NEWS

HP overhaul combines PC and printing units

CEO: Result will be 'faster, more streamlined' company

BRANDON BAILEY
Hewlett-Packard displays the Envy 14 Spectre ultrabook in Las Vegas on Jan. 10. Hewlett-Packard confirmed on Wednesday the merging of the printing and PC divisions.

SAN JOSE, Calif. - Hewlett-Packard Co. on Wednesday confirmed plans for a corporate overhaul that will combine two of its biggest divisions, printing and PCs, in an effort by new CEO Meg Whitman to turn the troubled tech giant around.

Under the reorganization, which represents some of the biggest changes at HP in years, Whitman is also consolidating global sales, marketing and communications functions that had been spread across different business units.

"The result will be a faster, more streamlined, performance-driven HP," Whitman said in a statement Wednesday morning.

The announcement does not mention any cutbacks or layoffs, although industry experts have said that some cuts are likely as Whitman follows through on a promise to streamline HP's far-flung tech businesses and trim operating costs.

HP's announcement did confirm a significant shake-up in the executive ranks: The combined printing and PC unit will be led by longtime PC chief Todd Bradley, 53, who is widely credited with helping make HP the world's No. 1 seller of PCs in recent years. Veteran printing head Vyomesh "VJ" Joshi, 57, will leave the company.

In addition, HP said its global accounts organization, responsible for selling commercial tech products to big customers around the world, would be added to the responsibilities of David Donatelli, an executive vice president who already oversees the HP division responsible for producing commercial data center hardware, such as servers, storage and networking gear.

The company said Jan Zadak, an executive vice president who had overseen global sales, will move into a new role that will be announced later.

HP also said it will consolidate marketing functions from different business units under Marty Homlish, the company's chief marketing officer. Similarly, chief communications officer Henry Gomez will now oversee public relations staffers across the company.

The biggest changes, however, involve printing and PCs, which have been the powerhouse businesses at HP in past years, but which are no longer the biggest growth engines.

Printing and PCs provided a combined $15 billion in revenue for HP last quarter, or about half the company's total sales. But both divisions have reported slowing sales in recent years, as printing habits have changed and consumers have turned to smartphones and tablets as alternatives to PCs.

HP has considered a number of broad changes for its PC and printing groups in recent years, including former CEO Leo Apotheker's controversial proposal last summer to get out of the PC business entirely. That plan was part of a broader strategic effort to emphasize more profitable businesses, including commercial software and cloud computing.

Whitman vetoed the idea of a PC spinoff soon after she replaced Apotheker last fall, after concluding it didn't make financial sense. But she has said HP will continue to expand its software and commercial tech businesses.

Reaction on Wall Street to the new plan was mixed. ISI Group analyst Brian Marshall called the plan "a positive move aimed at value creation." In an interview, he said combining the two groups should allow HP to cut some redundant costs and increase its buying power for components and other supplies.

Needham analyst Richard Kugele, however, said in an email that he views the restructuring "as a worrying sign" that the printing division may have deeper problems than HP has previously acknowledged. "We believe Bradley can fix the operation, but it would likely take a considerable amount of time."

Some analysts said the new corporate structure in particular shows the declining prominence of printing at HP. Printing was once the company's biggest business, providing a third of HP's annual revenue and more than half its operating profit during the middle years of last decade. But printing's contribution has gotten smaller as HP has expanded in data center hardware, software and tech services.

While sales of PCs and printers are not drying up overnight, analysts say both businesses are threatened by new technology trends. Many consumers and workers are turning to smartphones and tablets instead of PCs, and they are increasingly using those devices to store and display documents and photos, instead of printing them out.

HP hopes that merging the two divisions will help save money by consolidating sales and other functions.

A source familiar with HP's plans, who spoke on condition of anonymity, said the company also hopes to design and market its printers and PCs more effectively together.

The effect of any cutbacks could not be determined Wednesday. HP has nearly 350,000 employees but it does not provide a breakdown by division. The printing business is headquartered near San Diego, while the PC unit has been based in Silicon Valley.

Whitman has previously said she wants to cut expenses, both to bolster profits and so she can invest more in HP's research and development efforts.

She has blamed some of the company's slowing sales on a failure to keep pace with innovations from competing tech companies.

On paper, combining the two divisions would make the company's flagship PC business look better almost immediately, said Charles King, a tech analyst with the Pund-IT firm. While the PC unit produces more revenue, the printing group has traditionally been more profitable, thanks to recurring sales of expensive ink.

HP often sells printers at close to its own cost, while selling ink at a high markup because it knows each printer will create a steady stream of future ink sales.

Some industry experts, however, noted that PCs and printing are very different businesses.

With consumers and office workers printing less, said Angele Boyd, a printing industry expert for research firm IDC, the biggest growth opportunities lie in selling big digital presses and ink to publishers and other commercial printing companies, which don't necessarily buy PCs.

"I don't see what you gain by putting the two together," she added.

HP has tried combining the PC and printing divisions before: Former CEO Carly Fiorina tried merging the two units in 2005, when the printing business was thriving and the PC unit was struggling. But her successor, Mark Hurd, reversed that move after just a few months.

