NEW YORK ( TheStreet) -- HP ( HPQ) CEO Meg Whitman has earned plaudits for her efforts to revitalize the troubled tech giant but more drastic changes may still be needed. Brought in last year to replace the ousted Leo Apotheker, Whitman quickly gave the no. 1 PC maker some much-needed strategic direction. Quickly nixing Apotheker's controversial plan for a potential PC spinoff, the new CEO took the bold move of merging HP's PC and printer divisions. Whitman also opted to open source the acclaimed webOS operating system and oversaw HP's support for ARM's ( ARMH) low-power chips. In May, Whitman made one of her toughest decisions yet as the Dow component announced plans to cut 27,000 jobs, or 8% of its total workforce, as part of its broader restructuring. UBS analyst Steven Milunovich acknowledges that Whitman is "making smart moves" such as centralizing the firm's strategy, sales and marketing, but warns that this may not be enough to succeed. "We question whether HP is 'better together' and that it might be 'smart to be apart,' specifically spinning off printers and PCs," he explained, in a note released on Tuesday. "HP lacks the pure enterprise focus of IBM ( IBM) and EMC ( EMC) yet will have trouble competing for consumers without strong tablet and phone businesses like Apple ( AAPL) and Samsung." PCs and printers are, of course, key parts of HP, accounting for just over half of the company's second-quarter revenue. The products are also seen as a way for HP to sell additional products and services, particularly in the enterprise market. Analysts, however, have already warned that the PC and printer merger is hardly a profit-laden silver bullet. HP is also facing significant financial headwinds, according to Milunovich, as the tech sector wrestles with a cautious spending climate. Set against this backdrop, the analyst initiated coverage of HP with a sell rating and $16 price target on Tuesday. HP, he explained, faces an uphill financial battle for a number of reasons. These include declining printer sales, enterprises downsizing their services, execution issues and PC profits coming under pressure.
Last month, HP's printer rival Lexmark ( LXK) cut its second-quarter outlook, citing a weaker-than-expected demand environment, particularly in Europe, and unfavorable changes in currency exchange rates. Like its rival, HP is especially vulnerable to spending patterns on the other side of the Atlantic. Europe, the Middle East and Africa (EMEA) accounted for more than a third of the company's second-quarter revenue, even after declining 7% year-over-year. "HP's high exposure to Europe remains a significant risk," explained Brian White, an analyst at Topeka Capital Markets, in a note. "We view HP's multi-year restructuring program as a step in the right direction in making the Company more competitive; however, we believe this will take time to play out." White has a hold rating and $23.50 price target on HP. TheStreet Ratings also reiterated its hold rating on HP on Tuesday. Despite HP's attractive valuation levels, TheStreet cited the company's deteriorating net income, disappointing return on equity and poor profit margins. Whitman herself has acknowledged that the company's turnaround will not be achieved overnight. With HP's shares tumbling more than 21% in the last three months, though, the big question is how much longer can investors wait? HP shares crept up 1.26% to $18.92 on Tuesday. -- Written by James Rogers in New York. Follow @jamesjrogers >To submit a news tip, send an email to: firstname.lastname@example.org. Check out our new tech blog, Tech Trends. Follow TheStreet Tech on your wireless devices