HP combines printer, PC units in turnaround effort
"Change is in the air", Christine Lagarde, managing director at IMF told reporters in Delhi. In an interview with NDTV’s Vikram Chandra, she said that the European crisis was less acute but not behind us.
Hewlett-Packard Co. is combining its printer and PC divisions as it tries to overcome dragging profits, growing competition and the lack of clear identity.
The move announced Wednesday will help the company streamline its business and save money to invest in growing areas. HP, a Silicon Valley pioneer, is hoping a renewed focus on innovation will re-establish the 73-year-old company as a technology trailblazer
"We have got to place a few bets where we can fundamentally change the name of the game," HP CEO Meg Whitman told shareholders Wednesday at the company's annual meeting in Santa Clara, Calif. The Associated Press monitored a webcast of the meeting.
Whitman said printing remains one of the areas where HP can still make its mark. First, though, she said the company needs to trim its expenses, describing the combination of the PC and printing division as a "perfect example" of her streamlining plans.
"We are going to have to save to get growth going again at HP," Whitman told shareholders.
Wednesday's restructuring is one of the first major steps that Whitman, formerly eBay Inc.'s chief, has taken since she took the top job at HP in September. Her predecessor, Leo Apotheker, had wanted to sell or spin off the PC business, a plan that contributed to his ouster after 11 months on the job. Under Whitman, HP decided to keep the unit after all.
The change comes as sales of printers and ink, once HP's lifeblood, are falling because people are sharing more documents and photos online instead of printing them.
HP, the world's No. 1 maker of personal computers, is also coping with declining PC sales as consumers in the U.S. and Western Europe delay replacing their machines and spend money instead on smartphones and tablet computers such as Apple's iPad.
Whitman inherited a faltering company that's facing growing competition from mobile devices and internal operational challenges such as a complex supply chain, which HP hopes to simplify by combining the divisions. While HP's revenue has been falling, the company's expenses have been rising — an imbalance that Whitman is scrambling to fix.
Echoing remarks that she made to analysts last month, Whitman told shareholders Wednesday that it may take several years to clean up the mess.
Investors already have been growing impatient as HP has been eclipsed by neighboring tech companies such as Apple Inc., whose founder, Steve Jobs, briefly worked at HP in the 1970s
One investor who addressed Whitman expressed his frustration over the divergent fortunes of Apple and HP. Apple's market value has soared by more than $500 billion during the past decade while HP's has climbed by about $10 billion.
Besides combining the PC and printing units, Whitman is unifying HPs marketing functions under one executive and consolidating other areas of its business. She told shareholders that the company can reduce its roughly $4 billion marketing budget without hurting the HP brand.
Whitman hopes to reduce the internal complexity that she believes is making the company slow to adapt to customer demands and changing technology. On Wednesday, the company stressed that the changes will mean a more streamlined, faster and consumer-focused Hewlett-Packard, one that fits its mantra, "One HP."
The company expects to increase productivity and efficiency in PCs and printing, while streamlining customer support and the company's supply chain.
Shaw Wu, senior technology analyst at Sterne Agee, said he believes there's room to cut expenses, particularly in administration and marketing.
But he warned that savings may be limited. Customers don't necessarily want to buy computers and printers at the same time. People replace PCs much quicker than printers, which can last five years or longer.
HP didn't say how much it will save or what effect the restructuring would have on jobs, but the move is likely to result in layoffs. In a 2009 shake-up of the printing, PC and other divisions, HP cut 4,400 jobs. The company had 349,600 workers as of October, the end of its most recent fiscal year.
Whitman will have plenty of choices as she decides where to invest the company's savings, said Forrester analyst Frank Gillett said. For one, HP has been investing in thinner, lighter laptop computers known as ultrabooks — devices that are easy to hold like tablets yet more powerful in sporting regular keyboards and the ability to run programs side by side on the same screen.
Gillett also believes there's room for innovation in printing as the way people use printers evolves. He said it'll help to have PC and printer product designers working together.
Though the market might be shrinking, he said, "it's hard to imagine in the next 10 years that we are going to get rid of large, cheap, disposable displays — i.e. paper."
The combined PC and printing unit will be led by Todd Bradley, 53, the executive vice president of the PC group since 2005. Vyomesh Joshi, the head of the printing group, is retiring after 31 years with HP, with a severance package of about $10.8 million, according to the company's regulatory filings. Joshi also is eligible for retirement benefits valued at nearly $7 million as of Oct. 31.
HP said the restructuring will help improve its branding, a challenge for a massive and storied technology company with a role in everything from computers to consulting. Unlike, say, Apple or IBM Corp., HP lacks an identity that people can associate with it, Wu said.
Ultimately, HP will have to define the "big picture" of what the company stands for, Wu said. "What is HP?"
Whitman offered this definition at Wednesday's annual meeting: "HP is the world's largest provider of information technology infrastructure, software, services and solutions to individuals and corporations of all sizes. It's simple, it's clear and it doesn't need a lot of explanation."
Toward the end of the meeting, Whitman discovered she had gotten a part of HP's identity wrong. In her prepared remarks, Whitman said the company would be celebrating its 70th anniversary in 2014. A shareholder corrected her during the question-and-answer session, reminding her that HP started in a Palo Alto, Calif. garage in 1939, which would make the company 75-years-old in 2014.
HP, which is still based in Palo Alto, had briefly combined the PC and printing business businesses before, under the leadership of Carly Fiorina. Mark Hurd reversed that when he took over as CEO in 2005, when the printer division was still thriving.
The printing and PC units together made up about half of HP's $30 billion revenue in the November-January quarter.
HP's stock fell 52 cents, or 2.2 percent, to close at $23.46 on Wednesday.