HP Shares closed down 52 cents to $23.46 a share, representing a drop of 2.17 percent in the wake of the official announcement of the plan, which AllThingsD reported yesterday.

While, on its face, the combination of the PC and printer groups into a single operation would save some operational costs, investors seem unconvinced that the move will make a sufficient difference to get the company moving in the right direction as CEO Meg Whitman has promised to do, though she’s conceded the turnaround will likely take years.

At least one analyst summed up the negative sentiment around the reorg. Rob Cihra of Evercore Partners called the move “uninspiring” and reminded everyone that HP made a similar move under former CEO Carly Fiorina back in early 2005 toward the end of her tenure. Her successor, Mark Hurd, broke the groups apart again before the year was out.

One thing Cihra appreciates is that Whitman is willing to admit where the troubles are: An over-levered balance sheet and a printing business that is suffering through a fundamental — not a seasonal — decline, among other problems. But, he writes in a research note issued to clients today, admitting the problem is only the first step. “It is encouraging for new CEO Meg Whitman to have started admitting issues others wouldn’t … Our concern is that any fixes look far from easy and likely involve a marathon, while ‘reorgs’ don’t even get HP to the starting line, in our view,” he wrote. Given the drop in HP’s share price, investors, for now, seem to agree.

In fairness to Whitman, she’s only six months into the job, and today’s move is only a first step. But the first step is pretty much an admission that a bigger change is on the way, including job cuts. “Everything is on the table,” Whitman told The Wall Street Journal today, though she declined to speculate on the number of jobs that might be eliminated. It’s going to be a rocky year at HP.

The reorganization appears to be bigger than we reported. There are a few other things, aside from the combination of the PC-making Personal Systems Group and the printer-making Imaging and Printing Group. One of them is a biggie: If I’m reading this right, then the $22 billion Enterprise Storage and Networking Group appears to have been renamed the HP Enterprise Group, and it appears that the $36 billion Services Group just got combined under Dave Donatelli. That is about as equally important a strategic shift as the other combination.

Update: Not quite so big, after all: HP just called to clarify that only Technology Services is being added to the Enterprise Group, not the Enterprise Services Group run by John Visentin. Sorry for that bit of confusion.

In another move, Global Sales will report to Donatelli, and will be combined into the Enterprise Group. And it looks like Jan Zadak, who had been on the rise since being promoted under Léo Apotheker last year to head Enterprise Sales, is going to get a “new role.”

So now we know what CEO Meg Whitman meant when she said she wanted to streamline and simplify HP’s operations. Operationally, she has created what appears to be one really huge organization in PSG ($65 billion in 2011 and flatlining) and to increase the size of the newly created Enterprise Group a bit by adding to it Technology Services and Global Sales. It’s hard to determine what the combined size of the organization is by revenue, because HP doesn’t break out sales for Technology Services.

Software appears to have been left alone in this shakeup, for now. That group is run by Bill Veghte, who was recently promoted to chief strategy officer, while another software operation, the Information Management Group, which combines Autonomy, the British software firm for which HP paid $12 billion last year and Vertica. It is run by Mike Lynch, the former Autonomy CEO. British software firm for which HP paid $12 billion last year.

Marketing functions have been unified under Marty Homlish, while communications have been unified under Henry Gomez.

Here’s the press release:

HP Announces Organizational Realignment

PALO ALTO, CA — (Marketwire -03/21/12) — HP (NYSE: HPQ – News) today announced an organizational realignment to improve performance and drive profitable growth across the entire HP portfolio.

As part of this realignment, HP’s Imaging and Printing Group (IPG) and its Personal Systems Group (PSG) are joining forces to create the Printing and Personal Systems Group. The combined entity will be led by Todd Bradley, who has served as the executive vice president of PSG since 2005.

Vyomesh Joshi, executive vice president of IPG, is retiring after a highly accomplished 31-year career at HP. Under Joshi’s leadership, IPG has grown revenue from $19 billion to $26 billion, and doubled its operating profit to approximately $4 billion.

