HP quells PC spin-off rumours

HP has quelled speculation that it would follow IBM’s lead and spin off its PC business by merging the unit with its highly profitable Imaging and Printing Group (IPG). The combination of HP’s Personal Systems Group (PSG) with IPG will form an Imaging and Personal Systems Group (IPSG) boasting annual global sales in excess of US$48bn.

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By  Stuart Wilson Published  January 15, 2005

HP has quelled speculation that it would follow IBM’s lead and spin off its PC business by merging the unit with its highly profitable Imaging and Printing Group (IPG). The combination of HP’s Personal Systems Group (PSG) with IPG will form an Imaging and Personal Systems Group (IPSG) boasting annual global sales in excess of US$48bn. The newly created IPSG group will combine the IPG unit’s range of printers, supplies, projectors and digital camera products with PSG’s extensive portfolio of desktops, notebooks, handhelds, personal storage appliances and workstations. Vyomesh Joshi, currently serving as executive VP of IPG, will lead the brand new IPSG division. Duane Zitner, former executive VP of the HP’s PSG unit plans to retire but will assist Joshi with the integration of the two business units. “There is no person better suited to lead this new organisation than Vyomesh Joshi,” declared Carly Fiorina, HP chairman and CEO. “Under his leadership, the Imaging and Printing Group has grown to be a highly profitable $24 billion business that leads the market in virtually every category in which it competes. Applying this leadership to the newly combined organisation allows us to achieve an even higher level of performance.” HP hopes that by merging the two business units, it will maximise efficiency, accelerate its time to market and intensify its competitive focus and increase the levels of co-operation that already exist between the groups. This co-operation, driven in part by the development of digital entertainment initiatives, allows HP to bundle products from both business units into comprehensive solutions for individual consumers as well as small and medium business (SMB) customers. While HP’s IPG business has been the company’s cash cow producing more than its fair share of profits, the PSG business has struggled to produce a consistent level of profitability against a backdrop of declining margins and severe price erosion in its major product segments. For the year ending October 31st 2004, IPG posted operating margins of 15.9% on global sales of US$24.2bn. In contrast, PSG’s operating margins stood at 0.9% on sales of US$24.622bn. HP’s move cements the company’s ambition to be seen as a one-stop-shop for computing needs — especially at a consumer and SMB level. The deal should allow greater interaction between the PC and printer business in terms of product distribution and channel strategy. While HP’s decision to fuse PSG and IPG together has curbed speculation that it would spin off its lucrative printing business, analysts still believe that a more fundamental separation could be on the cards long-term. Steve Milunovich, analyst at Merrill Lynch, commented in a note to clients: “HP says the move does not signal preparation for a breakup of the company, though it does seem to support our contention that printers and PCs could be spun off together.” Last year HP merged its software, enterprise hardware and services business into a unified Technology Solutions Group (TSG) focused on end-to-end enterprise IT solutions.

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