HP confirms it will combine PC and printing units, and other changes
Mar 22, 2012 (San Jose Mercury News - McClatchy-Tribune Information Services via COMTEX) --
Hewlett-Packard (HPQ) CEO Meg Whitman on Wednesday confirmed she's launching a corporate overhaul that will consolidate major parts of HP's business under two top executives, in a move that's aimed at streamlining the troubled tech giant for future growth.
In addition to combining the company's printing and personal computer units under longtime PC chief Todd Bradley, Whitman is handing a big part of HP's global sales operation to veteran executive David Donatelli, who already oversees the division that makes HP's commercial computer systems and other data center
The reorganization is intended to simplify HP's complicated structure and reduce costs, Whitman said in an interview, so HP can invest more in research and developing new tech products.
Wall Street reaction was mixed. HP's stock fell 2 percent Wednesday after some analysts praised the shake-up and others said it's not clear if the moves will yield significant financial results. But one industry expert said the changes, along with Whitman's recent decision to name HP software chief Bill Veghte to the influential post of chief strategy officer, indicate her broader plans for HP.
The bulk of HP's revenue still comes from selling PCs, printers and commercial computer systems. Whitman has said she wants to build on those
businesses, but she also wants to expand HP's offerings in newer areas such as security software, data analytics and cloud computing.
"That's where they can generate higher profit margins than anywhere else," said Crawford Del Prete, chief analyst for the IDC tech research firm. "The rub here is, how do you become more efficient in your core businesses, so you can free up resources to fund a continued transformation down the line?"
Former CEO Leo Apotheker was fired last fall after making several abrupt and poorly received moves to focus on commercial software. Del Prete said the changes announced by Whitman represent a less drastic move. "It's part of the evolution of the company."
In an interview with this newspaper, Whitman said the reorganization should benefit all of HP's businesses. Speaking after a morning meeting with employees at HP's printing headquarters in San Diego, Whitman predicted that once the merger is completed, HP's printing and PC sales would grow at a faster rate than competitors'.
"The result will be a faster, more streamlined, performance-driven HP," she said in a statement announcing the changes. Savings will also be used to improve HP's balance sheet and reward investors, she added in a speech to shareholders Wednesday afternoon.
While the company did not announce layoffs Wednesday, industry experts have said job cuts are likely to result from the consolidation. Whitman did not rule out that prospect, but said she isn't ready to disclose detailed plans.
HP's announcement did confirm a significant shake-up in the executive ranks: Veteran printing division chief Vyomesh "VJ" Joshi, 57, will leave the company after 31 years. In addition, with Donatelli taking over the global accounts organization, responsible for selling commercial tech products to big customers, HP said former sales chief Jan Zadak will move into an unspecified new role.
HP's big technology services division remains under John Visentin, a former IBM executive who joined the company last year. Veghte, a former Microsoft executive, remains in charge of software. But analysts said the changes represent an increase in clout for Bradley and Donatelli.
Bradley, who is widely credited with building the PC division and making it more profitable, has been viewed as a strong contender for CEO in the past. But Donatelli, who is also viewed as a skilled operational manager, now has broad responsibility for HP's important commercial business.
"That's where much of the power exists in the company," said veteran tech analyst Rob Enderle of the Enderle Group. "If Whitman left the company now, I would say Donatelli has the best chance to replace her."
Whitman also plans to consolidate marketing functions from different units under chief marketing officer Marty Homlish. Similarly, chief communications officer Henry Gomez will now oversee public relations staffers across the company.
The biggest change, however, involves the consolidation of printing and PCs. Both have been powerhouse businesses in past years, analysts said, but they are no longer the biggest growth engines for HP.
While printing and PCs together provided half of HP's $127 billion in revenue last year, both are seeing slower sales as consumers turn to new technology -- storing documents and photos online and viewing them on smartphones and tablets.
Merging the two businesses under Bradley is "a positive move" that should allow HP to cut redundant costs and leverage its buying power for components, said ISI Group tech analyst Brian Marshall. But Needham analyst Richard Kugele said in an email that Whitman has not provided specific goals for savings. He predicted it will take more than a year to complete the merger and see any results.
Others noted that HP tried combining the two divisions before: Former CEO Carly Fiorina merged them in 2005. Her successor, Mark Hurd, reversed the move after just a few months.
The two divisions have different product cycles and business models, added Sterne Agee analyst Shaw Wu, who noted that most of HP's printing profits come from repeat sales of ink, often through office supply stores that may not sell PCs or printers.
"Certainly there are nuances to those businesses that make them different to some degree," Whitman responded, but she said many individuals and businesses buy PCs and printers together.
Some analysts said combining the two divisions could make it easier for HP to sell or spin off that business in the future. Whitman, however, said that is "absolutely not" her plan.
Contact Brandon Bailey at 408-920-5022.
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