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Two Hewlett-Packard Units Will Join Under San Diego Boss

Posted on: Sunday, 16 January 2005, 15:00 CST

Jan. 15--Hewlett-Packard said yesterday that it will combine its personal-computer and printing divisions, putting the new business unit in the hands of San Diego-based executive vice president Vyomesh Joshi.

The move, which the Palo Alto-based company said is aimed at improving its market position and getting products out faster, hands the 50-year-old Joshi one of the most competitive and difficult businesses within HP.

For the past three years, Joshi -- known as "V.J." -- has run HP's cash cow, its $24 billion Imaging and Printing division. With an operating profit of 16 percent, Imaging and Printing is by far HP's most profitable division.

In personal computers, however, HP faces cutthroat price competition and what analysts believe is a fundamental distribution disadvantage compared with rival Dell. Dell sells directly to consumers, while HP sells through retailers. For its fiscal year ended Oct. 31, HP's $24 billion computer division posted an operating profit of just 0.9 percent.

"PCs have been barely profitable for a while, making about 1 percent (margin) for the company," said Roger Kay, an industry analyst with research firm IDC. "One of the ironies here is they're rewarding V.J. for running a good business by giving him a bad one."

A longtime HP veteran, Joshi will continue to run both divisions from his office in San Diego. No jobs will be relocated here as a result of Joshi's taking on the additional responsibility.

Duane Zitzner, head of the PC division, resigned. The 57-year-old's retirement had been in the works for about a year, HP officials said. Joshi is the architect of a major revamping of the printing division in 2001 known within HP as the "Big Bang." It essentially changed the way HP designed and brought printers to market.

Joshi challenged engineers to design a bevy of new products, such as digital photo printers, at low prices and bring them to retail shelves faster than the company had ever done before.

The move paid off, allowing HP to gain market share from Lexmark, which had been eating away at HP's dominance in printers. Joshi said in an interview yesterday that he "wants to do the same thing with the PC business" that the Big Bang accomplished for printers.

Combining the divisions may help end speculation that the technology giant would follow competitors in spinning off some of its divisions into separate companies.

In December, HP chief executive Carly Fiorina said the company's board had three times considered breaking up the technology giant. But she said the board decided its diversified portfolio of printers, computers, digital cameras, servers and information-technology services helped it weather fluctuations in the cyclical technology sector.

By contrast, IBM sold its personal-computer segment in December because its margins had become razor thin.

HP is second to Dell in both U.S. and worldwide market share for personal computers. In the third quarter, HP had 16.1 percent of the world market compared with Dell's 18 percent, and 20.5 percent of the U.S. market compared with Dell's 32.8 percent, according to IDC.

Merrill Lynch analyst Steven Milunovich said combining the divisions is a "slight positive given the possibility of improved management of PCs, both tactically and strategically."

Milunovich, who has called for HP to spin off its printer division, said, "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."

Milunovich believes Zitzner is leaving the company voluntarily and said Joshi "is a highly regarded manager."

"There is risk that a 'bad' business (PCs) could bring down a 'good' business (printers)," Milunovich wrote. He rates HP's shares as neutral. HP's shares ended yesterday up 12 cents at $20.07.

The Associated Press contributed to this report.

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Source: The San Diego Union-Tribune

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