Small surprise HP decides to retain PC unit

IT giant has backtracked on move to sell PC business and will instead keep the profit-making unit, saying decision is "right for customers". Analysts welcome announcement, while noting it comes as no big surprise.

Hewlett-Packard will keep its personal systems group (PSG) after all, putting away for good its contemplation to sell the profit-making business unit that has propelled the IT giant to No. 1 market position globally for PCs. Industry analysts applaud the move but note that it comes as no big surprise.

In a statement late-Thursday, HP's new CEO Meg Whitman said the company's decision to retain the PC business was "right" for its customers, partners, shareholders and employees. The move came after it "objectively evaluated the strategic, financial and operational impact" of selling off the business unit, said Whitman, who had earlier promised to make a decision on the matter by end-October.

"HP is committed to the PSG and together, we are stronger," she said.

With revenues totaling US$40.7 billion for its fiscal 2010, the PSG is a "key component" of the company's overall strategy and deeply integrated across key operations including supply chain, IT and procurement, said HP, citing findings of the review. The division also contributes significantly to the company's overall brand value and products portfolio.

"The cost to recreate these in a standalone company outweighed any benefits of separation," it added. "The HP board of directors is confident that PSG can drive profitable growth as part of the larger entity and accelerate solutions from other parts of HP's business."

No big surprise but right move
Ezra Gottheil, senior analyst of computer business quarterly at Technology Business Research (TBR), described HP's decision as "the smallest surprise" and "most likely outcome" since the vendor's customers preferred working with "a single HP".

He noted that its previous decision to spin or sell off the unit had drawn widespread criticism and "disturbed" customers.

Carter Lusher, Ovum's research fellow and chief analyst, concurred, adding that the move to sell the business was "an unmitigated disaster". It was also a blow to former CEO Leo Apotheker's credibility, who only five months earlier had pointed to the importance of the PSG's products to HP, Lusher said in a statement.

"Despite being a commodity business, with a lower profit margin than most of its other businesses, PCs benefit HP greatly," Gottheil explained. "HP's PCs help drive the business across most of its product lines, from printers to servers to services. They create scale for the manufacture of other hardware, they fill out the portfolio for partners, and they provide entry points for the rest of HP's salesforce."

TBR found that some customers, upon learning of the vendor's previous move to sell the business unit, had given greater consideration to other vendors and this extended beyond PC purchases to include servers and services, he revealed.

Customers regarded HP to be less predictable and less reliable, he added, noting that this did not reflect well for a strategic technology partner.

"HP partners also were concerned," he said. "Many customers and partners had preferred HP for its one-stop shopping, and now a key offering was perhaps being withdrawn."

Lusher added: "Everything around the PSG strategic review decision sent shockwaves of uncertainty through the enterprise and public sector IT executive circles, as it called into doubt HP's ability to execute a clear strategy for any product or solution."

The Ovum analyst gave credit to Whitman "for acting swiftly and decisively", noting that the move indicated she would not hesitate to backtrack on decisions her predecessor had made. This demonstrated the new CEO's ability to stabilize HP and reclaim its position as a strategic IT supplier.

Gottheil said customers would regain their trust in the IT vendor, but it would take time.

Lane and Whitman to share duties
In an interview with Bloomberg, Whitman also revealed that HP's executive chairman Ray Lane would share operational duties, assuming responsibilities for the company's software and services business while she focused on computer hardware and corporate functions. This, she said, would allow the executives to "cover more ground".

A partner at venture capital firm Kleiner Perkins Caufield & Byers, Lane currently spends 30 percent of his time involved in HP-related operations. He was a former president and COO of Oracle, and was appointed non-executive board chairman when Apotheker was named CEO.

Whitman and Lane exchange notes daily and have weekly meetings to discuss the company's operations in more detail.

According to Bloomberg which cited a source close to the IT vendor, Whitman had agreed to replace her predecessor on the condition that Lane was appointed executive chairman.

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