HP Executive Vice President Vyomesh Joshi isn't as close to Hurd as colleagues Livermore and Bradley are. Photo: HP.

If HP CEO Mark Hurd does merge the PC and printing businesses, what will that mean for printing chief Vyomesh Joshi?

A few months back, I spent some time at Hewlett-Packard (HPQ) headquarters with Joshi, who’s known around HP simply as “VJ.” We talked about how he led the printing group to become a sales and profit powerhouse, the how the slowdown in printer sales growth is unfolding, and how he’s trying to get things going again. And we talked about how he’s doing under Hurd, an unsentimental numbers guy who hasn’t been shy about saying the printing business needs to shape up.

For example, Hurd arrived at the company in 2005 and quickly identified large corporations as a growth area for the printing business. Hurd told Joshi that his printing executives didn’t have the right experience to win corporate customers, and brought in new talent including sales exec Bruce Dahlgren. That wasn’t an easy experience, Joshi said, but HP culture has enough humility to admit when it’s time for outside help.

Hurd has also pushed the printing unit to cut costs from profitable but slow-growth product lines like single-function printers, and invest the savings in promising areas like multi-function printers, commercial printing, and managed print services. Again, Joshi said it wasn’t easy to cut some of the businesses he had helped to build, especially when they were still profitable. But he insisted that Hurd’s approach makes sense.

So I wasn’t exactly shocked earlier this week when the Wall Street Journal reported that Hurd might merge HP’s PC and printing units into one giant entity – a move that would almost certainly put PC division chief Todd Bradley in charge of the combined operation, and leave Joshi’s future up in the air. It’s not that Joshi and Hurd don’t get along – the two clearly respect each other’s talents. But Hurd doesn’t have the same kind of rapport with Joshi that that he has with Bradley and enterprise chief Ann Livermore. And it doesn’t help that Joshi’s business has been going through a tough time over the past few years while the enterprise and PC units have improved.

If Hurd does merge PCs and printing, there would be some precedent. He has already folded outsourcing unit EDS into the enterprise technology group run by Ann Livermore, giving her dominion over a portfolio that includes servers, software and services – a staggering 47% of HP’s revenue.

Similarly, putting printing and PCs under one executive could simplify some things. Just as Livermore is the go-to person for corporate relationships, the PC and printer executive would manage retail, small business and consumer; under the current structure, the PC and printer units have sometimes jockeyed for control of the overall consumer strategy and retail approach. It could also yield some financial benefits; analyst Doug Reid at Thomas Weisel Partners estimates that combining the units could boost operating margins by up to 60 basis points by fiscal 2012.

Whatever happens, Joshi will be fine. He has spent nearly 30 years with HP (his big anniversary is next summer, I believe), including nine as a top executive. He serves on the board of Yahoo (YHOO). Perhaps most important, he’s not only loved inside HP, he’s loved among executive recruiters as well. If Joshi does leave HP in a management shuffle, and a high-profile Silicon Valley CEO job opens up, there’s a good chance he’ll be on the short list. (AAPL) (DELL)

Computer makers hope that stylish new laptops like Hewlett-Packard's Pavilion dm3 will lure shoppers away from low-cost netbooks. Photo: HP.

There’s going to be a PC retail showdown this holiday season. Let’s call it the netbook vs. the nymph.

In the netbook corner: the cheap, small, underpowered laptops that are all the rage lately. Asian manufacturers like Asus first introduced them, and consumers love them because they handle documents, e-mail, and web surfing for as little as $300. The big PC makers offer their own models, but also secretly hate that netbook fever is sucking the profits out of the industry.

In the nymph corner: a newer class of svelte yet powerful laptops that could steal some attention from netbooks. (The industry calls them “thin and light,” but hey — nymph is more fun.) Like their competition, nymphs are slim — some of them less than an inch thick — and they often eschew extras like DVD drives for the sake of portability. Perhaps best of all, they do a solid job running Microsoft’s eagerly anticipated Windows 7 operating system, which arrives next month.

Today PC heavyweight Hewlett-Packard (HPQ) is the latest to unveil several eye-catching additions to the nymph category, including the Pavilion dm3 at $550 and the Envy 13 at $1700. Both use the latest mobile processors from Intel (INTC) or Advanced Micro Devices (AMD) and deftly handle tasks like 3D gaming and video editing.

What’s at stake here? Just the near-term health of the PC business.

Like most other categories, PCs have had a rough year. Penny-pinching businesses have been slow to spend on technology in a tough economy. Consumers have been shopping mainly for bargains. Meanwhile many global PC makers have cut prices to drum up sales. “The battle for market share is being fought on the price front, which will ultimately hurt the whole industry,” as First Global Research put it in a recent note.

If shoppers continue to bargain shop for netbooks this holiday season — and analysts expect they will — end-of-year growth at companies like HP, Dell (DELL), Intel, and AMD won’t look so hot. For the holiday season, says NPD Group analyst Steve Baker, “unit sales are going to be up big double digit percentages — above teens, I would think. Dollars will be pretty much flat.”

