HP merges enterprise unit with services group

Hewlett-Packard Co. said Tuesday it is tweaking its organizational structure, merging its enterprise hardware and software unit with its services group to form one new division called the Technology Solutions Group.

The change is intended to align HP’s sales efforts into its large corporate accounts, Chairman and Chief Executive Officer Carly Fiorina said during a presentation at an HP meeting with financial analysts in New York. The changes began in June and will be finalized in the middle of next year, she said. HP plans to continue breaking hardware, software and services revenue out separately in its financial reports.

“We don’t expect undue disruption. This has been part of the path we’ve been on for some time,” Fiorina said.

She avoided comment on a report in Tuesday’s Wall Street Journal that HP’s current services head, Ann Livermore will run the newly combined unit, while hardware and software leader Peter Blackmore steps back to manage the group’s sales operations.

“When we’re ready to make organizational announcements, we’ll make them,” she said.

News of the change comes one day after HP said it is merging another pair operations, its Global Operations and Information Technology divisions. Longtime HP employee Gilles Bouchard will run the organization and assume the title of chief information officer.

Fiorina cast that IT consolidation as a sign of the company practicing what it preaches.

“We’re combining our global operations and our IT functions…because we know that driving process improvements and IT together is the way to continue to make the most rapid progress,” she said. “It is how we advise our customers, and it is very consistent with our Adaptive Enterprise strategy.”

Fiorina focused during the meeting on selling HP to analysts as the IT industry’s best-positioned end-to-end provider.

“I know it is popular these days to describe HP as stuck between IBM (Corp.) and Dell (Inc.),” she said. “This is not a company stuck. This is a company that leads in virtually every category in which it competes.”

Fiorina characterized Dell as “low tech, low cost,” and IBM as “high tech, high cost.” HP’s goal is to win market share away from its rivals by offering customers innovative, affordable alternatives, she said. Forecasting that IT budgets will grow only 1 to 2 percent in 2004, she reiterated HP’s strategy to aid its customers in drawing additional value out of their IT environments through streamlined processes and small, strategic upgrades, rather than expensive new investments.

Small and strategic is also HP’s current acquisition strategy. Fiorina has hinted before to analysts that she wouldn’t be adverse to taking on another massive merger like the company’s US$19 billion Compaq Computer Corp. takeover, but at Tuesday’s meeting she bluntly denied that the company has any big targets on its shopping list.

“We really are focused very clearly on acquisitions that move us up the value curve. The ones we’ve made to date have been quite small. I would expect that to continue,” she said. “I am not in the market to make a big services acquisition of either a consulting company or a managed services company. No, I am not interested in EDS (Corp.).”

One HP goal has in the coming year will be stabilizing its financial performance, which Fiorina admitted was erratic in 2003. The company fell short of analyst expectations in the third quarter, a period in which its Personal Systems Group, HP’s PC and consumer devices unit, slipped into the red. HP’s goal for 2004 is to keep its PC lines profitable, Fiorina said. The company also hopes to boost the Personal Systems Group’s fortunes by tackling new areas in the consumer digital photography and entertainment markets, with new offerings like the digital music player and online music store HP plans to introduce early next year.

Meanwhile, HP’s crown jewel remains its lucrative Imaging and Printing Group. Dell is gunning for some of HP’s market share there by introducing its own printers this year, but Fiorina shrugged off questions about the threat posed by Dell. “I think Dell is a company that is trapped in the PC business,” she said.

HP still sold 400,000 printers to Dell customers in the past year through a manufacturing relationship between the two companies, despite Dell’s newer partnership with Lexmark International Inc., Fiorina said. She predicted that partnership will be short lived, saying she sees Dell’s market share gains in the sector coming at Lexmark’s expense. “I suspect that partnership is under great strain right now,” she said.

Fiorina said she expects the IT industry to pick up next year, though many segments will remain challenging. “The economy overall is clearly improving,” she said. “We see it in consumer spending. We see it both in the sentiments of our enterprise customers and in the momentum we see in that space.”

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