The company is trying to turn around a key unit that's seen sales decline the past five quarters
By Connie Guglielmo
(Bloomberg)—Hewlett-Packard Co. (HPQ) Executive Vice President Vyomesh Joshi said the printing market is "healthy" and poised for a recovery in 2010 after customers held off buying new devices this year.
"2009 was a difficult year for printing hardware," Joshi, who has led the Imaging and Printing Group for nine years, said last week in an interview. "But supplies sales were fine. What that means is that printing is healthy—even with economic pressure, customers are still printing the content."
Hewlett-Packard, the world's largest maker of printers, has posted five quarters of declining sales in one of its most profitable businesses. Joshi, 55, said he plans to win market share from competitors, including Lexmark International Inc. (LXK) and Eastman Kodak Co., while trimming costs. Those efforts are aimed at helping Joshi achieve the 15 percent to 17 percent profit margins he's on the line to deliver to investors in 2010.
Chief Executive Officer Mark Hurd said last month the printing unit is "poised for recovery and getting on the attack." The company is forecasting "double-digit" growth in printer shipments this quarter, compared with the 20-percent drop in the three months ended in October.
In September, the company forecast 2010 revenue at the unit will be unchanged or rise 2 percent. That's the lowest sales- growth forecast among Hewlett-Packard's businesses, which include personal computers and a unit that sells servers, storage devices, software and services.
The printing group accounted for 21 percent of Hewlett- Packard's $114.6 billion revenue last year and 32 percent of its $13.4 billion profit.
The printing unit's cost-cutting campaign began with an August 2008 reorganization that reduced the number of groups in the division to three from five, with some jobs eliminated as part of what Joshi called "streamlining."
He also cut the number of laser and inkjet printer models, which has saved on manufacturing, marketing and sales costs, and shifted some customer-service and support functions to the Web.
The company focused on inventory during the economic slump, working to reduce supply—and preserve cash—as demand fell. Its inventory management was so aggressive, said Joshi, that the company had shortages of laser printers late in the year after orders picked up sooner than it expected.
To pare supply-chain costs, Hewlett-Packard began shipping printers directly from its Asian factories to some distributors and retailers, as opposed to its own distribution centers. Joshi wouldn't detail the amount of the savings, except to say they are significant.
No Price Cuts
"H-P overall has a $60 billion supply chain. We have a fair share of that," he said. "When you have those kind of numbers, even a small percent of those numbers are a big number."
Joshi said Hewlett-Packard will gain market share by winning customers with products and new technologies rather than by cutting prices, a move that would weigh on margins.
"We don't need to cut prices," he said. "In the market right now, our product, compared with any of our competition, is much better in terms of the innovation, in terms of ease of use, in terms of quality, in terms of connectivity. That's what the customer will be looking at."
Lexmark's laser and inkjet printers are innovative and the company is winning orders around the world, said Jerry Grasso, a spokesman for the Lexington, Kentucky-based company. Kodak is making "significant" inroads with its printing business, and sales of its inkjet systems are "significantly" outpacing the industry, spokesman David Lanzillo said.
Hewlett-Packard, based in Palo, Alto, California, rose 47 cents to $52.46 at 4 p.m. on the New York Stock Exchange. The stock has advanced 45 percent this year, making it the fifth best performer on the Dow Jones Industrial Average.
Hewlett-Packard has an advantage that some of its rivals don't have—it is profitable and not dependent on printers for the majority of its revenue, said Shaw Wu, an analyst with Kaufman Bros. in San Francisco.
Lexmark, the No. 2 U.S. printer maker, and Kodak, a 129- year-old photography company that is working to build up its printer business, are both struggling, Wu said.
"Those are the competitors you like," said Wu, who has rated Hewlett-Packard shares as a "buy" throughout 2009. "They don't have the resources to fund a price war."
Joshi, a native of Ahmadabad, India, joined Hewlett-Packard in 1980 as a research and development engineer. He was promoted to run the printing unit by former CEO Carly Fiorina in 2001. Under his tenure, IPG has grown to $24 billion in sales from $19 billion, with profit more than doubling to $4.3 billion.
Still, the Wall Street Journal reported in September that the company was considering replacing Joshi and combining the printer and PC units under Todd Bradley, who has led the turnaround of Hewlett-Packard's PC unit in the past five years.
Joshi said the company doesn't comment on rumors.
"What I can tell you is that the printing and imaging business is a great business with great opportunities," said Joshi, the longest-serving employee currently on Hurd's executive team. "I want to make sure the transformational work I've started—I want to see that all the way to the end."
To contact the reporter on this story: Connie Guglielmo in San Francisco at email@example.com