“VJ embodies the spirit of HP and his impact on the company has been tremendous,” said Meg Whitman, president and chief executive officer, HP. “Under his leadership, IPG accelerated innovation and pioneered solutions that transformed the printing market. We wish him the very best as he embarks on a new chapter in his life.”

Combining these two entities will rationalize HP’s go-to-market strategy, branding, supply chain and customer support worldwide. This will lead to a better customer experience and drive innovation across personal computing and printing. This realignment is expected to provide opportunities for cost savings and accelerate HP’s ability to pursue profitable growth and reinvest in the business.

“This combination will bring together two businesses where HP has established global leadership,” said Whitman. “By providing the best in customer-focused innovation and operational efficiency, we believe we will create a winning scenario for customers, partners and shareholders.”

In addition to combining PSG and IPG, HP also is taking steps to unify and streamline certain key business functions.

The Global Accounts Sales organization will join the newly named HP Enterprise Group. This group will be led by David Donatelli and includes Enterprise Servers, Storage, Networking and Technology Services.

The new structure is expected to speed decision making, increase productivity and improve efficiency, while providing a simplified customer experience. A new role for Jan Zadak, executive vice president for Global Sales, will be announced at a later date. Zadak will work with Donatelli to ensure an orderly transition.

HP also announced that it will unify its Marketing functions across business units under Marty Homlish, executive vice president and chief marketing officer, HP. This will allow for even more effective brand-building and marketing activities, and will create efficiencies across the business units.

HP’s Communications employees worldwide also will be similarly unified under Henry Gomez, executive vice president and chief communications officer, HP. Together these two moves will create a more powerful voice to demonstrate the power of “One HP.”

Finally, HP is moving the Global Real Estate function from Finance into Global Technology and Business Processes to address real estate consolidation and improve the workplace experience for HP employees.

“Ensuring we have the right organizational structure in place is a critical first step in driving improved execution, and increasing effectiveness and efficiency,” added Whitman. “The result will be a faster, more streamlined, performance-driven HP that is customer focused and poised to capitalize on rapidly shifting industry trends.”

The EPS number exceeded the expectations of analysts, who had anticipated HP would report per-share earnings of 87 cents. But sales at $30 billion even were light of the $30.7 billion Wall Street had expected.

Sales of PCs fell 15 percent year over year with an operating margin of 5.2 percent. Consumer sales fell by 25 percent and corporate PC sales fell 7 percent, while sales on a unit basis fell 18 percent. HP had faced a tough quarter on many fronts. With the shortage in hard drives caused by the last year’s floods in Thailand sapping overall demand for PCs, sales have been tricky and it showed. Corporate demand was thought to be relatively stable, while consumer demand continues to be slow amid stiff competition from Apple’s iPad and a tough economy overall.

Tony Sacconaghi, an analyst with Bernstein Research, said in a research note to clients issued today that HP, despite being the world’s largest vendor of PCs, appears to have struggled more with the Thailand problem than any other vendor.

On the printer front, HP’s Imaging and Printing Group saw its sales decline by 7 percent with a shockingly low 12.2 percent operating margin, down from 15.4 percent in 2011. HP’s printer unit has significant long-term problems, not the least of which is the fact that people are generally printing less. At first blush, this appears to be a serious blow to a business unit that was once the pride of the company.

Enterprise servers, Storage and Networking saw a 10 percent decline overall. The Business Critical server business — the one involving servers running Intel’s Itanium chip, which is the subject of an HP lawsuit against Oracle — saw its sales decline 27 percent. Networking revenue was flat and everything else was down.

Software was a bright spot, but a small one. Sales were up 30 percent and services grew 108 percent, but again, that’s off a low base and nowhere near large enough to offset the troubles anywhere else.

