*NEWS*THE NEW ORDER @ HP !

[Anonymous]

New order @HP !
Date: Aug 05
With
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
lead.

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 inkjet
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.

Rumours

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.

The
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.

Competition

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
momentum.”

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.

Hurd
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
thought.

[Author]

August 13, 2005 at 7:16 AM