Investors Punish Hewlett-Packard Over Shake-Up

Shares in Hewlett-Packard fell more than two percent in the wake of a sweeping reorganization that re-combined its market-leading printer and PC business units into a single business group.

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.