HP’s guidance for the current quarter is also below the street consensus. HP says it sees earnings of 88 to 91 cents, versus the street forecast of 95 cents. There’s no change to the full-year EPS guidance calling for $4 a share in 2012.

HP shares are down by 19 cents, or less than 1 percent in after-hours trading as of 4:26 pm ET. It’s a mixed bag, so given Dell’s performance yesterday, it seems investors are willing to accept an EPS beat alongside a slight revenue miss.

That’s a quick look at the results. HP’s conference call with analysts begins at 2 pm PT. I’ll be dialed in and liveblogging the blow-by-blow.

Here’s HP’s statement:

HP Reports First Quarter 2012 Results
— First quarter non-GAAP diluted earnings per share of $0.92, down 32% from the prior-year period and above previously provided outlook of $0.83 to $0.86 per share
— First quarter GAAP diluted earnings per share of $0.73, down 38% from the prior-year period and above previously provided outlook of $0.61 to $0.64 per share
— First quarter net revenue of $30.0 billion, down 7% from the prior- year period
— Returned $1.0 billion in cash to shareholders in the form of dividends and share repurchases
PALO ALTO, Calif., Feb. 22, 2012 – HP today announced financial results for its first fiscal quarter ended January 31, 2012. For the quarter, net revenue of $30.0 billion was down 7% from the prior-year period, and down 8% when adjusted for the effects of currency.
GAAP diluted earnings per share (EPS) was $0.73, down 38% from the prior-year period. Non-GAAP diluted EPS was $0.92, down 32% from the prior-year period. First quarter non-GAAP earnings information excludes after-tax costs of $364 million, or $0.19 per diluted share, related to amortization of purchased intangible assets, restructuring charges and acquisition-related charges.
―In the first quarter, we delivered on our Q1 outlook and remained focused on the fundamentals to drive long-term sustainable returns,‖ said Meg Whitman, HP president and chief executive officer. ―We are taking the necessary steps to improve execution, increase effectiveness and capitalize on emerging opportunities to reassert HP’s technology leadership.‖

Earnings highlights
Information about HP’s use of non-GAAP financial information is provided under ―Use of non-GAAP financial information‖ below.
Trends and regional performance
In the Americas, first quarter revenue was $13.2 billion, down 9% year over year and down 8% when adjusted for the effects of currency. Europe, the Middle East and Africa revenue of $11.7 billion was down 4% year over year and down 5% when adjusted for the effects of currency. Revenue in Asia Pacific was $5.2 billion, representing a 10% decrease year over year and down 12% when adjusted for the effects of currency.
Revenue from outside of the United States in the first quarter accounted for 66% of total HP revenue. BRIC countries (Brazil, Russia, India and China) generated revenue of $3.1 billion, down 13% from the year-ago period, and representing 10% of total HP revenue.
Revenue in HP’s commercial businesses declined 4% year over year. Revenue in HP’s consumer businesses, within PSG and IPG, was collectively down 23% year over year.
Business group results
— Personal Systems Group (PSG) revenue declined 15% year over year with a 5.2% operating margin. Commercial client revenue declined 7%, Consumer client revenue declined 25% and Workstations revenue was flat. Total units were down 18%, with a 19% decline in desktop units and an 18% decline in notebook units.
— Services revenue of $8.6 billion grew 1% year over year with a 10.5% operating margin. Technology Services revenue grew 2%, Application and Business Services revenue was flat and IT Outsourcing revenue grew 2% year over year.
— Imaging and Printing Group (IPG) revenue declined 7% year over year with a 12.2% operating margin. Commercial hardware revenue was down 5% year over year with commercial printer units down 10%. Consumer hardware revenue was down 15% year over year with a 15% decline in printer units.
— Enterprise Servers, Storage and Networking (ESSN) revenue declined 10% year over year with an 11.2% operating margin. Networking revenue was flat, Industry Standard Servers revenue was down 11%, Business Critical Systems revenue was down 27% and Storage revenue was down 6% year over year.
— Software revenue grew 30% year over year with a 17.1% operating margin, including the results of Autonomy. Software revenue was driven by 12% license growth, 22% support growth and 108% growth in services.
— HP Financial Services revenue grew 15% year over year driven by an 8% increase in net portfolio assets and flat financing volume. The business delivered a 9.6% operating margin.
Asset management
HP generated $1.2 billion in cash flow from operations in the first quarter. Inventory ended the quarter at $7.3 billion, with days of inventory up 3 days year over year to 28 days. Accounts receivable of $15.9 billion was up 2 days year over year to 48 days. Accounts payable ended the quarter at $12.4 billion, down 2 days from the prior- year period at 48 days. HP’s dividend payment of $0.12 per share in the first quarter resulted in cash usage of $244 million. HP also utilized $780 million of cash during the quarter to repurchase approximately 29 million shares of common stock in the open market. HP exited the quarter with $8.2 billion in gross cash.

