HP: We're keeping the PC unit

HP: We're keeping the PC unit

Summary: HP CEO Meg Whitman decides the PC business isn't so bad after all.

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Updated throughout: HP said it will keep its personal systems group and that it will continue to sell PCs.

The company added that its strategic review indicated that the supply chain and procurement hit was too much. Meanwhile, HP's PC unit performs well.

When Meg Whitman took over as CEO she promised a quick decision on the PC division. She delivered.

Overall, HP's move makes sense---at least in the short term. Keeping the PC unit removes a lot of uncertainty for corporate technology buyers who were likely to go with vendors such as Lenovo and Dell. By eliminating that uncertainty, HP can move ahead.

HP's PC unit is profitable, but analysts noted that the business has imploded. In other words, HP couldn't sell the PC division and a spin-off wouldn't have been a boon to shareholders in its current state.

Jefferies analyst Peter Misek said in a research note this week:

In our global travels we have heard time and time again how your PC business has virtually imploded since the spin-off decision. Local managers in Asia, Latin America, and Europe are powerless to fight the competitive message, and customers fear that you are not committed to the business and therefore are going elsewhere (primarily Lenovo and Dell). We suggest either 1) immediately announce a commitment to the PC business (e.g., multi-year onsite warranties, partner with local banks to finance), or 2) have a private equity firm buy a stake in the company.

On a conference call with analysts, Whitman said she looked at the costs of a spin off as well as startup costs. Once the numbers were crunched, it was clear that HP had to keep the PC business. "PSG benefits from HP's global scale and innovation," said Whitman. "It would be very challenging for a new PC company to build such a strong brand."

Related: HP making another run at Windows 8 tablets

CFO Cathy Lesjak said that annual synergies between PSG and HP lead to operating synergies of $1 billion a year.

The reasons to keep the PC unit boiled down to the following:

  • The PC unit is too intertwined with HP.
  • It would cost $1.5 billion to spin it off in startup costs.
  • HP would lose supply chain scale that would hurt other units.
  • The PC unit would struggle without HP's channel relationships and brand.

In the long run, HP's decision to keep the PC unit isn't a slam dunk. PCs are still a low-margin commodity business and it's unclear whether the unit can deliver cutting edge designs, navigate the tablet market and generate consumer buzz. When former HP CEO Leo Apotheker announced plans to escape the PC business, most of the criticism revolved around the delivery and communication not the end goal.

The challenge for HP is to boost its margins while still playing in the PC market. For the third quarter, HP's PC unit was 31 percent of revenue. Whitman acknowledged that there will be margin pressure, but the company will work on its supply chain and design PCs that appeal to both consumers and the enterprise. HP executives acknowledged that HP took a competitive hit from rivals. Whitman added that customers told her that "uncertainty is not your friend here" and were holding off on orders.

Whitman said in a statement:

HP is committed to PSG, and together we are stronger.

Whitman's review revolved around how PCs fit into the supply chain. Removing the PC business could mean that HP would lack the scale to get good component deals for its servers.

In a statement, HP said:

The data-driven evaluation revealed the depth of the integration that has occurred across key operations such as supply chain, IT and procurement. It also detailed the significant extent to which PSG contributes to HP’s solutions portfolio and overall brand value. Finally, it also showed that the cost to recreate these in a standalone company outweighed any benefits of separation.

Going forward, HP's Todd Bradley, who runs the PC unit, said the company is committed to the PC and intends to improve the business. Bradley's comments on the conference call sounded like any other PC company. The plan is to become more efficient, design better PCs and focus on emerging markets.

Keeping the PC business eliminates uncertainty, but key questions still remain for the unit.

Among the key items:

  • How should HP organize its design teams? Misek suggested that HP should separate its design team from the bureaucracy. Better designs would help HP battle Apple and generate enterprise sales as consumerization takes hold?
  • Does HP have to dangle carrots in front of IT buyers? HP may have to boost warranties and use aggressive pricing to fend off deals with Lenovo and Dell.
  • What's the mobile plan? HP still doesn't have a mobile plan and it needs to partner with Microsoft of Google. The WebOS is a dead end due to the ecosystem. Whitman said WebOS plans are being evaluated and that HP will get into the tablet market again.

Here's where HP stands in the PC market.

