Can Hewlett-Packard's $41 billion Personal Systems Group (PSG) stand on its own two feet? If not, who would buy it? Unfortunately for HP, it doesn't know the answers. This -- along with the ending of WebOS devices and the deal to purchase Autonomy, a UK software house, for $10bn -- wiped more than 20 percent off the value of HP's shares.
Reporting the news last week (see HP kills WebOS, may sell off PC division), I quoted HP saying that "its board of directors has authorized the exploration of strategic alternatives for its Personal Systems Group (PSG). HP will consider a broad range of options that may include, among others, a full or partial separation of PSG from HP through a spin-off or other transaction."
The "exploration" could take 12-18 months, and a sale or spin-off could take longer. In other words, HP might not spin-off or sell its PC business until 2013.
But publicising the idea so far in advance could damage the business. Wary buyers could have second thoughts about buying HP's products, while rivals will already have knocked down the price they might be willing to pay for PSG. Meanwhile the best PSG staff will be targeted by headhunters, even if they haven't started looking for better jobs. All round, it's not a good result.
But it may not matter too much, because really, there is only one likely buyer: Korea's Samsung.
What are the alternatives? Among the Taiwanese, Acer is already struggling with falling PC shipments, Asus doesn't have the cash, and MSI is too small. Lenovo has already taken over IBM's PC division and doesn't need PSG. Neither Sony nor Apple wants to be in the low-end PC businesses anyway: both target people with more money. Microsoft can't buy PSG because it would be a giant headache, from an anti-trust point of view, and because it would be competing with its own customers (a mistake Google is making by buying Motorola's phone division). That leaves two main options -- Toshiba and Samsung -- with the latter being the clear favourite.
Indeed, Samsung may be the only PC company that has the money, that is big enough to absorb PSG, and that would actually want it. Or at least, would want HP's laptop business.
Samsung Electronics is a powerhouse with a substantial business in flat-screen TV sets, digital cameras, Blu-ray and DVD players, printers, microwave ovens, refrigerators, air conditioners, vacuum cleaners and washing machines. It is the world's biggest consumer electronics company, and it's on track to become the world's largest mobile phone supplier by units sold. It's also one of the world's biggest chip manufacturers, and makes the best quality LCD screens. Other divisions include the world's second largest shipbuilder, and it is also heavily involved in petrochemicals, financial services (life, fire and marine insurance), theme parks, and much else besides. Samsung's group turnover in 2010 was $172 billion, which is more than Apple and Microsoft combined.
Samsung Electronics sells laptops, is one of the most successful netbook suppliers, and is working with Google to provide Chromebooks. However, unlike Toshiba, it's not one of the world's top five, and it doesn't have a large US computer operation. A deal with HP would solve both problems for a relatively small outlay.
From the outside, it's not clear what sort of deal would make sense. However, PSG could be run as a separate company by its current boss, the excellent Todd Bradley, while the product lines are rationalised, and Samsung products are fed into the distribution channel. Although it doesn't make huge profits, PSG would provide a good market for Samsung's chips, high-quality SSDs (solid state disk drives) and LCDs.
Rumours of HP-Samsung talks
Although it hasn't been widely discussed in the west, it looks as though HP has been talking to Samsung for many months. For example, the Taiwan-based Want China Times ran a story in March, Samsung's planned acquisition of HP sparks market concern, which said that "rumors that HP would sell its PC business have been circulating in the market for some time now." It adds: "there are also reports that HP has talked with Hon Hai [Foxconn] and Chinese high-tech giant Lenovo to explore the possibility of a deal."
Back in March, Samsung was Apple's biggest and best component supplier, manufacturing the A4 and A5 processors (mainly based on Samsung designs) in the iPhone and iPad, supplying LCDs and so on. However, Apple has been litigating against Samsung's Galaxy ranges, and looking for alternative suppliers, such as TSMC. The more that relationship sours, the greater the benefits of a deal with HP's PSG.
PSG could be Samsung's Trojan horse in the US market, enabling the innovative giant to take the battle to Apple. And remember, Steve Jobs won't be around forever, and possibly for not much longer.
Samsung's "green" solar powered laptop, the NC215, which is on sale in Korea and Africa.