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 user 2005-08-13 at 7:16:00 am Views: 47
  • #12647

    New order @HP !
    Date: Aug 05
    the split of its printing and PC divisions, and plans to lay off a tenth of its
    workforce, new Hewlett-Packard CEO Mark Hurd is wasting no time in stamping his
    own, firm footprint on the company

    In just under four months, the
    Hewlett-Packard (HP) of ex-CEO Carly Fiorina is almost unrecognisable. Under new
    CEO Mark Hurd, the computer and printer-making giant has not only announced
    plans to axe a tenth of its global workforce in a bid to cut costs, it has also
    split the company’s Personal Systems Group (PSG) and Imaging Printing Group
    (IPG) back into two separately-functioning and individually-focused divisions.

    “After a thorough review of our business, we have formulated a plan that
    will enable HP to begin delivering its full potential,” claimed Hurd in a
    statement. “We can perform better – for our customers and partners, our
    employees and shareholders – and we will.”

    The former NCR CEO is
    distancing himself as much as possible from the “diversification” strategy of
    Fiorina and moving clearly and boldly down the cost-cutting route. Cutting
    14,500 staff members – mainly from support functions such as IT, human resources
    and finance – and modifying US retirement benefit programmes from fiscal 2007,
    will accrue estimated ongoing annual savings of $1.9 billion. Half of these will
    be reinvested into the business, the other half is expected to trickle through
    to operating profit.

    But it’s not just about trimming the margins. It’s
    also about boosting top and bottom lines. When all Hurd’s restructuring is done,
    HP will be left with just three primary units: PCs; printing; and servers,
    storage computers and consulting. And for now, Hurd has earmarked HP’s printing
    division, its flagship and most important market, as the best way to achieve
    growth and deliver that “potential”.

    Vyomesh Joshi, referred to as VJ,
    who has resumed his former job as head of IPG, has outlined aims to reduce
    investment in basic products and increase expenditure in potential growth areas.
    On 12 July, the firm unveiled a new, faster
    inkjet technology that reduces photo printing time
    by half – to 14 seconds from the current printing time of 30 seconds. This “4-G”
    technology, as HP has labelled it, is based on a new type of
    inkjet printhead that uses a higher number of
    ink-delivering nozzles, which offers better printing quality, and a faster and
    cheaper printing process.

    The technology is a “master key” that will
    help HP retain its printer lead, VJ explains, by cutting development costs by
    half (because all print heads will be built using the same mechanical process
    rather than a mixture as in the past) and opening new high-end markets. “[This]
    changes the game,” he said in a statement. “It changes the way we are going to
    develop and market products…We want to get our cost structure right and regain
    our market share.”

    Because HP has developed the technology itself – as
    part of a five-year, $1.4 billion effort – the company will not be forced to
    share profits with outside vendors such as Canon and Konica-Minolta, as it had
    to in the past when it used their technology.

    The division could
    certainly do with some HP “invent”. IPG is crucial, currently supplying more
    than two-thirds of HP’s annual profit. But according to Gartner, HP’s US market
    share in
    inkjet printers eroded to 35 per cent
    in this year’s Q1, down from more than 47 per cent a year earlier. This has been
    largely down to the likes of Dell, Epson, Canon and Lexmark, which have been
    cutting their prices and bundling printers with computers to encroach on HP’s

    VJ claims the technology can up HP’s share of the total printing
    market – which includes everything from book publishing to packaging – from 11
    per cent to 17 per cent, boosted by the industrial printing segment that is
    migrating from traditional to digital technologies. And in a decade, VJ hopes to
    grow his unit size to $40 billion.

    Unsurprisingly, analysts have rallied
    behind the technology and some have suggested it might show up on the bottom
    line from the middle of next year. The Wall Street Journal cited Gartner
    analyst David Haueter who said the new
    technology would likely help HP “maintain market share in a market in which
    they’ve been losing share to Dell and Lexmark”.

    IDC analyst Ron Glaz
    added: “This announcement could have a major impact on the marketplace.” But he
    suggested that the move will likely force a response from rivals, many of which
    don’t have printers that can produce a digital photo in 14 seconds.


