Job cuts good first step: HP

Duncan Martell

HALF MOON BAY, California: The chief of Hewlett-Packard Co.'s lucrative printing business said on Tuesday that recent job cuts were a "good first step" toward improving the unit that contributes the vast bulk of HP's profits.

"My view is we need to get this business in a healthy position," Vyomesh Joshi, who runs HP's printing and PC businesses, said in an interview at its annual imaging and printing conference for analysts. "I think our first step was a very important step."

Joshi declined to comment whether more cuts were forthcoming and also declined to rule them out. The reductions are part of a larger program within HP, dubbed "Operation Lead Dog," aimed at boosting profitability. It was begun under ousted chief executive Carly Fiorina and supported by successor Mark Hurd.

Earlier this month, HP said nearly 2,000 workers had accepted voluntary severance packages in the imaging and printing business under a program begun in April to cut costs and boost profitability.

Hurd, who was previously chief executive of NCR Corp., turned around the cash register and self-service kiosk maker and used job cuts among other measures to boost financial results at the once-struggling company.

The printing business for HP, which is also the No. 2 computer maker, is its most profitable and accounted for nearly 80 percent of operating profits in the most recent quarter.

HP's annual imaging and printing conference for analysts comes as its printing business faces stiff pricing pressure from rivals including Lexmark International Inc. and No. 1 PC maker Dell Inc., which resells Lexmark printers.

While operating profit margins in HP's printer business in recent quarters have been above the 13 percent to 15 percent target set by HP, they have slipped slightly in light of the pricing pressure and efforts by HP to regain market share it had lost and which Joshi has pledged in recent conference calls to regain.

"We're gaining share," Joshi said. "We feel we have the right strategy to balance the market share and profitability."

HP's operating profit margin in its first quarter narrowed to 15.4 percent from 16.6 percent in the prior quarter and from 16.4 percent in the year-ago period.

At the conference, HP also introduced a broad lineup of laser and inkjet printers aimed at the small- and medium-business market, where color printing is growing in popularity.

Palo Alto, California-based HP, the No. 1 printer maker, introduced some eight printers ranging in price from $149 to $799, as well as digital projectors and a scanner

Among the new printers is HP's Color LaserJet 2600n, which starts at $399 and is up to 60 percent faster than comparably priced color laser printers, HP said.

Joshi cited a study done by International Communications Research commissioned by HP that found that 60 percent of small and medium businesses now use color marketing materials.

While Dell has made some progress, Joshi said he is not yet overly concerned over the direct PC seller's recent entry into HP's bread-and-butter business.

"The key for me is the next two years," Joshi said. "They need to show some profit because just a break-even business is not interesting.

Joshi said HP's printer business has a series of large product announcements planned for 2005, including an effort to broaden the market for its branded Vivera inkjet cartridges, which it introduced late last year.