Friday, December 28, 2012

December Observations: Spin-off Spinning – Looking Ahead to “The HP Printing Company”

December 2012 Observations

Observations: Spin-off Spinning – Looking Ahead to “The HP Printing Company”

My former employer, printing and imaging giant Hewlett Packard, has been the source of much bad news over the last few years. CEO turnover, over-priced acquisitions, and strategic stumbling have all made the company, started by “Bill and Dave” in 1939, the subject of much derision and speculation. And a tumbling stock price has made the ongoing crisis very real for share-holding employees and retirees.
HPQ stock price since 2000

The stock price, bouncing off a decade low in recent weeks, has been buoyed in recent days by calls for breaking up the company and rumors of corporate vultures like Carl Icahn circling (see "Rumors of Carl Icahn's interest..." ). The accompanying speculation makes one ponder a future with an independent HP Printing Company in our industry’s midst.

Could once-proud HP, founding firm of Silicon Valley, really be in Icahn's sights?
The most recent and most severe downward spiral began about a year and half ago with news that had little to do with the printing side of the house. The August 2011 announcements included a proposed spinoff of HP’s PC business and the cancellation of the firm’s short-lived TouchPad tablet computer (a would-be Apple iPad competitor that barely made a blip in the market) and exit from their WebOS investment, acquired via Palm in 2010. The simultaneous large acquisition of UK-based Autonomy, a provider of infrastructure software for the enterprise, was widely criticized as being too pricey at the time. (By November of 2012, HP management had accused the acquired company’s management of accounting improprieties, which led to that over-priced deal, seemingly discovering that the price was too high, well more than a year after the rest of the world caught on!)

That series of decisions in August 2011 was not at all well received by investors and industry watchers, lead to the departure of another CEO, Leo Apotheker, the third top executive to make an exit since 2006. Apotheker was replaced by current CEO Meg Whitman, who reversed the PC spin-off idea, and moved the former Imaging and Printing Group (IPG) under the company’s PC business and the leadership of Todd Bradley, simultaneously bidding adieu to “retiring” long-time printer chief Vyomesh Joshi.

And now, the world seems antsy about HP and its ability to turn things around. Some believe this situation to be a classic case of negative synergy – where the sum of the parts following a breakup of the firm would have more value than the current whole. According to some, we could see an independent HP Printing Company in the near future.

So what of a spin-off of the printer group? A little more history is worth noting at this point as this is not the first time the idea has surfaced. In 2002, former CEO Carly Fiorina successfully completed the acquisition of Compaq Computer. Before the deal was done one of the founder’s sons, Walter Hewlett, led a bitter proxy fight against the merger and suggested then that the IPG organization could fare better and bring higher value on its own (see “Hewlett suggests HP spin offprinting unit”, ). At that time, spin-offs for HP were hardly unknown – its original business in test and measurement products was successfully spun out, as Agilent, in the 1990s.

Spinning off HP's Printing Group is not a new idea

The printer group, the former IPG, has been out of the wake of most of the more scandalous news in recent years. Its acquisitions have been smaller and more sensible (I am thinking of Indigo – in the same time frame as Compaq – followed by Scitex Vision and MacDermid, which greatly bolstered the company’s successful upward market expansion into commercial printing). Negative numbers, at least in year-to-year compares, started to show up during in the 2008/2009 recession, especially in consumer printing. Since then, the portfolio has been a mixed bag, with Whitman’s assertion that print is in a “secular decline” becoming a headline-maker earlier this year. (See "HP's Big Problem.").

But those of us who make a living following the industry see definite promise and bright spots in HP’s printing and imaging business, even beyond the aforementioned commercial business, where the company has found growth by replacing traditional analog-based methods with modern, digital printing. In the enterprise space particularly, HP has a line of spiffy new monochrome and color MFPs and some new and expanding solutions based around document management and workflow improvements, as the worlds of physical and electronic documents become ever more integrated. Ironically, these solutions, branded under the “Flow” moniker, along with the print-and-scan hardware, are based in large part on solutions from Autonomy, the now-much-maligned acquisition target of 2011.

I personally think the new company would be formidable. HP’s investments and capabilities in its printing and imaging business have continued over the years, and more “autonomy” (ouch – forgive me!) for the business could do nothing but good for the proposed spin-off’s highly qualified but currently beleaguered marketing and technical teams. And who knows – if they need a CEO, I know a recently unemployed, but highly experienced executive who goes by the initials “VJ!”

1 comment:

Shuchir said...

Thanks Jim,
Can you please also specify the promises and bright spots that you see in such a spin-off?