Outlook
For the second quarter of fiscal 2012, HP estimates non-GAAP diluted EPS to be in the range of $0.88 to $0.91 and GAAP diluted EPS to be in the range of $0.68 to $0.71.
Second quarter fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.20 per share, related primarily to the amortization of purchased intangible assets, restructuring charges and acquisition-related charges.
There is no change to HP’s previously provided full year fiscal 2012 outlook of non-GAAP diluted EPS of at least $4.00 and GAAP diluted EPS of approximately $3.20.
Full year fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.80 per share, related primarily to the amortization of purchased intangible assets, restructuring charges and acquisition-related charges.
As part of its annual financial review process, HP implemented several organizational realignments effective Q1 FY12. To provide improved visibility and comparability, HP has reflected these realignments in prior financial reporting periods on an as-if basis. These realignments resulted in, among other things, the transfer of revenue within and among various financial reporting segments and business units. The changes do not impact HP’s previously reported consolidated net revenue, earnings from operations, net earnings or earnings per share at the company level. To reflect these changes, HP released modified quarterly and annual consolidated condensed statements of earnings, segment financial results and statements of business unit revenue for fiscal 2010 and 2011, which are available on HP’s Investor Relations website at www.hp.com/investor/home.
More information on HP’s quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on HP’s Investor Relations website at www.hp.com/investor/home.
HP’s Q1 FY12 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2012Q1webcast.

Yet HP is facing a significant problem in a key market: Printing. HP’s Imaging and Printing Group, or IPG, accounts for roughly 20 percent of HP’s revenue, making it a bigger business by revenue than the enterprise and server, storage and networking businesses.

As it does with most printer vendors, the business model of IPG works like this: HP sells a printer, more often than not at a loss, then makes up for the loss by selling the customer ink and other supplies over the next several years of the printer’s useful life.

In this business, HP is the king. In a survey of the state of the printing market issued last week, the market research firm IDC pegged HP’s overall share at north of 41 percent. In 2011, by IDC’s reckoning, HP sold more than twice the number of printers as its nearest rival Canon, and more than the combined unit sales of its nearest three rivals — Canon, Epson and Samsung.

So what’s the problem? The printing business is on the wane. For all of 2011, combined sales grew by 0.7 percent, according to IDC, and what little growth there was didn’t go to HP. IDC says HP’s printer shipments declined by 0.7 percent last year, while Canon, Samsung and Brother all saw their shipments grow.

And sales in key market geographies make the picture look even worse. In the U.S., for example, IDC says the market for printers in 2011 contracted by 9 percent, while HP’s unit sales plummeted by more than 12 percent. On a unit basis, IDC says, HP sold fewer than 4.2 million printers to U.S. customers, compared to 4.8 million in 2010.

Slowing hardware sales are only the leading edge of the problem. Remember that HP takes a loss on every printer it sells and makes it up on much more profitable supplies. Here’s where the numbers start to look scary: As overall revenue in the IPG was essentially flat year on year in 2011 — sales were $25.78 billion in 2011 versus $25.76 billion in 2010 — sales of supplies declined.

