Challenges loom for HP’s new PC division

20 Jun 2005

While applauding Hewlett-Packard’s (HP) decision to separate its PC division from its printing division, industry analyst Gartner has warned that the technology giant still faces major hurdles in terms of maintaining market share against Dell as well as a possible stabilisation in the euro-to-dollar exchange rate.

A week ago, HP announced that it is reorganising to re-establish its personal systems group (PSG) as one of HP’s primary business units.

R. Todd Bradley, former CEO of palmOne, has been chosen to head up the new division. The move returns PSG to a stand-alone business, following its combination in January 2005 with the Imaging and Printing Group (IPG). Vyomesh Joshi, who headed the combined group, will resume his former role as executive vice-president of IPG.

In a research note issued last week, Gartner says it anticipated a move such as this since HP’s new CEO, Mark Hurd, was appointed in March 2005

Gartner says that one of the biggest challenges Hurd faces is to boost growth and profits for HP’s PCs and other hardware products, which comprise more than two thirds of its revenue. “To make the tough choices needed to accomplish this task, Gartner believes Hurd must assume more direct control of HP’s various hardware businesses,” the analyst firm said.

Bradley will report directly to Hurd, bringing HP’s largest single product revenue stream under the direct control of the CEO. The move also brings in an external leader as part of the management team. Gartner believes the company may also disaggregate its services and enterprise hardware business units, creating one more executive to report to Hurd.

Challenges remain, Gartner warns, including the need to maintain market share against Dell and its faster-growing, more-profitable hardware business. Gartner also believes HP must do more to simplify and focus its marketing, product and channel efforts, and improve its customer relationship management practices.

A new more immediate challenge could also arise from a possible stabilisation in the euro-to-dollar exchange rate, which has worked in HP’s favour during the past two years.

“A weaker euro would lower dollar-reported revenue gains and depress sales in European markets. Such a shift could cost PC vendors as much as five percentage points of growth. Europe is HP’s biggest market, and the company must prepare to trade profitability against market share,” Gartner urged.

By John Kennedy