The $8 Billion Charge Due to EDS is the Least of HP's Problems -- Linchpin Operation Ailing

Hewlett-Packard’s (HPQ) taking an $8 billion write-off in its struggling services business, a hangover from its $14 billion acquisition of EDS in 2008. But there’s another problem area: printers.

HP has seven business segments. The personal systems group (read: computers) is the biggest and brought in $39 billion in sales last year. Services (includes consulting) was next with $36 billion. Then comes imaging and printing, with $26 billion in sales, $4 billion in earnings. The executive vice president of this group, Vyomesh I. Joshi, is a director of Yahoo! (YHOO).

This business appears to be in major trouble. Its revenues grew just 0.1% last year. And last quarter it fell off a cliff. Revenue dropped 10.3%, from $6.843 billion to $6.132 billion. And earnings plummeted 28.9% from $1.136 billion to $808 million.

It’s not hard to see the problem. The division sells things like inkjet printers, laser printers and large-format printers. It competes with Canon (CAJ), Lexmark (LXK), Xerox (XRX) and Brother Industries, among others. All of them have slashed prices on hardware to reach new customers. But customers are harder to find. As it gets easier to read documents on a screen, fewer people are bothering to print anything out.

HP says in its annual filing that it plans to continue “to develop cloud-based, document-centric commercial solutions and services.” I’m not sure what that means, but it doesn’t sound like the future includes a whole lot of printers.

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