That may not seem important, until you realize that sales of supplies account for more than two-thirds of IPG’s revenue: Printer supplies are a $17 billion annual business that had been growing until 2011 when sales headed south. Sales of ink cartridges tend to track sales of new printers on a six- to nine-month lag, but there’s also a long tail that feeds into the existing installed base. Printers can stay in service for years, gobbling up ink.

A decline in ink sales can have an outsized impact in IPG’s profitability: Operating margins in IPG declined from 17.1 percent in 2010 to 15.4 percent in 2011.

And if market trends weren’t enough to drag down HP’s printer business, there are economic ones, too. Canon manufactures key parts of HP’s LaserJet printers in Japan. That caused two significant problems: Logistics costs increased as a result of the earthquake and tsunami that hit Japan last year. Meanwhile, the strength of the Japanese yen relative to the U.S. dollar is adding even more incremental costs.

The bottom line: Printing has been one of HP’s long-term strengths. If people are printing less, they’re buying fewer printers. And if they’re buying fewer printers, they’re buying less ink. All of it is bad news for the world’s biggest printer company. We’ll see just how bad on Wednesday, when HP reports its latest results.

Then Whitman hedged: “Let me put it that way. I would say these are going to be more acquisitions, in the sub-$500 million range would be my guess. We might get to $1 billion, but I doubt it.”

Now we know what she meant by that. Overnight, HP said it will acquire Hiflex Software, a German maker of printing management software. The deal is small enough that terms haven’t been disclosed, and that makes it hard to analyze.

Hiflex is based in Aachen and specializes in supplying print services to the commercial printing and graphics industry. Launched in 1991, it has completed some 300 customer projects, and its products are generally used to help different parts of a printing operation work together.

Vyomesh Joshi, HP’s executive vice president and the head of its Imaging and Printing group, described the deal like so: “HP wants to break the traditional barriers of how and where business customers print, making it easy for them to produce custom or personalized materials anywhere, anytime … Hiflex’s technology provides a powerful platform to deliver on this goal as part of our overall cloud printing strategy.”

Brian Marshall, an analyst with ISI Group, said in a note to clients this morning that he thinks it’s a “small deal,” but one that amounts to “an inexpensive way for HP to build exposure to cloud services that integrate with existing HP assets,” like printing.

If HP is going to be acquisitive at all during 2012, the deals are going to look like this. Now, at least, we know what to expect. And, as Whitman sets expectations, so far she’s sticking to what she says, which is a good sign.

Hewlett-Packard’s second-quarter financials may have been in line with forecasts, but they were troubling nonetheless. A number of analysts predicted that the company might report better-than-expected earnings. Sadly, it did not. HP’s net income for the period fell 17 percent to $1.7 billion, or 70 cents per share. Excluding one-time items, the company earned 86 cents a share, compared with a profit of 87 cents a share in the same period last year. The results include charges of 2 cents a share related to a patent dispute. Sales fell three percent to $27.4 billion. Every division of the company, save one, reported a decline in revenue. The lone highlight, Services, posted an increase, but that was due primarily to HP’s acquisition of EDS. The grim details:

Enterprise Storage and Servers: down 28 percent
Software: down 15 percent
Personal Systems Group: down 19 percent (though it claims the leading market position in PCs in every region)
Imaging and Printing Group: down 23 percent
Financial Services: down 6 percent
Services: up 99 percent

Clearly, the decline in consumer and business spending is weighing heavy on HP (HPQ) and will continue to do so. The company expects third-quarter revenue to be approximately flat to down two percent sequentially. And it says full-year revenue will slip approximately four to five percent from the prior-year period.

UPDATE: During a conference call to discuss earnings, HP’s leadership said the company will sack about two percent of the workforce in the months ahead as it looks to trim costs. 6,400 employees will lose their jobs as a result.