HP confirms it will combine PC and printing units, and other changes

Hewlett-Packard (HPQ) 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.

In

an interview with this newspaper, Whitman said the moves are intended to reduce costs so HP can invest more in developing new technology. Once the merger is completed, she added, HP expects its printing and PC business will grow at a faster rate than competitors.

Whitman also dismissed speculation that HP might be combining the two divisions to get them ready for a future sale or spin-off. When asked if that was her plan, she said Wednesday morning, “Absolutely not true.”

While the company did not announce any layoffs Wednesday, industry experts have said that some job cuts are likely to result from the consolidation, as Whitman follows through on a promise to streamline HP’s far-flung tech businesses. Whitman did not rule out

that prospect, but said the company is not ready to discuss the details of its plans publicly.

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 Léo 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 to the new plan was mixed on Wall Street, where HP’s stock fell slightly on Wednesday after the reorganization was announced.

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 Angèle 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 sprit of HP and his impact on the company has been tremendous,” Whitman said in a statement. “We wish him the very best as he embarks on a new chapter in his life.”

Contact Brandon Bailey at 408-920-5022; follow him at Twitter.com/BrandonBailey

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