Hewlett-Packard restructuring transfers cardiac ultrasound leader to new firm

HP values to continue despite name change

What’s in a name? Quite a bit of product reputation and market influence can be tied to a well-established business name. For cardiac ultrasound market leader Hewlett-Packard Imaging Systems, retaining customer loyalty as the HP name is phased out will be the greatest challenge arising from changes implemented earlier this month.

HP’s medical products group in Andover, MA, which includes the company’s imaging systems division, entered a transitional period with the announcement by its parent, Palo Alto, CA-based Hewlett-Packard, that this group will be included in the spin off of four businesses outside of HP’s core computer-related focus. The businesses will form a new public company, which has yet to be named. Completion of the restructuring is expected in the first half of 2000.

While the HP name in ultrasound should continue for an undetermined period of time, it will eventually be replaced with a new corporate identity, said Greg Petras, general manager of imaging systems.

“The HP name is worth a lot of money (in ultrasound),” said Harvey G. Klein, president of Klein Biomedical Consultants in New York. “That is an issue.”

HP’s ultrasound customers are concerned about the eventual loss of the Hewlett-Packard name, Petras acknowledged. However, partiality to the name can be viewed as an indication of attachment to the company’s philosophy, technology, and people that have earned it a solid reputation in echocardiography over the past two decades, he said.

Repositioning the medical products group, with $1.4 billion in 1998 annual revenue, within a new $8 billion company focused on communications and life sciences should help ensure that the ultrasound business will continue its long history as an independent vendor, Petras told SCAN. If the decision had been to spin off the medical business into a separate company, there would have been less assurance of corporate longevity for customers.

“Our customers perceive that we will remain within an HP-like company and will retain the culture and people we have,” Petras said. “They are less worried that two years from now some big medical company might want to buy this medical business.”

The new company will be made up of HP’s test and measurement, components, chemical analysis, and medical businesses. Edward W. (Ned) Barnholt, currently executive vice president and general manager of HP’s measurement organization, will be CEO of the new company. The four groups earned $7.6 billion in revenue last year, or about 16% of HP’s total revenue of $47.1 billion.

The new company should provide more attention and focus for its four businesses, Petras said.

“We will have the leverage of being a part of an $8 billion company but not of such a big company that we get lost in the noise,” he said.

While at first glance the four businesses appear different, there are significant potential synergies, particularly with the chemical analysis group, he said.

“The chemical and analytical business has a bright future and growth potential on the biology side of the business,” Petras said. “That could dovetail nicely with medical as we become a strong life sciences company.”

Providing more focus to the medical business should be a plus in the pending reorganization, according to Klein.

“It (the spin-off) is positive because the medical products group was a very small part of the overall HP business,” he said.

This is not to say that the past structure was a problem for ultrasound. HP Imaging Systems has been very successful within the larger company, Klein said. The group has maintained leadership in echocardiography in the U.S. and worldwide, despite attempts by competitors to eat into its market share.

“HP has been pretty resilient,” he said.

The reorganization will allow HP’s computer and printer businesses to move forward in directions most suited for their segments, while the new company can tailor its strategy to best meet the needs of a communications and life sciences focus, Petras said.

While it is likely that the two companies will interact as partners in the future, for instance in applying computer technology to medical products, they will relate as independent firms, he said. The medical business will be able to evaluate the totality of computer options available to it, potentially forming partnerships with other computer suppliers.

“This gives us a little more flexibility as we look forward to our needs and the needs of our customers,” Petras said.

HP had plenty of immediate opportunities to discuss the corporate restructuring with customers, given that the announcement occurred shortly before the American College of Cardiology annual meeting in New Orleans last week. The vendor announced several product developments at the ACC meeting. The HP Sonos 4500 ultrasound system was introduced as a lower priced alternative to the Sonos 5500 for cardiac and vascular customers. Priced at $30,000 to $35,000 less than the 5500, the new scanner offers most of the imaging features of HP’s high-end cardiac system without the research packages.

HP announced an upgrade to its Sonos 5500 system, with an advanced diagnostics package for assessment of cardiac anatomy, function, and viability. The vendor also upgraded its multispecialty scanner, the ImagePoint, relabeled the ImagePoint Hx. The new system offers harmonic imaging. HP also introduced several digital ultrasound products, including the HP EnConcert echo information-management system.