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Thu, Dec 09, 2004 - Page 12 News List

HP's board considered breaking up company

NOT SPINNING Analysts have urged the firm to turn its printer business into a free-standing company but so far its management is standing fast against the idea

NY TIMES NEWS SERVICE , SAN FRANCISCO

Hewlett Packard CEO Carly Fiorina speaks at the Gartner Symposium/ITxpo in Cannes, France, in this file photo from Nov. 4. She said on Tuesday that the firm's board had considered breaking up the company but decided against the idea.

PHOTO: AP

For at least a year, Wall Street analysts who follow Hewlett-Packard have been calling on its chief executive, Carly Fiorina, to break up the company.

On Tuesday, Fiorina acknowl-edged that on three occasions, the Hewlett board considered doing just that, but each time the board unanimously decided to keep the company together.

Fiorina's admission came while speaking in Boston at HP's twice-a-year meeting for financial analysts. She did not offer any specifics about when those discussions took place or how diligently the board explored the possibility.

Her comments came in response to a question posed by Steven Milunovich, a Merrill Lynch technology analyst who has repeatedly called on the company to spin off its printer business. Milunovich has published reports asserting that a spinoff would provide financial benefits to shareholders.

Hewlett-Packard, with a market capitalization of US$63.7 billion, is a behemoth that sells a dizzying array of products. That includes printers and personal computers, but also computer systems that help corporations run their data centers, along with consumer devices like digital cameras. Computer printers accounted for 30 percent of Hewlett-Packard's sales last year, but 80 percent of its profit.

To Hewlett executives, its strong presence in the consumer and business markets is a critical leg up in competition with its many rivals, including IBM and Dell.

"Our corporate customers recognize that our deep understanding of the consumer side of things is critical to their business," Shane Robison, the company's chief strategy and technology officer, said in an interview last summer.

But Milunovich, among other analysts, believes that the printer business is so profitable that spinning it off as a free-standing company would be good for investors.

In a report Milunovich published in June, he wrote, "Here we tackle a topic Hewlett-Packard likely will not talk about at tomorrow's analyst meeting but should. We recommend that management break up the company within the next few years."

Milunovich has also written that the company should split off its consumer products from those it sells to business customers.

Until Tuesday, Fiorina resolutely ignored such calls. The Associated Press quoted Fiorina as saying that breaking the company apart would incur "real costs" and prove an enormous drain on executives.

Robert Wayman, HP's chief financial officer, said at the same meeting that a breakup would make no sense because the pieces would be less efficient than the current company. Companies save money by sharing the costs of human resources and other services.

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