HP merges printer, PC units in reshuffle

Hewlett-Packard yesterday made it official: it is merging its PC and printing units in a bid to improve the financial profile of both increasingly commoditised products.

The news, which surfaced early yesterday, 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 are already questioning the rationale.

Sterne Agee analyst Shaw Wu said that 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 per cent of revenue) and printer (21 per cent) business units, we believe there is room to cut costs, particularly with general and administrative and potentially with sales and 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 one to three years versus printers at three to five years and possibly longer.

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

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

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

As part of combining the PC and printer units, HP is also restructuring 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 is currently in charge of the server, storage and networking unit. Under the reorganisation, 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 siloed 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.

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 that HP wants to spend more on R&D. If cost savings do boost R&D spending, it's 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 per cent of revenues and 30 per cent 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, then 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.

Via ZDNet US