HP Reconsiders Jettisoning PC Unit
October 13, 2011 12:32 PM
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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.
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.
The Wall Street Journal
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10/13/2011 4:37:03 PM
Your looking at just the consumer part. The Enterpise division of HP (Software/Servers/Services) comprises of 50% of HP's revenue and 60% of their earnings. They are the second largest revenue generating Enterprise Software/Services/Server company in world. The profit margins in these areas are much greater than the PC(PSG)division . This is why they want to focus on specifically the Enterprise divisions ala IBM but HP has a much bigger brand recognition in the consumer side than IBM did. They are also the number one PC maker in terms of market share and PSG does provide a substantial amount of earnings for them. It's a tough decision and I agree that Meg (along with Ray Lane-Executive Chairman) are now taking the appropriate approach at making a long term strategic decision!
10/13/2011 10:45:20 PM
There is a huge link between consumer awareness of products and how willing businesses are to use enterprise products. It isn't just the brand recognition here, but just an overall knowledge of what the company makes means that it is far easier to SELL the idea of who to go to for other products and services.
Dell is a good example of this, and what happens when you decide to go cheap on the consumer side, the business end tends to suffer as well.
10/14/2011 12:58:20 AM
They get those service contracts through their name recognition. Half of the PCs in any business are likely either HP or Dell.
Not to mention that the PC side of their business is PROFITABLE. Profit margins are for stockholders, not businesses. Apotheker just wanted to cash out.
"Nowadays you can buy a CPU cheaper than the CPU fan." -- Unnamed AMD executive
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