Related:

Topics: Hardware, Hewlett-Packard

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69 comments
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  • RE: HP: We're keeping the PC unit

    Good grief! Is this the sign of sanity returning to HP?

    Now, if only HP was willing to rationalize its product lines down to reasonable levels, focus on designing killer products and executing well, perhaps they could create products that beat the crap out of everyone else.

    For example, they so very, VERY nearly had a MacBook pro competitor in the Envy lineup, but screwed the pooch by fitting pretty poor, low-resolution, glossy (no matt option) screens.

    C'mon HP - I KNOW you have it in you: Go to town and blow the doors off the barn. Convert Envy into a lineup of kiler Ultrabook. Be sure to provide a backlit keyboard - Lenovo's U300 is ALMOST right, but the lack of a keyboard backlight kills it in my eyes.
    bitcrazed
    • RE: HP: We're keeping the PC unit

      @bitcrazed
      +1.
      Ram U
    • RE: HP: We're keeping the PC unit

      @bitcrazed <br><br>I must agree! I have to believe the insanity was in the BOD's hiring of Leo as CEO. <br><br>WRT the Lenovo's U300, I had 'begged' the boss to get one for evaluation. Response: <i>request denied</i>, no budget money. Dammed bean counters!
      fatman65536
      • RE: HP: We're keeping the PC unit

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        balispeak
    • RE: HP: We're keeping the PC unit

      @bitcrazed

      PC Market is getting tricky as people are starting to figure out that inside their HP PC are components made by other companies. Basically PC is a PC no matter which brand they buy. External asthetics of the PC helps. The problem is that tower PC don't sell as well as Laptops do. Generally laptops in the same category are very similar in shape, size, and look. When normal everyday users buy a Laptop, they look at price and hardware features and pick the one that fits. It could be Dell, Lenovo, Sony, Toshiba, or Acer, it just does not matter.
      Apple can generate massive buzz because a Mac Book Air is just so different from a PC. The aluminum body, the ultra high resolution screen. Mac OS X Lion also gives a lot of features which are specificaly desined to give great first impressions.
      To an everyday person, a mac book air will seem very cool and it's one of a kind, only apple can deliver this experience, no one else.
      If HP wants it's PC unit to succeed, start making the ideal windows 8 post PC device. Be the fisrt to release it. People will identify the device with HP. All competion efforts will be considered copies.
      Bakabaka
    • RE: HP: We're keeping the PC unit

      @bitcrazed
      Right you are & they need a world wide services guaranty instead of buy it here and hope they service it there. I know = 4 moths with a DOA computer in Costa Rica, bought at Best Buy & the fine print from HP said only those products regularly marketed and serviced in a given country would honor my warranty. I was hung up on 3 times by HP techs who said I had no warranty. The computer never worked and is in a box in my closet here in Costa Rica - & I am a USA citizen. So H-P needs to simplify their products and broaden their support
      Summilux
    • whatever the reasoning

      @bitcrazed ... i am glad HP have made the smart choice.<br><br>Well done Meg Whitman for showing the gumption and vision to reverse Apotheker's hair-brained idea of selling HP's bread 'n butter, cornerstone business unit.<br><br>As for backlit keyboards? Agree 100%.

      +100
      thx-1138_
    • Microsoft should've bought it

      That way they can put their own brand name on them and have as much UEFI lock-out and DRM going out the ying-yang as they want to.<br><br>It's only when they pull that kind of_shit on other people's branded machines that I have a problem with it
      ScorpioBlue
      • I can't agree

        @ScorpioBlue ... although you may have a point on UEFI specific control under their own brand (if they indeed brought HP's hardware division), that would put them in direct competition (and at logger heads) with their other OEM partners.<br><br>Simply put it's an act of (proverbial) war upon those other OEM's. Any small benefit they'd gain by having direct control over the hardware ecosystem (esp. the UEFI portion of BIOS) is miniscule in comparison to the revolt and bad political karma they'd receive from the other, major OEM's.<br><br>Step back and look at the bigger picture and you'll see it's a bad play ... any which way you might prefer to look at it.
        thx-1138_
      • That's fine - don't agree

        <i>@ScorpioBlue ... although you may have a point on UEFI specific control under their own brand (if they indeed brought HP's hardware division), that would put them in direct competition (and at logger heads) with their other OEM partners.</i><br><br>So what. Let them. Where are they gonna turn to? Linux?<br><br>Microsoft has the OEMs by the balls no matter which way you turn it. They are their proverbial slaves who will bend over everytime Redmond tells them to do something.<br><br>If MS [b]really[/b] wants to go the Apple route then they should go all the way.
        ScorpioBlue
  • I would like to see a second HP renaissance...

