Английский язык. Практический курс для решения бизнес-задач

And managers of the computing company, with its divisions in software, PCs, servers, and tech services, would have to struggle to make profits. No longer subsidized by the printer division, they would have no choice but to perform. Merrill assesses that the spin-off would create $15 billion to $27 billion in incremental value.

For now, Fiorina continues to bet on bulk. She contends that HP’s scope pays off in added sales and lower costs. Consumers and corporations, for example, often shop for both printers and computers at the same time. And HP does benefit from economies of scale. After the Compaq merger, the company cut $3.5 billion in annual expenses, in part by squeezing components suppliers for lower prices.

Broad Reach. Fiorina insists that HP needs the broadest possible scale to capitalize on her vision of technology’s future. A former executive at AT&T, Fiorina has become a leading evangelist for the converged digital world. She describes how the Information Revolution will transform corporations and electrify entertainment, with the whole world becoming «digital and mobile and virtual and personal». In line with this vision, she has assembled a giant corporation that is far broader than Dell or IBM. HP makes everything from calculators and cameras to supercomputers, and competes with Sony, Canon, Samsung, EDS, just about everyone in tech.

Fiorina carries the solid Q4 results into an analysts’ day in Boston on Dec. 7. This eases the pressure for her to take dramatic action. But the latest numbers merit a second look. During the period, HP’s tax rate fell to 15%, down from 19% a year earlier. In addition, R&D decreased to 4% of sales, down from 4.6% the year before. This pumped up profits. Investors who are excited about a sustained, profitable growth from HP should be wary. «You can’t simply keep cutting R&D and the tax rate to boost profits,» says analyst Richard Chu of SG Cowen Securities.

HP acknowledges the point. CFO Robert P. Wayman said that the decline in the tax rate was primarily a result of the favorable resolution of a state tax audit and that the tax rate would probably rise to 20% in the coming year. HP officials have said that they expected R&D spending to diminish, because of the elimination of redundancies from the Compaq merger and its efforts to place fewer, more focused research bets.

As analysts appraise HP’s Q4 numbers, other questions arise. During the period, its receivables surged by $1.8 billion, to $10.2 billion. HP defends the increase saying that it shipped extra units to support several product launches.

Unwieldy System. Still, HP suffers from poor positioning. In its PC business, HP runs two systems that often operate at odds with each other. One is a direct-sales, built-to-order model to compete with Dell, which carries virtually no inventory. The other is HP’s traditional, higher-inventory model for units that it ships through its sales partners. Operating in both worlds leaves HP doubly exposed.

Yet if the company pushes more business into direct sales, it risks angering HP’s traditional retailers and resellers. And HP needs their help to sell its printers and ink. A break-up would help to resolve this dilemma, freeing the computer division to adopt the Dell approach. For now, HP keeps both systems intact – and loses ground in PCs. Following the Compaq merger, HP briefly rose to the No. 1 in PCs. But the company slipped to No. 2, with 15.7% share, behind Dell, which has an 18.3% share. Operating margins in 2004 were a meager 0.9%, miles behind Dell’s 8.8%.

HP also appears overmatched in its rivalry with IBM. Big Blue has put together a more lucrative portfolio of corporate computing products. They span everything from software to servers to chips, and they generate overall 11% operating margins. By comparison, HP’s non-printing businesses managed operating margins of 3% in 2004. The disparity is especially clear in the profit-rich software business. In IBM’s third quarter, its software biz generated $3.6 billion and operating margins of 25%. HP reported $277 million in software sales for its Q4, posting a small operating loss.

At times, HP’s push for synergies has gotten in the way. Take storage. After buying Compaq’s market-leading storage unit, HP integrated it into its enterprise group, which also includes servers and software. Along the way, HP fired many storage-sales specialists in favor of sales reps with a broad knowledge of HP offerings. Key storage execs followed them out the door. Soon, competitors such as EMC began to nab customers from HP. Storage revenues dropped 5% in 2003 and a further 7% in 2004. Even loyal HP customers chose EMC when buying storage gear earlier this year. Although HP recognizes the error and is hiring back storage specialists, it cautions that a turnaround in storage could take time.