The announcement never formally came yesterday, as All Things Digital’s Arik Hesseldahl predicted it would, but several many other news organizations have confirmed his exclusive report that Meg Whitman is about to merge the printing and PC businesses at Hewlett-Packard.
Once again -- as some commentators would have it.
Slashing jobs at the company “has been a tried-and-true formula for HP CEOs,” writes Ben Worthen in The Wall Street Journal, and “toying with the structure of the PC and printer businesses also is a ritual of sorts.”
The divisions were combined in 2005 by Carly Fiorina but quickly separated by Mark Hurd in 2006. Leo Apotheker wanted to spin off the PC business entirely last August, which led to a shareholders sell-off before Whitman reversed that decision shortly after taking over.
Personal Systems Group (PSG) EVP Tom Bradley, 53, who was CEO of Palm once upon a time, will lead the combined unit, sources say. Vyomesh “VJ” Joshi, the popular 57-year-old EVP who has headed the Imaging and Printing Group (IPG) for 10 years and has been with HP for 31, is said to be retiring.
“The plan is to have their line of business more readily integrated so they can approach customers together and with unified product offerings, writes ATD’s Hesseldahl. IPG is still the global leader in printer sales, he points out, “but makes most of its money selling ink cartridges and other supplies that tend to make higher profit margins than the printers themselves.”
The merger is the “first major strategic move by Meg Whitman since she became chief executive last September,” Quentin Hardy writes in the New York Times, although she made it clear that major changes were coming in an analysts call last month. And, as Jon Swartz and Scott Martin recall in USA Today, the “jolting move” follows her decision to jettison the spin-off of the $41 billion computer business in the first place.
“For years, we’ve been basically running our business in silos,” Whitman said during the conference call last month. “We underinvested in innovation.” She admitted that the company’s PCs, printers and information-technology services “haven’t been compelling enough to attract customers’ spending,” Aaron Ricadela reports in Bloomberg News.
Layoffs are certain to be part of the plan -– and if you’re in the marketing business, you already know where the ax is likely to fall.
“Personal computers and printing have substantial overlaps in many areas, including manufacturing and marketing,” writes Hardy. “Both businesses have been challenged by the popularity of cloud computing and Apple’s iPad, which allow easy storage and display of documents and photos.”
The company hopes to create “Apple-style ease of use between PCs and printers,” Hardy reports, and its fortunes will be closely aligned with Microsoft’s release of Windows 8 later this year, according to Forrester Research analyst Frank Gillett.
“The interesting question is, how do they cut costs and encourage innovation?” Gillett asks Hardy. What does printing look like in five years, when we have flexible computer displays that we can hold like newspapers?”
Analysts had mixed reactions to the rumor.
"HP has some massive structural fixes that they need to make, and this doesn't come close," Evercore Partners analyst Rob Cihra tells Worthen. "I don't see how this changes anything apart from probably giving you an excuse to cut some heads and cut some costs."
"It's too early to tell what this is going to do," Sterne Agee analyst Shaw Wu tells Reuters’ Poornima Gupta. "The risk I think is that both [divisions] have very different business models."
But ISI group analyst Brian Marshall says Whitman is “moving quickly to institute changes, e.g., fewer silos, greater emphasis on R&D, more conservative expectations."
“Investors didn't seem overjoyed by the report, as HP stock fell 1.5% on the day to close at $23.98,” Jeremy C. Owens reports in the San Jose Mercury-News. That may be 5.2% higher than when Whitman took over for Apotheker on Sept. 22, 2011, but shares have been in a “steady slide” overall “in the face of a broad-based erosion in [HP’s] competitive position, the Financial Times’ Richard Waters wrote a couple of weeks ago, and “has become a cautionary tale that highlights the pitfalls that can befall tech conglomerates.”
Those traps include deciding whether you are a company looking to generate growth or high margins and sticking with the decision; trying to serve both the business and consumer markets; over-relying on “transformative” acquisitions (such as EDS) and “allowing a reliable cash cow to distract from the difficult decisions that need to be made about other, less successful businesses.”
Whitman may be swinging the barn door shut on HP’s most profitable cow, but its best milking days may already be behind it.