HP Reorganization Follows Q1 Revenue Drops in Printing, PC

HP’s announcement Tuesday that it was combining its printing and PC businesses into the new Printing and Personal Systems Group is the first major shakeup following CEO Meg Whitman’s edict in the company’s Q1 earnings call for the Imaging and Printing Group to “think hard” about how to drive new business growth. A decline in home printing and loss of ink sales contributed to a revenue decline of 7 percent in the Imaging and Printing business in Q1, which Whitman at the time called “the lifeblood” of the company. Revenue for the Personal Systems Group, meanwhile, tumbled 15 percent for the quarter.

"It’s no secret that HP has been struggling the last couple of quarters,” NPD DisplaySearch analyst Richard Shim told us. Some of the pains were “self-made,” some were the result of “market conditions” and others resulted from being “dependent on the fickle consumer market,” Shim said. After several disappointing quarters, the new management team is focusing on streamlining the business to reduce inefficiencies, he said.

The Printing and Personal Systems Group will be led by Todd Bradley, executive vice president of PSG since 2005, according to a company statement. Bradley’s counterpart in IPG, Vyomesh Joshi, is retiring after 31 years at the company. Combining the two groups will “rationalize HP’s go-to-market strategy, branding, supply chain and customer support worldwide,” said a company statement. Company spokesman Ethan Bauley wouldn’t comment on possible layoffs or expected cost savings.

Printing and PCs have been among HP’s strengths in the past, noted NPD’s Shim, and they're both hardware-driven and consumer-focused. By combining the two groups, HP can focus more on supply chain management and driving economies of scale while “using their leverage from a negotiating perspective to get better pricing,” Shim said. The reorganization is the first step toward becoming a streamlined company and eliminating inefficiencies that occurred as a result of going after growth, he said.

HP will have to deliver the kind of products consumers expect from the HP name to maintain the value of the brand, Shim said. “They are still a very highly valued brand in the consumer market,” he said, but the company is fighting a mature market in PCs that’s not seeing as much growth as it did in the past. Challenges for HP include the “fairly weak” holiday quarter, uncertainty about internal issues at the company, and fast growth in emerging markets where “HP isn’t the top brand,” Shim said. Additional obstacles to growth are “macroeconomic challenges in consumers’ discretionary spending,” a first tablet based on webOS that “was not a good effort,” and the company’s “flip-flopping on its consumer business,” he said.

HP isn’t the only company facing many external challenges. “Other brands are going through this as well,” Shim said, naming Lenovo as one that is adjusting as the market shifts from “going after growth to going after profit.” Calling HP’s reorganization “what they need,” he said he expects more moves from HP as it “gets its house in order.” More high-profile, “sexier” news from the company “might take a little” while given the current market lull, he said. The expected launch of Windows 8 at the end of the year should lead a resurgence in PC growth, and result in a new, more compelling tablet from the Palo Alto company, he said.