That is, unless the industry can convince consumers to spring for more powerful machines.

Leslie Sobon is trying to do exactly that. Sobon, marketing chief at AMD, has redrawn the sales pitch for computers like HP’s dm3 and Acer’s Aspire 5538, which contain her chips. Rather than emphasize stats like gigahertz, bus speed, dual-core, and the like, the new VISION strategy focuses on telling customers what the PCs can do — an approach that AMD’s research showed is sorely lacking at retail. “We’re focused on entertainment — things like photos, like Blu-ray, Hulu,” she says. “See, share, create.”

Customers are more likely to buy a better-equipped laptop, Sobon’s market research suggests, if they have a clear sense of what they’re getting for the money.

Folks like J.P. Morgan analysts Mark Moskowitz and Anthony Luscri don’t sound too optimistic about how the upsell will go over this year. “With consumers seeming to flock to low-cost netbooks, we do not expect a shift back to standard notebooks to run Windows 7 en masse,” they wrote recently.

Indeed, netbooks are getting more attractive — and more powerful — all the time. Along with the rest of its PC lineup, HP introduced two $400 netbook standouts of its own: the Mini 110 by Studio Tord Boontje, which features a lace-like, three-dimensional look; and the Mini 311, which can handle 1080p high-definition video NVIDIA’s (NVDA) Ion graphics processor.

With products like that hitting the market, there won’t be a huge shift away from netbooks anytime soon — but PC makers will take any upsell they can get.

It's undeniably interesting to talk about the health of Steve Jobs. And whether Apple plays nice with the competition. Oh, and the multiple conflicts of interest between the boards of Apple (AAPL) and Google (GOOG), even after Eric Schmidt removed himself as an Apple director. (Genentech Chairman Art Levinson remains on both boards, and unless something has changed recently, Apple lead director and Steve Jobs confidante Bill Campbell is still Eric Schmidt's executive coach and a heavily involved advisor to Google's senior managers.)

This is all true, and truly worth jabber-jawing about. It also explains why there hasn't been all that much chit-chat about an astounding if unexciting report released earlier this week by the respected Sanford Bernstein analyst Toni Sacconaghi that details just how freaking profitable Apple is. The once-beaten company's ability to spew out cash may indeed be its neatest trick of all.

Some of Sacconaghi's points to consider:

* In the first half of 2009 Apple's iPhone accounted for only 8% of the cell-phone industry's handset revenues but 32% of its profits, Sacconaghi estimates. Its profitability blew everyone else away, 40% operating margins versus a 7.5% industry average.

* Similarly in PCs, Apple's meager 6% share of revenues translated into a quarter of all the industry's profits. Apple does this, the analyst surmises, by only going after the high end, designing gorgeous  products and benefiting from the integration of hardware and software.

* All by itself, Apple accounts for as much as 20% of worldwide purchase of NAND memory, the type of chips that go into the iPhone. Such dominance gives Apple a tremendous cost advantage.

For years Apple was a yes-but story. Yes, its Macintoshes were pretty and well loved by hipsters. But its market share was minuscule and therefore it was irrelevant. All of a sudden we see in the financial data that revenue market share is the wrong way to consider Apple. Its share is high where it counts, profitability, which translates into a market value of $148 billion.

Sacconaghi, by the way, used his report as an opportunity to up his price target on Apple's shares to $185.  At $165, the stock price had reached his previous target.

It seems Apple's various battles with competitors, the Federal Trade Commission, and even would-be partners will keep the company busy for months. None of these issues, however, will put a dent in the company's profitability in the near term.  For financial types, at least, that's a pretty sexy story.

The last version of Office didn't include a free online version. The next one will. Image: Microsoft

It’s too early to say Microsoft has checkmated Google in online documents – the latest version of Office hasn’t shipped yet. But the sleeping giant in Redmond has clearly woken up to the Internet threat.

Get this: Microsoft – the king of paid software – will announce today that it is going to give a version of Office away for free online. Both the online and desktop versions are scheduled to arrive in the first half of next year. Yes, you read that right. The latest version of its ubiquitous productivity software, dubbed Office 2010, will come as both a piece of software you can buy for your computer, and as a service you can access in your browser. [UPDATE: Microsoft says it will support the Firefox and Safari browsers as well as IE.]

For free. From Microsoft.

One could argue that the software giant is late to the giveaway party. Folks like Google, Zoho and SlideShare have been offering free equivalents to Word, Excel and PowerPoint for years. Unlike those companies however, Microsoft already has a very profitable $20 billion business selling desktop versions of its Office software. It would have been foolish to jump into the free game too hastily and watch that business evaporate overnight.

