(Source: Oxford Press)
Finally smart moves from HP -- company hands future of PC and printing to proven leader Todd Bradley

Hewlett-Packard Comp. (HPQ) is one of the oldest PC companies in existence.  It was founded in 1939, when the "personal computer" was just a dream in the minds of science fiction writers.  And despite recent "turbulence" (to put it lightly) HP remains the largest seller of traditional personal computers.

Now, according to an Bloomberg report and All Things Digital report, HP's new CEO Meg Whitman (the CEO who guided eBay, Inc. (EBAY) in its formative years) has ordered a critical move -- the consolidation of HP's "Imaging and Printing Group" (IPG) and "Personal Systems Group" (PSG), into one super-group.  The decision could help revive the struggling IPG.  It also gives a crucial commitment to the PC business which was once subject of spinoff plans.

I. HP's Messy 2011

For HP, the Mayans might as well have been off by a year, because 2011 was nearly the end of their world, from a publicity and leadership standpoint.

Apple, Inc. (AAPL) sold 15.4m iPads in Q4 2011, which some see as Apple "passing" HP in "PC sales" (though whether an iPad qualifies as a PC is debatable).  More troubling, at the same time HP's sales of 15.1m units only narrowly beat Dell Inc.'s (DELL) 13m units and the surging Lenovo Group, Ltd.'s (HKG:0992) 11.9m units.

HP had flourished under the leadership of Mark Hurd, but his stormy 2010 exit led to the questionable appointment of Léo Apotheker, a German who had just been fired by top IT company SAP AG (ETR:SAP) for poor performance.  By 2011 things had reached a very bad state, as Apotheker grew more bold in his newfound executive life.  The HP chief proceeded to chop away at his company like a chef making cole slaw out of cabbage.  His alarming efforts were geared at transforming HP into a pure business-IT aimed firm, kind of like the firm he was ruled incompetent to lead just months earlier.  

Leo Apotheker
HP had the tech community thinking doomsday came early when it decided to tap disgraced German SAP-reject Léo Apotheker its chief, and then in 2011 allow Apotheker to set in motion plans to drastically remake HP in the image of his ex-employer who fired him.
[Image Source: n-TV/DPA]

Central to that plan was the spinoff of the PSG and the overpriced (according to numerous experts) acquisition of the UK's IT firm Autonomy plc., to augment HP's already sizeable IT holdings,which include HP's other groups -- the "Service Group" (SG) unit, the "Enterprise, Servers, Storage and Networking Group" (ESSNG), the "Software Division" (SD), and "Office of Strategy and Technology" (OST) (parent of the famed "HP Labs").  

Bafflingly, HP's board cheered the plan, but were eventually forced to reconsider after shareholder lawsuits and a flood of media criticism in the summer of last year brought them back down to Earth.

The firing of Apotheker and September installment of Meg Whitman was met with mixed reactions.  On the one hand she was an accomplished leader.  On the other hand, her promise to see Mr. Apotheker's vision to completion led many to silently scream in frustration, and led HP's rivals to openly gloat.  But ultimately she and the board decided to officially scrap plans to spin off the consumer chunk of the PSG, although the acquisition of Autonomy -- meant to strengthen the IPG and business side of the PSG -- went through.

Meanwhile IPG sales continued to languish under the leadership of Vyomesh "VJ" Joshi.  But at last their is a solution at hand to both the cloud of uncertainty surrounding the PSG and the sales issues surrounding the IPG -- a merger building upon each unit's strengths.

II.  What a Crafty HP Looks Like (It's Been a While)

The deal makes a lot of sense.  

First, it is seemingly nonsensical for two units who operations go hand-in-hand so neatly would operate like separate, independent fiefdoms.

At the time of the potential spinoff, I remember talking to PSG executives at HP and was met with nonchalance and reassurance that it was "business as usual" (quote) from their perspective and they foresaw "no disruption" (quote) to their customers.  While some of that might have been feigned, I got the feeling that they were serious -- HP's units essentially operated entirely autonomous of each other, a highly dysfunctional setup.

Fiefdom syndrome
Maintaining multiple autonomous kingdoms within a company is counterproductive to the point of self destruction. [Image Source: Amazon]

This fiefdom approach for years wrought havoc in Microsoft Corp.'s (MSFT) Windows unit, for example, creating gems like "Windows ME" and "Windows Vista", until the arrival of Steven Sinofsky on the Windows Team.  The net result of Microsoft's consolidation?  Windows 7.

While HP may not pull of an accomplishment on the magnitude of crafting the fastest-selling operating system in human history, it makes a lot more sense to eliminate the barriers within this common business.  

