HP Shuffles Some Chairs on the Titanic

by Tom Taulli | March 21, 2012 11:54 am

HPQ1 HP Shuffles Some Chairs on the Titanic[1]Hewlett-Packard (NYSE:HPQ[2]) is going to pull off another rearranging of its units. This time it will merge[3] its PC and printing businesses. It’s certainly a big move from new CEO Meg Whitman.

She’s hoping it will wring more costs out of the organizations as well as lead to more synergies. In other words, expect a large number of layoffs.

The new leader for the unit will be Todd Bradley, who served as the executive vice president of the PC group. The chief of the printing division, Vyomesh Joshi, will be retiring.

The new unit will be called the printing and personal systems group (I’m not really sure what “personal systems” means — but it sounds like something a consultant dreamed up). And it will be a behemoth, with $65 billion in revenues.

Yet the restructuring probably won’t help much. The fact is the PC and printing segments are both lousy businesses. In the latest quarter, HP’s PC unit posted a 15% drop in revenues, and printing was off by 7%. Let’s face it, the competition is intense from players like Dell (NASDAQ:DELL[4]) and Lenovo (PINK:LNVGY[5]). At the same time, consumers are rapidly moving to Apple’s (NASDAQ:AAPL[6]) iPad. However, HP killed off its tablet.

This isn’t HP’s first attempt to rearrange its PC and printing divisions. Back in 2005, former CEO Carly Fiorina combined[7] the units, and then her successor, Mark Hurd, pulled them apart again.

Is it any wonder that Wall Street is often confused with HP? Besides, the latest reorganization announcement lacked any numbers on the cost savings and headcount reductions.

Unfortunately for HP, other parts of its business continue to face pressure. The server segment, which does have strong margins — must deal with rivals like Cisco (NASDAQ:CSCO[8]) and Dell.

HP also has been slow to move into cloud computing, which offers lots of growth. Already companies like Oracle (NASDAQ:ORCL[9]) and SAP (NYSE:SAP[10]) have spent billions on cloud acquisitions.

So, the prospects for HP are far from clear. Roughly half its revenues come from commoditized businesses, and even its growth segments are under attack.

True, the stock price does look cheap, at 8 times earnings. But it has no meaningful catalysts to get things back on track any time soon.

Tom Taulli runs the InvestorPlace blog IPO Playbook[11], a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”[12], “All About Short Selling”[13] and “All About Commodities.”[14] Follow him on Twitter at @ttaulli[15] or reach him via email[16]. As of this writing, he did not own a position in any of the aforementioned securities.

Endnotes:
  1. [Image]: http://investorplace.com/wp-content/uploads/2011/12/HPQ1.jpg
  2. HPQ: http://studio-5.financialcontent.com/investplace/quote?Symbol=HPQ
  3. merge: http://online.wsj.com/article/SB10001424052702304636404577295240723034550.html?ru=yahoo&mod=yahoo_hs
  4. DELL: http://studio-5.financialcontent.com/investplace/quote?Symbol=DELL
  5. LNVGY: http://studio-5.financialcontent.com/investplace/quote?Symbol=LNVGY
  6. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  7. combined: http://www.foxbusiness.com/technology/2012/03/21/h-p-merges-printing-pc-unitsagain/#ixzz1plFF5s8K
  8. CSCO: http://studio-5.financialcontent.com/investplace/quote?Symbol=CSCO
  9. ORCL: http://studio-5.financialcontent.com/investplace/quote?Symbol=ORCL
  10. SAP: http://studio-5.financialcontent.com/investplace/quote?Symbol=SAP
  11. IPO Playbook: http://investorplace.com/ipo-playbook/
  12. “The Complete M&A Handbook”: http://goo.gl/aLNDk
  13. “All About Short Selling”: http://www.amazon.com/All-About-Short-Selling/dp/0071759344/ref=sr_1_1?s=books&ie=UTF8&qid=1302184310&sr=1-1
  14. “All About Commodities.”: http://www.amazon.com/All-About-Commodities/dp/0071769986/ref=ntt_at_ep_dpi_10
  15. @ttaulli: https://twitter.com/ttaulli
  16. email: mailto:tom@taulli.com

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