Does HP need a new course?

Despite ousting their CEO, Carly Fiorina, HP board members and executives on Wednesday said they are largely happy with the company's direction and see the company's problems as related to how the company executes its business strategy.

However, many analysts say HP remains in a bind, as it struggles to simultaneously compete against Dell's efficiency and IBM's breadth.

"The question is whether HP needs new direction or just a new driver," Ovum senior analyst Douglas Hayward said in a note Wednesday. "We think it needs a new direction. Our view is that HP has a broad portfolio whose separate parts don't work well enough together."

In a conference call with reporters, interim CEO Bob Wayman and newly installed chairman Patricia Dunn maintained that HP's breadth is its strength.

The company credited Fiorina with good execution of the Compaq merger but pointed out shortfalls such as last year's well-publicized problems in the server and storage unit that led to the firing of three top executives.

"We need to make sure we have a management team and a set of processes that don't allow that to happen again," Wayman said.

But many say HP's problems run deeper, and they urge the company to look to broader changes in its business.

Meta Group analyst Nick Gall said HP needs to either find more synergy in its businesses or consider splitting up the company. Gall likened the situation to the one IBM Chairman Lou Gerstner faced when he took the helm at IBM.

"His strategic insight was to find what was synergistic about keeping IBM together," Gall said. "He found it in the services play."

Gall said it is not clear where HP might find its solution.

"They are stuck between a rock and a hard place, no question, which means they need to do something very creative, very innovative." Gall said. "So far, they have not done that."

On the business side, in particular, analysts criticized HP's current "Adaptive Enterprise"

"The Adaptive Enterprise vision didn't help crystallize the enterprise picture," said Frank Gillett, an analyst at Forrester Research.

Some Wall Street analysts have long favored a breakup of HP, arguing that the company is worth more in pieces than together. Bear Stearns analyst Andrew Neff cut his rating on HP on Wednesday to "underperform," saying the company is worth $22 to $25 a share if split (about $15 to $18.50 for the printer business and $6 to $7 for the rest). But if HP stays together, he said fair value is more likely $16.50 to $18, well below the stock's current level.

So if HP were to reshape itself, what form might it take?

Printing is clearly HP's strength, but Gall said the PC maker would have to radically transform itself to build a company centered around printers. It definitely wouldn't need servers and storage, and might not need the PC business.

"You'd have to jettison a bunch of businesses that have nothing to do with printing," Gall said.

One option, analysts say, would be to spin off those businesses and revive the Compaq brand. HP could also look to sell the PC business to an overseas player, as IBM hopes to do with Lenovo.

The company has made major investments in its cash cow in recent years--notably attempts to expand into commercial printing and the copier market.

Even as HP was waging its high-profile and hotly contested bid for Compaq, the company was also buying a company called Indigo, whose ultra high-end inkjet machine aims to take on the offset printing press for smaller and custom jobs such as printing banners, brochures and other marketing materials. Both the Indigo and copier efforts are still in their early stages.

The printer business could also benefit from more focused attention. In recent months, printing and imaging boss Vyomesh Joshi has been pulled in a variety of other directions.

First, the company added to his job responsibility for HP's overall consumer effort, including cameras and music products. And earlier this year, Joshi was also given oversight of the PC business.