    I would like to see a second HP renaissance. If Apple can do it, so can HP. They just need the right leader. My vote would be for Steve Wozniak and not Meg Whitman. Maybe she can be a stopgap measure to keep HP from sinking, but I think Wozniak is smart and quirky enough to help HP get back to their roots.

    I never subscribed to their computers, but I miss their once tradition of pumping money into heavy R&D. Closing their research lab and firing their senior engineers was one of their biggest mistakes. HP has turned into another "me too" company, letting others like Apple lead the sector in innovation.

    There was a time when HP made the best computing equipment in the world. They need to do it again.
    olePigeon
    • RE: HP: We're keeping the PC unit

      @olePigeon I don't think the Woz is CEO material. He seems like a great guy and definitely smart, but a tech, not a head man. Apple made it big because of the combination of Jobs and Woz. Woz by himself would have never made it.
      boomchuck1
      • RE: HP: We're keeping the PC unit

        @boomchuck1 - Of course Apple wouldn't be where it is without Jobs and Woz. However, the same is true, and to the same degree, if Woz wasn't there. It simply would never have happened.

        However, the topic is really about HP, and keeping its PC segment, so enough about Apple. It's great to me that HP is keeping its PC line. I am hoping they finally learn the lesson that their niche is highly compatible devices, not "our own OSes" models - Please review market share of HP/Ux servers for more details.
        I got to play with the $99 firesale tablets - and I was impressed! The WebOS team did wonders to integrate well with the graphics provided. I do have to say that there's a real market for AndroidOS devices, while there is near zero for WebOS. You've got phenomenal WebOS developers, but they are being pointed in the wrong direction. Get them on an Android Platform and make it absolutely shame the competition in speed and quality, or get them to implement Android compatibility, so any Android App can run on the WebOS. (Option 2 is the lesser choice in my book.)

        My wife's HP laptop works well, and HP still is a brand name I trust. It's worth keeping the PC line in my book.
        briank2
    • Someone needs to inform....

      @olePigeon "You and I both"

      The marketplace today wants quality over quantity. They could well learn something from studying the Apple approach since the loss of Steve Jobs. They would do well to "keep it simple" as the Honda mantra as well. And as Henry Ford did long ago all in black only period as current lineup. Concede the color to the after market.
      Three notebook screen/sizes with options list. Three desktop model/versions. A top of the pile a tablet second to none.
      CustomComputers
  • RE: HP: We're keeping the PC unit

    Makes sense for the hardware incentive but also the fact that Tablets obviously are getting more popular. If one buys an HP laptop today, that's a very possible tablet sale in 2 - 5 years also when that user decides to get a tablet. Given tablets will have a margin in 2-5.
    Anti Fanboy
    • RE: HP: We're keeping the PC unit

      @Anti Fanboy
      A few sites are reporting that the HP TouchPad may become a Windows 8 device. It is a strange rumour, but interesting because it leaves people wondering the future of WebOS.
      Wakemewhentrollsgone
      • RE: HP: We're keeping the PC unit

        @Habiloso Whitman just confirmed that.
        Larry Dignan
      • RE: HP: We're keeping the PC unit

        @Habiloso
        Yep, like Larry said, Meg Whitman confirmed it. Touchpads would become Windows 8 Tablets eventually. I think Meg is trying to correct the stands of HP by renewing the relationship with Microsoft. I hope to see Windows Phones eventually from HP in future.
        Ram U
      • RE: HP: We're keeping the PC unit

        @Rama: "I hope to see Windows Phones eventually from HP"

        Amen to that. HP used to make some awesome phones (iPaq) back in the day. Be great to see them bring some of their design and process execution talent to the phone market.

        Also, I am astonished that HP had any OTHER plan than to build Win8 tablets too. They've got A LOT of experience in building some pretty great hardware in the past and have some great device DNA (look at the Envy notebooks - they're almost AWESOME). I think HP could create some killer tablets.
        bitcrazed
      • RE: HP: We're keeping the PC unit

        @Habiloso Hope they offer an OS upgrade to current Touchpad owners!
        boomchuck1