HP combines printer, PC units; Analysts question synergy

HP combines printer, PC units; Analysts question synergy

Summary: HP said in a statement that the combination will help the company's go-to-market strategy, branding, supply chain and customer support.

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HP on Wednesday made it official: It is merging its PC and printing units in a bid to improve the financial profile of both increasingly commoditized products.

The news, which surfaced on Tuesday, means that Vyomesh Joshi, who led the printer unit, is retiring. The combined unit will now report to Todd Bradley.

HP said in a statement that the combination will help the company's go-to-market strategy, branding, supply chain and customer support.

However, analysts were already questioning the rationale.

For instance, Sterne Agee analyst Shaw Wu said the combination isn't likely to result in much cost savings or synergies. Wu said:

While we believe there is room for cost synergies, we are not sure of the strategic benefits as we believe each has a unique business model. With a potential combination between its PC (30% of revenue) and printer (21%) business units, we believe there is room to cut costs, particularly with general and administrative and potentially with sales & marketing. However, we believe there could be a limit as it is debatable whether customers want to buy PCs and printers at the same time. More often than not, customers buy them separately. In addition, both follow different product cycles with PCs much quicker at 1-3 years vs. printers at 3-5 years and possibly longer.

Wu's comments clash with HP CEO Meg Whitman, who touted the move partially based on go-to-market improvements.

Whitman countered:

By providing the best in customer-focused innovation and operational efficiency, we believe we will create a winning scenario for customers, partners and shareholders.

There is a bit of deja vu with the HP move. Former CEO Carly Fiorina combined the units during her tenure. When Mark Hurd replaced Fiorina,  he created two units and hired Bradley.

Donatelli steps up

As part of combining the PC and printer units, HP is also rejiggering its central services as well as units.

With the restructuring, HP is putting its global accounts sales teams under the HP Enterprise Group, which will be led by David Donatelli. Donatelli currently is in charge of the server, storage and networking unit. Under the reorg, Donatelli will add technology services to the mix.

According to HP, the structure will "speed decision making, increase productivity and improve efficiency, while providing a simplified customer experience."

Jan Zadak, head of global sales at HP, will get an undisclosed new role. Marketing across HP will fall under Marty Homlish, chief marketing officer. HP's communications team will fall under Henry Gomez, chief communications officer. The company will also move real estate management into the global technology and business processes division.

By consolidating these functions, HP is hoping to create one unified voice instead of a series of silo-ed businesses.

Whitman's big task in 2012 is to improve HP profitability amid sluggish revenue growth as well as work on the company's messaging to employees and customers.

Two HPs

The move to consolidate the PC and printer unit essentially creates two HPs connected by central services.

HP's printing and PC units will represent the consumer side of the company. Donatelli's bulked up unit is the enterprise side of the business.

What's unclear is whether the savings from combining the PC and printer units will result in higher research and development spending. Whitman has said HP wants to spend more on R&D. If cost savings do boost R&D spending, it's also unclear which side of HP---consumer or enterprise---will garner the most investment.

Barclays Capital analyst Ben Reitzes said in a research note that combining the two units may cause more disruption:

We believe if HP cuts costs, a large portion of any savings will be reinvested in R&D and sales. However, cost cutting does seem to be back in focus at HP as new CEO Whitman sees weaker revenues. Our concern is that this move may create some additional dislocation at HP, which just recently announced that it would keep PSG after discussing the potential to spin it off or sell the division entirely. The Imaging and Printing or IPG division accounts for 20% of revenues and 30% of profits. One other concern is that this re-alignment may signal that the division faces further challenges from a sales and margin perspective after several disappointing quarters.

Reitzes added that HP appears to be combining two units that are in secular decline. If that's the case, HP may have just effectively quarantined two slow-growth consumer units that may struggle in the post-PC era. The financial results going forward may dictate which side of HP carries the team---enterprise or consumer.

Topics: Enterprise Software, Data Management, Hardware, Hewlett-Packard, Printers, Software

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12 comments
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  • Makes you wonder

    And HP left webOS to sit on the side of the road and die because....?
    tallbruva
    • Web OS

      webOS and the Palm Pre family are great. webOS is the best mobile OS out there.
      Why did HP cancel the new Palm Pre (HP 3) scheduled for release last Dec in the US but continue to sell it in Europe?
      dan@...
  • The only positive outcome I can see from this ...