III. Giving the Reins to  a Real Leader

Second, Mr. Bradley has consistently been lauded by various business publications for his sharp performance and leadership.  He rose to fame as CEO of Palm and exited to the competitive PDA maker just at the start of the smartphone era.  His dynamite tour at Palm was complemented by years of success with the PSG under Mr. Hurd.  And Mr. Bradley deserves plenty of credit for holding together the PSG and sales during the uncertain Apotheker-era.

Ms. Whitman's solution is a wise one -- kick out Mr. Joshi (he's leaving the company though it's unclear whether he's quitting, retiring, fired, etc.) and put veteran leader Todd Bradley -- PSG chief -- as Executive Vice President of the merged unit.

Vyomesh Joshi
[Image Source: Reuters]

Tom Bradley
[Image Source: HP]

In 2011 the IPG and PSG pulled in 51 percent of HP's total sales -- $65B USD -- despite a decline in IPG sales.  In a way, this means that Todd Bradley will in some ways become "second in command" of HP's pecking order, answering only to the board and Ms. Whitman (HP's chief market officer, chief financial officer, and chief strategy officer are all EVPs answering to the CEO).

Mr. Bradley has plenty of reason to push the new unit hard for success.  At 53, he's slightly younger than Ms. Whitman (55), so he is perhaps the most likely candidate to succeed the eBay veteran, when she leaves HP.

And the fortunate position couldn't be going to a more-deserving party.  Aside from pure financial success, most of the HP-veterans I've talked to haveoffered up ringing praise of Mr. Bradley.  While this is expected as a norm, it's somewhat unusual just how enthusiastic HP employees are about the guy.  Likewise it's unusual how small the dissenting minority is.  

Even Mr. Sinofsky -- who is viewed as a possible CEO successor to Microsoft chief Steve Ballmer and who arguably saved Microsoft by turning around it's most valuable (and most struggling, ostensibly) unit -- has his fair share of critics.

Take it for what you will, but my feeling is that Todd Bradley is a rare breed, though you can't assure that anyone in the industry has the "Midas touch" (even the late Steve Jobs oft cited alongside Bill Gates as the greatest tech leader of the modern era had his Lisas, NeXTs, and Newtons -- premature efforts).

IV. Don't Expect the Tablet to Kill the PC or Vice Versa Anytime Soon

The PSG has a lot of challenges ahead, but also a lot of opportunity.  With the mess of the possible spinoff and sinking printer sales, it can now not only cut costs, but also secures itself a potential future leader in a market where top leadership talent is often surprisingly hard to find.

Top on the PSG's priorities list will be holding off a surging Lenovo.  Dell doesn't seem to have significant momentum up or down, so it represents much less of a threat.  By contrast Lenovo is a far greater disruptor.

In the printing sector its goal is simply to have a better 2012 than 2011.  2011 was a rough year for many of the business's top players [source], although HP probably fared worse than most, given its leadership debacle both under Mr. Apotheker and under the direct supervision of the struggling Mr. Joshi.

One thing not to buy is Apple's claims that PCs are a dying form factor.  If they were Apple wouldn't be focusing so much on its laptops or operating systems.  Sure Apple CEO Tim Cook says, "As I've said before, I truly believe, and many others in the company believe, that there will come a day that the tablet market is larger than the PC market."

But is it really possible to have more tablets than PCs?  Arguably no, for now.  Unlike the traditional PC tablets lack the processing power and input to do serious work.  They do fill a strong entertainment/communications segment.  However, they are not quite the ubiquitous communications devices smartphones are, though packing a bit more entertainment bang.  

While it's true hybrid designs could make up for some of the lacking features in the form factor, that market is still very young and HP will likely look to play a key role in it with Windows 8 devices (Apple has shown no interest in hybrids, thus far).  And arguably the tablet is a traditional laptop PC, with a few new tricks (a detachable touch screen), just as a printer with a detachable tablet interface is still a printer.

HP wide
HP's future with tablets may lie with Windows 8 instead of webOS, but things are looking up for the company. [Image Source: HP]

The traditional PC isn't dying anytime soon.  As IDC Group analyst David Daoud says, "Tablets are companion devices to PCs that serve different purposes. Have they dampened PC sales? Yes. It's clear that there's a certain amount of cannibalization. But the [iPad] numbers speak more to the appearance of a new market and new products, not the death of the PC."

As PC sales adjust, HP's new leaner unit should likely see improved sales success and financials, particularly at a time when rival Dell is seeing an almost Apotheker-like identity crisis.

Will it stay on top?  Part of that boils down to the moves Lenovo makes, and ultimately consumer choice.  But it's good to see HP finally making the smart moves it needs to return to its long history of success and prosperity.

"Nowadays you can buy a CPU cheaper than the CPU fan." -- Unnamed AMD executive

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