Whitman speaks out on hardware merger

HP shareholders have questioned the PC maker over its planned cost cutting and investment in research and development for 2012.

HP CEO Meg Whitman reiterated her commitment to ending a period of declining growth and rising expenditure at the company’s annual shareholders meeting today in California.

HP’s first quarter 2012 financial performance echoed several years of similar results, reporting a six percent rise in operating costs despite being US$1.2 billion down in net earnings on the previous corresponding period.

Whitman blamed both the hard disk drive shortage in Thailand as well as internal challenges, such as the mulled sell-off of its Personal Systems Group. She said the company needed to “fundamentally change policy” to be more efficient.

HP’s recently announced printing and PC group merger is one method Whitman believes will drive market growth. 

Whitman also announced cutbacks to HP’s global sales team as a result of the merging of HP's enterprise servers, storage and networking (ESSN) product division with HP Technology Services. The combined entity will be led by general manager Dave Donatelli.

“Our cost structure is not sustainable. For almost all of the last few quarters, our operating expenses have grown faster than revenue,” Whitman said. “We have some real financial challenges. They didn’t just surface last year on August 18. It took us a while to get to where we are and it’s going to take us a while to get out.”

“By combining the forces of IPG [Image and Printing] and PSG [Personal Systems], we’re going to be a much more powerful force as we sell into retail, and as we help our partners become more successful.”

HP first attempted to merge the two divisions in 2005 to no avail. Shareholders questioned whether the combined entity was a sign the company will follow former CEO Leo Apotheker’s plans to take the focus off hardware.

Whitman emphatically denied the company was moving away from its traditional infrastructure roots.

“The core of our company is the infrastructure business,” she said. “PCs, printers, servers, storage and networking. It makes up 70 percent of our revenue. We’re saying, let’s not run from that. Everything builds on this massive and differentiating strength. We’re not in the software business to transform HP into a software company, we’re there to solve difficult customer problems.”

Innovator or follower

Shareholders brought up comparisons to HP’s main competitor in the hardware space, Apple. One questioned whether HP had invested enough in innovation compared to the mobility giant. 

Whitman applauded Apple's success, but emphasised HP had a strong legacy of innovative, well-engineered products that the company was determined to continue through ongoing R&D.

“[Apple] is one of the best renaissance stories of our generation,” Whitman said. “But my focus is on product, product, product. If we don’t have the best products uniquely suited to the market, we won’t win.

“I don’t think we’re where we need to be, but we have a great base to build on. We need to be a product company, but we won’t be satisfied until we have the most innovative products on the fastest product cycle.”

Analyst firm IDC today released its report into HP’s proposed PSG/ IPG merger. It predicted that a single marketing team in one hardware division would improve efficiency and boost sales.

“In today's hyper-competitive environment, multi-billion dollar organisations must excel in three key marketing-related areas to optimise customer creation: brand awareness, demand generation and alignment with sales and channels,” the report reads. “HP now has the opportunity to identify where to unify organisational structures and related initiatives across these areas, without diluting the focus on key customer segments."

The IDC report suggested a combined IPG/PSG approach would aid HP in bringing its core markets back to growth. 

“This is an important first step,” the report states. “It will be a long process to unlock the synergies between these businesses, and there’s a risk that the fundamental differences in the businesses will limit some potential progress, but in the long run, this will allow HP to release expense dollars to drive long term innovation and shareholder value.”