With printer sales slowing, HP favors PCs

Printers -- long the backbone of HP's business -- has a dwindling future, and HP needs to cut costs to boost spending on research

The writing may finally be on the wall for Hewlett-Packard's storied print division.

HP is expected to announce soon that it will merge its Imaging and Printing Group into its PC-making Personal Systems Group as a way to reduce costs and simplify its business. Under the plan, Vyomesh "VJ" Joshi, who has run HP's print business for the last 20 years, will step down, and Todd Bradley, head of the PC group, will run the combined division, according to reports.

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HP has yet to confirm the move, though it has not denied it either. The Wall Street Journal, citing unnamed sources, said the change would be announced Tuesday. Reuters also reported that a move was imminent. If the announcement is made, it's likely to come before HP's annual shareholder meeting on Wednesday afternoon.

The move would reflect two realities, industry analysts said: That the market for printers and printer ink, long the backbone of HP's business, has a dwindling future, and that HP needs to cut costs somewhere in order to boost spending on research and bring innovation back to the company.

It wouldn't be the first time HP has merged its printer and PC groups. Carly Fiorina did that in 2005, just before the end of her tenure as CEO, but Mark Hurd reversed the decision soon after he replaced her. Hurd reportedly revisited the idea a few years ago but decided against it.

This time it's different, however. When Fiorina made the move, she put the combined division under Joshi. This time, the man who has driven a good part of HP's profits for more than a decade will leave the company, and the head of the PC division will be put in charge.

That could reflect the fact that the humble PC might actually have a brighter future than printers, something that seemed unthinkable seven years ago when IBM had just sold its PC business to Lenovo.

"The problem is, this is just a trailing-edge business," said Endpoint Technologies analyst Roger Kay. "Printer sales are declining, ink sales are declining, people just don't print as much any more."

The iPad and the Kindle have made it easier than ever to read documents electronically, he noted, and technologies that allow people to sign documents electronically, from DocuSign and others, have removed a big hurdle to doing away with the printed page.

"The growth just isn't there, and as HP looked out in the future, I think they're not seeing it there either," Kay said.

Printer ink remains one of the most profitable parts of HP's business, but sales in its Imaging and Printing Group have been declining. They totalled $25.8 billion last year, a billion dollars less than in fiscal 2005. Over the same period, sales at HP's Personal Systems Group increased about 30 percent, to $39.6 billion.

Analysts don't see things getting any better. The printer market is expected to grow just 1 percent to 2 percent in the next few years, said IDC analyst Crawford Del Prete, while PC sales will grow as much as 5 percent. Printer sales are also more sensitive to changes in the economy, he said.

At the same time, HP needs to cut costs, as current CEO Meg Whitman made clear on the company's last earnings call. HP has underinvested in innovation, she said, and must spend more money to stay competitive.

That means freeing up money elsewhere in the business, and rolling two big divisions together could help. Printers and PCs share some of the same components, and there is likely to also be overlap in areas such as manufacturing, sales and marketing.

"Todd Bradley has done a fantastic job in creating a more efficient Personal Systems Group, and I think they're looking to him to work some of that magic in the printer division," IDC's Del Prete said.

James Niccolai covers data centers and general technology news for IDG News Service. Follow James on Twitter at @jniccolai. James's email address is james_niccolai@idg.com.

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