At a time when smartphone and tablet sales are eroding the margins generated by its core personal computing division, can this merger really come to HP's rescue? Let's take a closer look.
All the wrong moves
HP had been trying a combination of moves to hold on to its eroding market share for quite some time now. The results were, however, mostly unpleasant. HP had opted for a change in leadership, after the failure of its previous CEO, Leo Apotheker, to make the company profitable. Under his guidance, the company's common stock lost nearly half of its value thanks to a series of unfortunate business decisions, including the launch of its TouchPad tablet. It's high time the company chalked out a recovery plan.
Synergizing once again
One thing is for sure: The move will certainly lead to faster decision-making, culminating in improved productivity. HP has a huge and complex business structure, which has sometimes proved to be a hindrance to growth (eventually leading to a fall in the company's shares).
The best part about the move is that it is a merger of two of the company's largest businesses. The combination would probably have an impact on cost alignment, leading to better margins in the long run. And that's very much necessary, even though it's at the cost of potential layoffs, which have been anticipated; the merger is likely to create overlapping responsibilities.
Faster growth should also be the natural outcome. Speaking of growth, last year, the market share of HP's personal computer business fell dramatically in the fourth quarter, from 18.8% to 16%, threatening its position as the world's No. 1 PC maker. Industry rival Lenovo has already grabbed 14% of the market, while Dell does not seem to be far behind with a 12.6% market share.
So, what now?
The company is integrating its marketing and communications divisions to promote better branding. But, the need of the hour for HP, as I see it, is product integration, and the merger is probably a good move in that direction. Others have benefited from it as well.
For instance, all of industry peer Apple's products are tightly integrated and interoperable with each other -- a fact which has contributed to its current ranking as the world's most valuable company. This gives me hope that the merger will have a positive effect on HP's growth as well.
The Foolish bottom line
HP's introduction of the Envy Specter line of notebooks at the Las Vegas Consumer Electronics Show in January shows the company's technological ability. With its plans to get back into the tablet business, I am waiting to see what the world's largest PC manufacturer churns out.
While HP already enjoys market leadership in almost all of its product categories, one reason why the company may not be doing well is that it has failed to cash in on the next trillion-dollar revolution in the area of mobile computing. Check out this report for those companies that stand to benefit from the wave. Click here to get this free report now!
Fool contributor Keki Fatakia does not hold shares in any of the companies mentioned in this article. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple, writing covered calls on Dell, and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.