HP confirms merger of PC, printer units but analysts question savings

HP confirms merger of PC, printer units but analysts question savings

Announcement comes before annual shareholder meeting

Hewlett-Packard has announced the merger of its Imaging and Printing Group (IPG) and its Personal Systems Group (PSG) in what it called an effort to drive profitable growth for the entire company, but analysts questioned whether the reorganization will cut costs significantly.

The two businesses will be combined into a new unit called the Printing and Personal Systems Group, headed by Todd Bradley, the executive vice president of PSG since 2005.

The move, widely rumored earlier in the week, reflects the dimming future of the printer business relative to the PC business. While printer sales are expected to grow 1 percent to 2 percent in the next few years, the PC market will expand by about 5 percent, according to IDC.

HP said that by merging the PC and printer units, it will streamline its supply chain, achieve cost savings will be better able to reinvest in the business.

"This combination will bring together two businesses where HP has established global leadership," said CEO Meg Whitman. "By providing the best in customer-focused innovation and operational efficiency, we believe we will create a winning scenario for customers, partners and shareholders."

Not everyone is as convinced that putting the printer and PC businesses together will help HP cut costs.

"I don't see anything in today's announcement that will change the fact that HP is less than the sum of their parts," said Garner Distinguished Analyst Mark Fabbi.

"Moving the deck chairs around isn't enough," he said.

Instead, the company should be attempting to lead IT discussions and thinking about how to make use of the software acquisitions it made in 2011.

According to HP, the merger will allow it to rationalize sales, customer support and supply chain operations.

Ezra Gottheil, senior analyst at Technology Business Research, agreed.

The merger glues together many aspects of HP's consumer business, including the supply chain, sales force and product introductions, he said: "This is a positive. HP's problem over the last few years is that it has been siloed, and it was failing to fully leverage the potential synergies of being one of the world's largest IT providers."

The combined Printing and Personal Systems Group will likely have bigger profit margins, and especially benefit PSG, which was struggling and last year became a target for a spin-off, Gottheil said.

Gartner's Fabbi, though, said that in such a low-margin business, "We're not convinced there are a lot of opportunities to cut costs other than some overarching functions. On the buy side, it's often a different buyer [in the enterprise] and there are sold in different areas (for consumer/retail) so again synergies are small."

HP last merged its printer and PC groups in 2005: It was one of Carly Fiorina's last actions as CEO, and one that Mark Hurd reversed soon after he replaced her. Hurd's successor, Léo Apotheker, wanted even more distance between the two groups: he wanted to spin off HP's PC business as a separate company.

Fiorina put Viyomesh Joshi, currently head of IPG, in charge of both groups but HP said Wednesday that Joshi will now retire.

"Seeing VJ step down is a loss for HP. He was one of the more dynamic execs within HP and they will miss his enthusiasm and energy," said Gartner's Fabbi.

Whitman's plan puts the PC group's Bradley in the dominant role.

Since Bradley took control of the PC group in 2005, sales there have increased about 30 percent, to US$39.6 billion. Meanwhile, sales in the printing group have been declining, to $25.8 billion last year, a billion dollars less than in fiscal year 2005. Last year performance at both groups fell, although printing fared less badly than PC sales: Revenue was flat at IPG in 2011 after 1.5 percent growth in 2010, while PC group revenue fell 0.9 percent in 2011 after growing 4.8 percent in 2010.

HP almost gives away low-end printers, and the profitable line of the business is ink, toner and paper, said Gottheil.

Indeed, printing supplies remains one of the most profitable areas of HP's business, with IPG's operating margin at 15.4 percent, compared to an operating margin of 5.9 percent at the PC group. However, IPG's margins have been declining since 2009, while under Bradley the PC group's margins are rising.

Tying printers closer to PCs could help boost sales of printer peripheral and supplies, said Gottheil.

HP's printer business also supplies large-scale printers to replace traditional printing presses, and that part of the business will likely continue to have its own sales force, he said.

Among other restructuring moves announced Wednesday, HP will merge the Global Accounts Sales organization with the rechristened HP Enterprise Group, headed up by David Donatelli. The business includes enterprise servers, storage, networking and technology services.

(Additional reporting by Agam Shah in New York.)

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