And that’s what makes this bold move to the web either the dumbest thing the company has ever done, or a stroke of genius. If Microsoft gets this wrong, it will cannibalize its own Office business, and investors will howl. If it gets this right, Microsoft will crush Google, Zoho, and all the other rivals who are nibbling away at Office’s dominance.My hunch is that this is a stroke of genius from Microsoft. Why? Earlier this year when I talked to Chris Capossela, the executive who manages Office, he had clearly thought hard about how to do this right.

Capossela told me that Microsoft has studied it closely, and Office Web Applications, the free, ad-supported version of Word, Excel and PowerPoint, will probably appeal to tightwads who weren’t going to buy a copy of Office anyway. This way, rather than force those folks into Google’s arms, Microsoft can hook them into its online world and tempt them with its latest technology.

And Microsoft can also tempt them to upgrade. Office Web Applications will work better if you actually purchase Office 2010. Users with the latest Office software will be able to more easily share documents and keep each other’s changes in sync. Add in the fact that the paid version of Office will come with a brilliant feature that lets Office buyers broadcast their PowerPoint presentations over the web (like Cisco’s WebEx), and the Microsoft’s online giveaway looks less like an oops, and more like an upsell.

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A sign of things to come? In its Atlanta stores, AT&T is selling the Acer Aspire One for $49 with a 2-year wireless data plan and DSL signup. Image: Acer

PC retail is in rough shape again, and it's about to get rougher.

Evidence of hardship is everywhere. Hewett-Packard (HPQ), the world's largest computer maker, says it's selling about the same number of computers as a year ago, but getting a lot less money for them – sales dropped 19% in the most recent quarter. When Apple (AAPL) reports earnings in July, analysts expect Mac sales to be off as well. And while Intel (INTC) says it's hopeful that its chip sales are bottoming out, chip revenues are lower than they have been in years.

Why are things so bad? The easy answer is that PCs cost hundreds of dollars, and consumers don't have a lot of extra cash floating around these days. Unless your computer has been struck by lightning and given up the ghost, chances are you're holding off on purchasing a new one. One tech industry executive recently confided to me that it's not just U.S. consumers thinking this way – the entire global PC market headed off a cliff at roughly the same time late last year, forcing computer makers to cut workers and rethink their strategies.

In the midst of all that, wireless carriers are poised to shake up PC retail. AT&T (T) announced this week that beginning this summer, it will begin selling small, low-cost Windows XP netbooks from Acer, Dell (DELL), LG and Lenovo in all 2,200 of its U.S. stores. (In case you're counting, that's about twice as many locations as Best Buy (BBY) has.) Rival Verizon (VZ) has already begun selling an HP netbook.

Why buy a computer from a phone company? Price, of course. Sign a two-year wireless data contract with AT&T, for example, and you get $50 knocked off the price of a netbook. Get home DSL service too and save $100. In Atlanta, where AT&T has been testing the deals, the cheapest Acer netbook sells for $49 after rebates.

Sales there have been brisk enough that AT&T execs are confident that cheap laptops will lure customers nationwide the same way cheap phones have in the past. And the deals will only get better: It's easy to imagine that in a year or two, customers who sign up for two years of voice and data service (at a cost north of $100 per month) will leave a store with both a "free" phone and a "free" computer. Exciting, huh?

While this is great news for netbook-loving consumers, it's a downright scary prospect for PC makers. If the phone business is any guide, carriers will fuel demand for the cheapest and least profitable computers out there, and put pressure on traditional PC stores to sell low-price PCs. And that will force tech companies to work harder to lure shoppers toward more powerful (and more expensive) hardware.

That's not an impossible upsell, as the iPhone and BlackBerry (RIMM) have proven in the phone business. But it's yet another challenge the PC gang doesn't exactly need right now.

Microsoft's follow-on to Vista, Windows 7, is getting closer to launch. Guess what? The buzz is better than you might expect. (MSFT) (HPQ) (DELL) (AAPL) (INTC) (AMD)

Cisco CIO Rebecca Jacoby

Even in these tough economic times, tech giant Cisco offers employees some pretty sweet benefits: Employees can visit on-campus doctors and dietitians, drop off dry cleaning, or get an oil change, and now they can pick the kind of computer they want to use at work.

That's right – Cisco has started letting workers choose from a handful of laptops, including an Apple MacBook Pro. Only don't call the program a perquisite. Rebecca Jacoby, Cisco's (CSCO, Fortune 500) top information technology officer, says the initiative, launched last year, should actually save the company money. The fact that employees involved in the pilot program are deliriously happy with it – Jacoby and her peers even get love notes from satisfied road warriors – is a bonus.

Of course, that new freedom requires companies and employees alike to make sacrifices. Since Cisco began offering a choice of machines last June, roughly a quarter of employees have opted for Macs, yet they are pretty much on their own for tech support. (An in-house online community for Mac users gets a little help from Jacoby's department.) Cisco, in turn, has to make a slightly higher upfront investment for the workers who want Macs, which are pricier than PCs.

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