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JANUARY 18, 2005
By Ben Elgin A Pep Pill for HP's PCs? The giant says it can fix the ailing business by combining it with the healthy printer division. Investors, however, await detailed plans
In a bid to bolster its flagging PC business, Hewlett-Packard (HPQ ) announced on Jan. 14 its second major structural reorganization within the last year. HP will combine its PC business with its lucrative printing and imaging division to create a massive, $49 billion entity dubbed the "imaging and personal systems group." The new division, which will account for 61% of the Silicon Valley computing giant's sales, will be led by current HP printers chief, 50-year-old Vyomesh Joshi. The longtime head of the PC business, Duane Zitzner, will retire, according to HP. TECH SYNERGIES. The move is an effort to invigorate HP's PC business, which has lagged behind industry leader Dell (DELL ). During its 2002 merger with Compaq, HP officials said the economics of its PC business would improve, predicting 3% operating margins by 2003. Instead, the unit has struggled to stay in the black, posting 0.9% operating margins during its most recent fiscal year -- badly trailing Dell's 8.8% margins. By combining the units, HP hopes to beef up profits by better integrating the manufacturing supply chains and sales distribution channels for PCs and printers. In addition, HP officials believe that merging the divisions will make it easier for them to share and integrate technologies, which could be critical in the coming years as the outfit battles everyone from Dell to Sony (SNE ) to become the leading provider of digital technology for the home. "You will see tremendous leverage between these businesses," says Joshi. HP management certainly appears unafraid to shake things up. Last year, the giant combined its services and enterprise-computing businesses. IGNORING THE NEWS. Still, the latest move could displease investors and analysts who have urged HP to spin-out its profitable printer business. Although printing and imaging contribute just 30% of sales, it accounts for more than 75% of HP's operating profits. Tying the profit-friendly printer business with the struggling PC unit could complicate any such effort: "This contradicts any suggestion of a spin-off," says Joshi. Initially, at least, investors appeared to shrug off the news. HP shares closed up less than 1%, to $20.07, on Jan. 14. Don't expect that to change much until Joshi reveals his detailed plans for fixing one of HP's most troubled businesses.  Elgin is a correspondent in BusinessWeek's Silicon Valley bureau Edited by Jim Kerstetter
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