HP, which needs to combat falling hardware sales, expects the merger to improve its go-to-market strategy, branding, supply chain and customer support. The realignment will also provide opportunities for cost savings, according to the Palo Alto, Calif.-based company.
The new division will be led by HP PC chief Todd Bradley, the executive vice president of Personal Systems Group since 2005.
Analysts, however, warn that the merger's payback could be limited. "While we believe there is room for cost synergies, we are not sure of the strategic benefits as we believe each [division] has a unique business model," explained Shaw Wu, an analyst at Sterne Agee, in a recent note. The product cycle for PCs and printers, he added, is shorter than that for printers, and customers typically buy the products at different times.Wu acknowledged that the merger could potentially cut general and administrative expenses and sales and marketing costs for the divisions, but highlighted key differences between the two businesses. "PCs are end-user devices that are sold directly to businesses and consumers, and this typically generates the bulk of the revenue and profits," he noted. "For printers, it is quite different, where a large part of the profits are based on selling consumables, including toner and ink cartridges, versus the printer hardware itself." Credit Suisse analyst Kulbinder Garcha said that he would have liked more specific details about the merger from HP CEO Meg Whitman. "While the company's reorganization is meant to streamline operations, help branding, and improve efficiency, no real targets have been set," he wrote. "Given this is the new CEO's first large reorganization, we would have expected some cost save targets which could protect the margin profile while the company continues to reinvest." Confronted with a weakening PC market, HP's hardware sales certainly have been under pressure. Revenue from PSG, for example, tumbled 15% year-over-year during the company's recent fiscal first quarter, while IPG [Imaging and Printing Group] revenue dipped 7%.
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