HP’s Division Consolidation Opens It to Cost Savings, Spinoffs

Hewlett-Packard€™s decision to consolidate its printing and personal computer divisions under veteran manager Todd Bradley is possibly the beginning of some very big things, according to analysts. At the very least, the move will offer HP some bottom-line savings; it could also set the company up for a more radical move, such as spinning off a division into a whole new entity.

At the same time it consolidated those divisions, HP also engaged in some other corporate streamlining: its Global Accounts Sales organization joins the newly created HP Enterprise Group, headed by David Donatelli, and its overall marketing functions will be unified across business units. Its Global Real Estate function will also be consolidated into Global Technology and Business Processes. It€™s a lot of movement, altogether, and suggests that relatively new CEO Meg Whitman has been planning some big moves for some time.

According to analyst Jack Gold, in a March 21 research note, both HP€™s Personal Systems Group (PSG) and Imaging and Printing Group (IPG) have been €œrelatively underperforming€ in terms of margins and profitability. €œBoth have exhibited a downward revenue trend over the past several quarters reflecting market realities,€ he wrote, €œwhich will not likely have any dramatic upticks in the short term, especially given HP€™s failure to effectively cash in on the big trends in mobility.€

Meanwhile, HP€™s Services group and Enterprise Servers Storage and Networking Group both remain profitable: €œBoth are doing relatively well in light of a recovering business spending environment and need for infrastructure improvements in emerging markets.€

If HP is positioning itself to either spin off its businesses or sell them, Gold argues, €œit is the right move.€ A divided HP could €œincrease its focus and improve overall performance for both entities after a split.€ An enterprise-focused segment could deal with the seismic shifts and fierce competition in that area, even as its consumer cousin battled it out with its likes of Apple and Samsung. At the very least, segregating its divisions would allow HP to devote more research and marketing dollars to battling IBM and Oracle in the enterprise space.

In the shorter term, other analysts see HP€™s move as good for the bottom line. €œWe do not expect enormous synergies from the reorganization, but it will help HP€™s cost-reduction efforts this year,€ Peter Misek, an analyst with Jefferies & Co., wrote in a March 21 research note. €œHP plans on cost savings from rationalized branding, supply chain and customer support services.€ The new structure could also simplify customer interactions.

While HP€™s realignment is certainly newsworthy, it represents an altogether different plan than the one formulated under former CEO Leo Apotheker, who wanted to sell off PSG and transform HP into primarily an enterprise-services concern.

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