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New HP analyses show that costs outweigh the benefits, but a decision has not been made yet

Back in August, Hewlett-Packard made a few jaw-dropping business moves that no one saw coming. For starters, it killed off its TouchPad tablet and accompanying webOS mobile platform. That very same day, HP confirmed that it was going to sell off its PC unit, Personal Systems Group (PSG), which is responsible for its consumer and business PCs.

A little over a week later, HP announced that it would explore other avenues as far as PSG goes, with its focus set on a spin-off. The reason for the change of mind was that no major manufacturer had the cash to buy the $10-12 billion unit. Instead, PSG head Todd Bradley went overseas to Asia to increase investments in China and begin planning to expand manufacturing there as well to obtain cheap contracts for Chinese parts and labor.

Now, HP may be changing its mind once again. HP President and CEO Meg Whitman has been looking at new analyses conducted by HP, and the cost reportedly outweighs the benefits.

According to the analyses, a spin-off of the PC division could complicate HP's supply chain, reduce profit margins on certain products and HP could lose economies of scale, thus negatively affecting HP's purchasing power with component makers.
 
If Whitman were to approve the PC spin-off, HP's other sectors could lose certain advantages they once had. HP's server computers, for example, could lose the deals it once had when buying hard drives and other components in bulk. But the company sells many more PCs than servers, with 14.9 million and 720,000 sold respectively in Q2 2011.

Then again, those in favor of the spin-off have advised that HP and an independent PC company could make a deal to buy components together, which would lead to lower costs for the server computer sector.

In addition, IBM poses as an example of a company that left the PC business and took a profit hit. During 2004, which was the last full year that IBM sold PCs, profit margins (including servers) was at 41.6 percent. In 2006, this dropped to 37.7 percent, and more recently in 2010, it only increased to 38.5 percent.

Others believe that a spin-off could boost overall profit margins as well as share price. Leo Apotheker, former HP CEO, said the "PC division was on a different track than the rest of the company," especially in the consumer-related corner.

Whitman has not made a final decision yet, but she would like to by the end of the month. 

Sources: The Wall Street Journal, ZDNet





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