Mark Hurd, the recently appointed chief executive of Hewlett-Packard, on Tuesay rejected calls to spin off the company’s highly profitable printer business. saying such a move would fail to create value for the computer and printer business.
Analysts have long argued that HP should spin off the printer unit, which makes the strongest profit margins in the company, but Mr Hurd believes the move would make little sense.
“A spin-off creates a lot more cost. You’d have to be sure you’d get a huge increase in valuation and I am not sure the math adds up. It is counter-intuitive that the company is more valuable broken up. That would be true only if we fail to execute,” Mr Hurd told the FT.
Instead, Mr Hurd wants to ensure that the division, which is facing increased competition from rival computer maker Dell, has room to grow more vigorously within the HP group.
“We have to make sure that the printer business doesn’t have to fund the other businesses,” Mr Hurd said. “We need to give it a lot of leeway to take the opportunities to grow. We are going to spend a lot of R&D on it and we are going to get more aggressive.”
Its cut-throat pricing policy is already causing distress to some competitors. Mr Hurd’s comments came as Lexmark International, a rival printer manufacturer, on Tuesday cut its third-quarter profit outlook by more than half, citing tough price competition from HP.
In addition to the printer arm, He is also keen to retain HP’s personal computer business, which struggles to make wafer-thin margins amid fierce price competition. from Dell and Gateway. Many industry observers have called for the division to be sold, much as rival IBM sold its PC business to Lenovo last year to concentrate on higher-margin software and services operations.
However, Mr Hurd said the PC unit continued to be core to HP and underpinned many of the other businesses at the company. He did not rule out the closure or disposal of any division that could not be made profitable., but was hopeful that the cost-cutting measures he has put in place will turn around performance
Mr Hurd has put in place cost-cutting measures at HP and signs of improvement were already apparent in August, when third-quarter figures showed a 10 per cent increase in sales across the company and a rise in profitability at the PC division.
The restructuring has caused controversy in France, where HP is proposingplanning to cut 1,240 jobs. The French government has lobbied hard for HP to reduce the number of lay-offs and Jacques Chirac, president, has called on the European Union to intervene.
Mr Hurd, however, said HP remained committed to the cuts. “We need to get the business in France healthy. We are committed to running a business that makes money. We hope over time to invest more,” he said.