The HP Reorg: Positioning PC’s for Sale?

A piece on Forbes tries to sort out the winners and losers in HP’s reorganization. The change, where sales and marketing are consolidated, and PCs and printers are combined, clearly favours a focus on enterprise hardware, software and services. HP has been losing some ground to IBM and Oracle, and this change should allow them to retain the substantial traction they have, plus gain some ground on others in the space. But what does this mean for the personal computing and printing groups? It could be the repositioning for a sale.

Printing Not Dead Yet

Despite assertions by the author in the Forbes piece (and at least one of the commenters on the article), printing isn’t dead. Not by a long shot. Sure, it has diminished some. With the advent of high-resolution tablets, we may be on a path where a truly paperless environment is possible. But keep in mind we’ve heard that song before. We were supposed to be paperless back in the mid-1980’s. Instead, the rise of the PC lead to an increase in paper usage, since it became trivial to print almost anything. There are still large segments of the technology-using population that want to see documents on paper, and while that group is getting smaller, it is getting smaller very, very slowly.

So printers have plenty of life left in them, although certainly their days are numbered. But until then, there is still a lot of money to be made off of printers, specifically with the ink. Profit margins on ink and other consumables makes up for the loss-leader sales of the printers themselves. Overall, the margins are much higher than PC’s. In HP’s case, PC’s only return about 5% profit, which is adequate but not outstanding (particularly in contrast to the 20+% that can be achieved on enterprise sales). While HP’s personal computing division has some attraction simply because of its size and brand position, as a business proposition, it’s prospects are less exciting. If you include pressure from tablets and smartphones, the future for traditional PC’s is less rosy. The one, lone bright spot is likely ultrabooks, but even those are likely to come under pressure as tablet power and functionality continues to grow.

Two, Two, Two Businesses In One

So why combined printers and PC’s? Philosophically, they have an overlap. They are both largely consumer focused, so putting them under one group makes some sense from a sales, marketing and distribution point of view. But other than a few small areas, they share little to nothing in terms of parts or technologies. Their only substantial commonality is they both carry Wireless-N radios and a TCP/IP protocol stack. What’s the motivation for putting them together?

Simple: it’s the cherry on the sundae. If you are going to sell the personal computing group, having a nice extra like printing makes it all that more valuable to a buyer in the short-term. The ill-considered pseudo-plan by Leo Apotheker seemed a rather desperate “dump it now!” move, rather than something that had been planned and reasoned. I suspect that the offers that did appear were somewhat on the low-ball side, in part because some buyers had detected a degree of desperation and panic. But a PC division with a higher-margin business included now has better value. It brings in some short- and medium-term profitability while the new buyer wrings what they can out of the costs to get the PC profit margins up.

Adding printers could increase the price that HP could expect to sell the group off. It also makes it clear that HP’s ambitions are focused on enterprise. Prior to this, and the WebOS shutdown, HP’s sale of the PC group appeared to be half-hearted. Was HP getting out of consumer products or not? The personal computing group wasn’t the only consumer-focused division at the time. With the Palm/WebOS group, printing and calculators still out there, it looked like a company trying to raise short-term cash, not focus on a particular area. But, by basically ending WebOS and combining personal computing and printing, HP is actually taking steps to focus on their enterprise business.

Not Necessarily A Sale

Of course, a sale isn’t the only possible explanation for combining the two. Putting two consumer-oriented groups together does make some sense, without trying to sell it off. It would make spinning the group off into a separate company easier as well, again because it puts the two big consumer-focused groups into a single organization. It would give the spin-off the same short- and medium-term profitability that a buyer would get.

Combining also allows some costs savings, even if the new group is kept within the HP corporate umbrella. It would allow consolidation of marketing and distribution, eliminating some duplication of effort and cost. If they aren’t already, it could also allow consolidation of support, as well as using a smaller group of software developers to deal with drivers and such.

But this new structure does make the idea of a sale more attractive. Again, it would give a buyer a solid PC business with leading marketshare, as well as a business that is still showing considerably more profit than PC’s. That profit stream may not last forever, but while it is still viable, it buys them time to evolve the PC business. Together, they make a fairly attractive consumer technology business.