engineering intern in 1989, making his way up the ranks to SVP and GM of business personal systems before the split in 2015, which he oversaw as head of the separation management office.

As the new, standalone HP strives to revamp its business, one of its most valuable products could be the next generation of leaders it creates. For Lores, the impact of those future leaders, whether they stay at HP or move on, will be yet another sign of success.

“If at some point you decide to leave, we will celebrate that,” he says. “It will be good for you and good for people in the company to see the type of progress that you can get.”