WHEN GREAT IS NOT GOOD ENOUGH ……..AT HP's PRINTING DIV !

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Date: Thursday June 26, 2008 01:05:27 pm
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  • Anonymous
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    http://bigtech.blogs.fortune.cnn.com/2008/06/24/hps-golden-goose/
    HP’s golden goose
    When is great not good enough? When you’re Hewlett-Packard’s printing group.
    A
    few years ago, the $28 billion business, headed by veteran Vyomesh
    Joshi, was the goose that kept laying golden eggs. It supplied most of
    the company’s profit while the PC group lost money and the corporate
    technology group struggled. Now new leadership and smart acquisitions
    have fixed the PC and corporate businesses, and printer sales are
    showing signs of weakness.Though the printers and ink have so far
    pulled in a healthy $2.4 billion in profit this year for HP (HPQ), the
    growth rate is slowing. To cut costs, Joshi last week announced a
    reorganization that trims the printer group from five divisions to
    three. The consumer hardware and ink businesses will be collapsed into
    one unit, laser printers and other enterprise operations will be
    collapsed into another, and graphics will be the last.

    But while
    HP’s printing shakeup may keep profits healthy for now, it won’t bring
    new money in the door. The only quick way to do that would be to
    reverse a troublesome trend: Consumers, who make up the bulk of HP
    printer sales, are no longer bingeing on ink. HP had hoped that its
    advances in its printer technology would inspire more folks to avoid
    professional photo finishers, but that hasn’t really happened. And
    since HP is already the biggest company in inkjet printers, it can’t
    grow much by simply stealing customers from rivals.In a twisted way, HP
    brought this on itself. A big part of the reason why the printing group
    is seen as troubled now is that investors have high expectations after
    it delivered reliable sales growth for so many years. Especially in the
    last decade, as home PCs became as common as televisions, HP played a
    big role in establishing the printer as a must-have accessory for
    producing everyday fare like book reports, letters and photos. Now it’s
    easy to see that printing isn’t as necessary to the PC experience as it
    used to be, with online social networks like Facebook and MySpace based
    largely on sharing information electronically, not printing it. But as
    printing sales growth slows, investors still expect the division to
    make up for it somehow.

    For growth, HP is looking to markets
    like large businesses and commercial print shops, where rivals like
    Xerox (XRX) have more experience.  The good news about those: they
    print a lot. The bad news: it won’t be as easy for HP to turn big
    profits. So to fund those efforts, HP is mercilessly cutting costs from
    its older, slower-growth printer businesses. Joshi has already
    jettisoned the digital camera business and outsourced much of
    manufacturing for black and white laser printers, and he’s still
    looking for more cost savings.All of which makes sense – but is HP
    cutting too much, too fast? Under CEO Mark Hurd, the business groups
    have adopted a disciplined approach to innovation where each group
    funds tomorrow’s hit by cutting costs out of yesterday’s – a tactic few
    investors would argue with. But the downside is, innovation can’t be
    plugged into a spreadsheet, or put on a schedule. Just look at Apple’s
    (AAPL) computer business – it achieved only anemic growth for years,
    until a boost from the iPod, retail stores, and a switch to Intel
    (INTC) chips recently put the shine back on the brand, but Apple
    continued to invest in it.So far, analysts say there’s no indication
    that HP is slicing too far. Which is good – because I’ve heard you want
    to be careful with a golden goose.

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