    But with hype building around HP’s imaging and
    printing business since the divisions’ split, the direction of the PC business
    has received little attention. This has reignited speculation that HP is gearing
    the division – which encompasses HP’s notebook and desktop PCs, handhelds,
    monitors, workstations and related support services – up for sale, particularly
    in the wake of IBM’s $1.25 billion sale of its PC division to Lenovo.

    This school of thought carries some credibility. Gartner had warned back
    in November that both IBM and HP were in danger of being forced out of the PC
    manufacturing industry by 2007 by Dell if profit margins and profitability
    dropped too low.

    And, according to a recent Merrill Lynch survey, HP is
    feeling the retail PC pressure. Studies of retailers such as Best Buy and
    Circuit City in June show that although HP remains the top retailer in desktops
    with a 31 per cent share, the company’s retail space gained just 1 per cent over
    a year ago and that of its Compaq line fell to 9 per cent from 23 per cent.
    Gateway’s retail space, meanwhile, surged to 15 per cent from 0 per cent a year
    ago. In the notebook sector, HP’s share of retail space dropped to 20 per cent
    from 29 per cent; Compaq slipped to 15 per cent from 17 per cent.

    history of the Todd Bradley, the newly-appointed EVP of PSG, has also fuelled
    the murmurings; he played a part in splitting PalmOne from PalmSource in 2002.


    IDC’s PC analyst Roger Kay rebukes
    suggestions that Hurd is gearing PSG up for sale, claiming that he merely wants
    to give the division a committed leader who can boost the division and hence the
    company’s top and bottom lines – and at the same time allow the printing
    division its own clear focus. “I don’t think Todd Bradley has been brought in to
    split PSG off, even though he had a role in splitting PalmOne and PalmSource,”
    he told OPI. “He’s a well-qualified senior executive who is pulling the reins
    together in the PC division, and about time, too.

    “I think it was
    foolish to put PCs under printers, and a poor reward for old VJ to give him an
    underperforming division for having run a top-performing one,” he added. “PCs
    need a dedicated leader who knows the business, and it is a business quite
    distinct from printers.”

    The PC division’s balance books for the most
    recent quarter are not in bad shape. It posted a modest operating profit on a 6
    per cent revenue increase. Profits at IPG, meanwhile, fell 14 per cent as sales
    slumped 5 per cent on the back of pressure from mounting competition.

    “PSG’s results are improving quarter by quarter, albeit slowly and not
    enough yet,” said Kay. “I think the property is central to what HP is trying to
    achieve…the PC is the hub of HP’s version of the digital home, and I believe
    that Bradley was brought in to tighten up the operation further and give it

    After months of downgrading estimates, analysts have recently
    injected more optimism into the PC market. Both IDC and Gartner reported
    substantial gains in global computer shipments during Q2, thanks to low-cost PCs
    and international expansion. IDC pegged year-over-year gains at 16.6 per cent,
    Gartner at 14.8 per cent – both way ahead of expectations. HP grew global sales
    by 16 per cent in the quarter, while maintaining its 15.6 per cent global share.
    Dell, in first place, increased global unit shipments by 24 per cent and
    increased worldwide market share by 1.1 per cent to 19.3 per cent.

    is clearly confident that he has the man that will drive HP’s PCs forward. “Todd
    Bradley is an outstanding executive with a long track record in growing
    business, executing against plans and exceeding targets,” he said in a
    statement. “His experience in driving growth and profitability in highly
    competitive hardware fields makes him well-suited for this position… Now, by
    managing PSG and IPG as separate, highly-focused organisations, we can further
    sharpen our competitiveness and improve our cost structures.”

    For the
    long term, the separation of PSG and IPG should create a new efficiency in both
    divisions that analysts believe will allow the company to develop new products
    faster and let it bundle printers and PCs more easily. And of course, HP may
    also stretch its “invent” tag over other parts of the business through
    additional five-year technology investments.

    The ongoing questions over
    HP’s prospects of gaining market share still linger, but with Hurd’s firm grip
    on the company, there should at least be plenty of action to accompany the