Joshi and Bradley, meanwhile, are both well regarded in the tech industry, and both have been considered possible CEO candidates at HP in the past. But ISI Group's Marshall noted that Bradley is especially well-known and liked on Wall Street.

Bradley has also let it be known that he was frustrated at being passed over for CEO and at Apotheker's treatment of the PC division, according to analyst Roger Kay of Endpoint Technologies, who said Whitman may have wanted to make Bradley happy by giving him more responsibility.

Joshi's plans are unclear. HP's announcement said he is retiring after 31 years at the company. "VJ embodies the spirit of HP and his impact on the company has been tremendous," Whitman said. "We wish him the very best as he embarks on a new chapter in his life."

***

Two become one: Hewlett-Packard Co. is combining its printer and PC divisions as it tries to overcome dragging profits, growing competition and the absence of a focused identity.

Cutting costs: The move will help the company streamline its business and save money to invest in growth. HP also hopes the restructuring will boost innovation. It's one of the first big moves by Meg Whitman, who took over as CEO last year.

Not the first time: HP had briefly combined the two businesses before, when Carly Fiorina was at the helm. Mark Hurd undid that when he took over as CEO in 2005. Hurd left in 2010.

- The Associated Press

***

Timeline

Here's a timeline of some key events in Hewlett-Packard Co.'s recent history:

- Sept. 3, 2001: HP announces it is buying fellow computer maker Compaq Computer in a deal that would create a formidable rival to IBM.

- May 3, 2002: HP and Compaq combine businesses following a contentious road to the acquisition, which was opposed by former director Walter Hewlett, the son of HP co-founder William Hewlett. The final acquisition price was $19 billion. HP added the letter Q to its ticker symbol to create "HPQ."

- Feb. 9, 2005: CEO Carly Fiorina steps down amid upheaval about the company's performance following her contested decision to buy Compaq.

- March 29, 2005: Mark Hurd named as new CEO. Starts job in April.

- May 1: IBM sells its personal computer division to Chinese computer maker Lenovo Group for $1.75 billion. IBM now focuses on consulting and software, outsourcing much of its manufacturing.

- July 19: HP announces plans to cut 14,500 jobs, Hurd's first big act as CEO.

- Sept. 22, 2006: HP Chairwoman Patricia Dunn is forced from the board over a disastrous investigation into boardroom leaks to the media that included spying on reporters' and directors' phone records.

- Aug. 26, 2008: HP buys Electronic Data Systems, which sells technology services, for $13.9 billion.

- Nov. 11, 2009: HP agrees to buy networking software and equipment maker 3Com Corp. in a $2.7 billion deal.

- April 28, 2010: HP agrees to buy struggling smartphone maker Palm Inc. for nearly $1 billion in cash. It says Palm's webOS operating system will help boost its participation in the mobile market.

- Aug. 6: Hurd resigns as CEO after investigation into a sexual harassment claim finds expense reports that were allegedly falsified to conceal a relationship with an HP marketing contractor.

- Sept. 30: HP names Leo Apotheker CEO. Apotheker was the chief of German business software maker SAP AG, which did not renew his contract after financial performance faltered. HP names Ray Lane, another CEO candidate, non-executive chairman. Lane is a partner at Kleiner, Perkins Caufield & Byers, a renowned venture capital firm.

- Dec. 20: The Securities and Exchange Commission launches investigation into the circumstances of Hurd's forced resignation, which triggered a $9 billion drop in HP's market value. The Wall Street Journal reports the SEC is looking into Hurd's expense reports and his accuser's claim that he told her about the EDS acquisition in advance, among other things.

- Jan. 14, 2011: HP says in a filing in a federal court in San Jose, Calif., that it will investigate the circumstances of Hurd's departure and his severance package, in response to a shareholder's demands.

- Jan. 20: HP shakes up board, replacing four of its members.

- May 3: Leaked memo from Apotheker shows the CEO warning of "another tough quarter" for the company, sending HP's shares sharply lower. The memo says management needs to "watch every penny and minimize all hiring."

- Aug. 18: HP announces it will discontinue its tablet computer and smartphone products and may sell or spin off its PC division.

- Sept. 23: HP fires Apotheker after just 11 months and replaces him with billionaire businesswoman and political aspirant Meg Whitman, who accelerates an internal review on the fate of the PC division.

- Oct. 27: HP says it will keep the PC division after all, saying that keeping it is right for the company, its customers, shareholders and business partners.

- Dec. 9: HP says that instead of selling its webOS mobile system or killing it off, it's making it available as open-source software that anyone can use and modify freely. HP says it still plans to develop and support webOS. In offering it to the open-source community, the company is hoping more mobile apps will be developed under webOS.

- Feb. 22, 2012: Whitman urges investors to be patient and talks of a "multiyear journey" for a turnaround. She says she has a good sense of what the company needs to do, but it will take time to fix HP's internal operations and make investments to grow in areas such as security services, information management and Internet-based systems known as cloud computing.

- Wednesday: HP says it will combine its PC and printers businesses. The move will save an unspecified amount of money as the company expects improved productivity and efficiency and streamlined customer support and supply chain.