    ... is that they sack their printer driver team.
    Li1t
    • Printer Drivers

      I agree. As a technician I have had numerous problems with HP's bloated driver software, not to mention all the other software they install without asking. A few weeks ago I had to spend hours fixing a PC after a driver installation messed it up and I had to absorb those hours.

      Oh and don't ever leave a USB (or parallel for that matter) cable from a HP printer plugged into the PC while you restore a Windows Operating System as the printer may not work until you do another complete reinstall without the cable attached.
      dan@...
  • Wow

    Wow! --- What Genius thought up that one?
    Another overpaid engineer or manager going to crash & burn and be given a massive severence when he leaves? It leaves me wondering - possibly an embittered Compaq engineer playing payback?
    inkwell
  • Top Printer Engineers must take charge!

    HP Printers: durable, reliable, platform independent.
    HP/Compaq Computers: small, non-upgradable motherboards, hard to add/remove components, system restore disks overpriced or not available.
    This merger will only work if you demote the engineers that produced sub-standard PCs and put the printer people in charge, including the next HP CEO, President, and Chairmain of the Board. Japan was successful until the mid-1980s because the top engineers were in charge of the largest corporations. Put the MBAs in charge of accounting (CFO and his/her staff) and keep them out of upper management. Do this or Michael Dell will keep eating your lunch!
    richardschennberg
    • Absolutely.

      MBAs form management bureaucracies that undermine a company's core mission. They are terrible at managing human capital. They straitjacket other professionals. They undermine the ability to form effective teams. When somebody installs MBAs at the top of a company invested in professional services, it's the start of a death spiral.
      Lester Young
  • Everyday I'm shufflin'...

    So Fiorina joined the units together, Hurd split them up, and Whitman's re-joining them.

    Shuffling deck chairs on the Titanic is all that this action is.

    Extremely large conglomerates like the current HP can't do much to reinvent themselves.

    Whitman's best option is to reprise the 1999 spinoff of Agilent, and send the HP PC business off on its own, and do likewise to the printer division.

    Two new standalone companies will give HP a boost, the Valley a boost, and inject the moribund PC business with the pick-me-up of a new competitor.

    And I've no doubt that a standalone printer division could compete far more effectively with the Brothers and Canons and Epsons of the world.
    armenkattan
  • Won't win????

    Their problem is not whether unit are combined or separated. Until they improve their customer service and stop trying to take control of people's computers, they are heading for disaster. Just replaced my otherwise working C7280, for a Brother all in one. Got tired of receiving messages through what was suppose to be the help center about my ink running out (it was not) and the constant drumbeat that I was not using original HP cartridges, and that my computer would blow up if I did not stop, I reached my limit an decided that my relationship with HP needed to be severed. On more Pavilion to go and Samsung or Toshiba get my business. Just one old man's rant!!!
    eargasm
  • HP products are the most annoying

    The printer "driver" for my HP all in one is a 300 MB download... I remember when printer drivers came on a single floppy disk. Listen, HP, I don't need your "support center" garbage nor do I need a ton of crapware, of which the only purpose is to get me to buy more of your ridiculously overpriced ink cartridges.

    Won't someone make a printer with a simple basic driver, that I can just plug in a print a freaking page without 500 nagging windows about running low on ink? I'll pay extra for that.
    spackle
    • YES!

      What you said.

      I want to be able to buy a business class printer with 600 dpi resolution and inexpensive ink.

      I do not need to print color ink under the black text, but still want to be able to print a color graphic when I need to.

      I do not want to have to stock a new line of ink cartridges or tanks every time I replace a printer. The old ones worked, why do they have to invent new cartridges every year? (So the tinkerers cannot refill them?)

      Drivers used to fit on a floppy with room to spare, and the printer utilities were built into that driver. Now I have to install a separate component to clean the nozzles. This is progress?

      I want to be able to recommend a printer that doesn't fail after a year. It is embarrassing to install printers for people and they start choking on paper or having electronic issues 13 months later.

      10 years ago, HP printers lasted ten years.
      5 years ago, HP printers lasted five years.
      1 year ago, HP printers lasted one year.
      Next, they just arrive broken. It is a big time saver!
      mlashinsky@...
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