If Captain Queeg and Captain Ahab were commanding the same ship, you wouldn't be surprised if it wound up on the bottom of the ocean. Now we have Captain Meg Whitman and First Mate Todd Bradley steering the SS Hewlett-Packard -- and one of Silicon Valley's iconic companies is lurching ever closer to the rocks.
Whitman's decision to merge the company's PC and printer divisions is without a doubt the worst business move the company could have made. (OK, it would have been worse to sell off the PC arm, but barring that. ... ) Whitman has taken two not really related businesses that need help and glued them together in a way that's sure to minimize their individual strengths and maximize their weaknesses.
Even worse, in Bradley she has chosen a second-rate executive -- remember his abysmal record at Palm? -- and put him in charge of a group that will be responsible for roughly 50 percent of the company's revenue.
There's a reason why it's generally a bad idea to hire a CEO who has no experience in the computer business to run a computer company. Not to be mean, but can't you just picture Whitman thinking: "Mmm, people connect their computers to their printers, so they're really kind of the same." D'oh!
"Instead of innovating, HP is masking the incompetency of the PC business by merging it with the stronger printer business," says Trip Chowdhry, principle analyst of Global Equities Research, in a scathing note to clients.
As many of us predicted when she was hired, Whitman was a terrible option and she's the hands-down choice for TBL's bozo of the month.
Different business shouldn't be in the same bucket
Nobody would think that cats and dogs are the same because they both have four legs, but that seems to be how Whitman views the printer and computer businesses. Here are four reasons they're different (thanks to Chowdhry for his help).
- Purchasing decisions: People and companies make those decisions separately. Yes, bundle deals are common, but those transactions work just fine with a little bit of cooperation between the two sales forces.
- Research and development: The success of the printer business is rooted in chemical and mechanical engineering issues. If the PC business is to thrive, particularly in the age of bring your own device (BYOD), it will be driven by innovative design, computer engineering, and expert supply-chain management. Notice that all three of those points are what distinguishes Apple.
- Business drivers: New releases of Windows drive PC upgrade cycles, where premium prices can be charged during replacement waves, at least for early adopters on new twists to the PC itself -- that's the rationale behind Intel's Ultrabook effort, for example. By contrast, the printer business is driven by the razor-and-blade model; the money is made from ongoing sales of ink and laser toner, not the printers themselves.
- Choice: Because of the clear separation between HP's printer division and PC division, other manufacturers such as Sony and Acer frequently do joint promotions with HP Printers. If the divisions are merged, the existing conflict-of-interest issues become even more severe and risk choking off an important line of business.
Chowdhry is hardly the only Wall Streeter who doesn't like the move. Commenting on the way PCs and printers are purchased, Shaw Wu, a veteran analyst at Sterne Agee, says, "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."