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Hewlett-Packard Co. announced Friday that it is combining its printing and PC business units.

The move combines HP’s Imaging and Printing Group—responsible for printers, supplies, digital cameras and projectors—with its Personal Systems Group—which handles desktop and notebook PCs and handheld computers.

Vyomesh Joshi, formerly executive vice president of IPG, will head up the new group, which will be called the Imaging and Personal Systems Group, or IPSG. Duane Zitzner, formerly executive vice president of PSG, is retiring.

"There is no person better suited to lead this new organization than Vyomesh Joshi. Under his leadership, the Imaging and Printing Group has grown to be a highly profitable $24 billion business that leads the market in virtually every category in which it competes," said HP CEO Carly Fiorina, in a statement. "Applying this leadership to the newly combined organization allows us to achieve an even higher level of performance."

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The move comes despite persistent calls from some analysts for HP to split off its lucrative printing business. But the Palo Alto, Calif., company said combining the two units "builds on the collaboration already established between the organizations."

Gary Peterson, analyst with printing and imaging research firm Gap Intelligence Inc., said that by combining the two groups HP can better coordinate marketing and management efforts on the consumer side of its business.

"I think it’s a smart move by HP," said Peterson, in San Diego. "It could give HP more flexibility in working with retailers and resellers and allow them to have more coordinated marketing efforts.

"If they split, it would be the death of HP’s business segment, but it would also be the death of every other printer business in the industry. HP printers by themselves would kill, but for the remainder of the company it would be like taking the patient off life support. The printer division is the heart of HP," he said.

HP’s move is another step in a changing PC market. Last March, Gateway Inc. bought eMachines Inc. for about $289 million in a deal designed to bolster Gateway’s future. The deal at the time made Gateway the third largest PC maker in the United States, behind HP and Dell Inc.

Last month, IBM announced it was selling its PC business to Chinese computer maker Lenovo Group Ltd. for about $1.75 billion. Through the sale, IBM was able to divest itself from a business that lost about $956 million between 2001 and the first half of 2004, though it will continue to reap the financial benefits of selling, supporting and servicing the machines. It also gave IBM greater leverage in the booming Chinese market.

HP has been in a transistion since its 2002 purchase of Compaq Computer Corp. Last year, HP combined its server, storage and services businesses in a move executives said would bolster the company’s enterprise business, though the Enterprise Storage and Server group suffered a disappointing third quarter, losing $208 million. However, it rebounded in the fourth quarter with a $107 million profit.

Next page: Move gives HP leverage in PC competition.

HP and Dell Inc. have been battling for the top spot in the PC industry since the Compaq purchase. In the third quarter last year, both IDC and Gartner Inc. had Dell ranked first, with HP a close second, in a market that saw unit shipments globally rise between 9.7 and 12 percent. IDC, of Framingham, Mass., had Dell with 18.2 percent of the market and HP with 16.2 percent; Gartner, of Stamford, Conn., said Dell had 16.8 percent of the market, and HP 15 percent.

Charles King, an analyst with Pund-IT Inc., said the move will enable HP to combine the earnings of its PC business with the highly successful printing group, giving it some statistical leverage in its PC competition with Dell. Whether it will bolster the PC business remains to be seen, though it strengthens the push by HP to make itself a dominant player in the consumer-based digital media space, said King, in Hayward, Calif.

"For the past year or so, a lot of financial and industry analysts have talked about HP divesting itself of or spinning out the enterprise group," he said.

"The sticking point in that scenario is, where would the company put the printing business? It obviously has a role in both the consumer and commercial side of things. This move sees HP coming down on the side of PCs being with printers, with printers not being in the enterprise business."

Roger Kay, an analyst with IDC, said the consolidation decision seemed like it was made quickly in response to Duane Zitzner’s retirement. Zitzner, executive vice president of the Personal Systems Group, will stay around to help with the transition, according to HP.

"It doesn’t look to me like they had done a lot of planning," Kay said. "Someone still has to run the [PC business]. They put it under VJ; it’s for expediency. But they still need to find someone full time to run it."

The challenge, now that the PC business has lost some stature, is finding a qualified person that would want to take it on, he said.

Kay also dismissed HP’s contention that the move was made to more tightly bind the PC and printing units for business reasons.

"They dress it up as that, talking about the synergy," he said. "But you could turn that on its head. Why couldn’t they do all that stuff with two divisions, having people from both divisions meet in a room?"

Editor’s Note: This story was updated to include comments from analysts.

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