Friday, October 28, 2011

Hewlett-Packard Decides Not to Sell Off Their PC Business After All

Meg Whitman, new chief executive at Hewlett-Packard (HP), has confirmed on Thursday that the company has cancelled their plans to sell off their personal systems unit, formally known as the division responsible for HP’s personal computer business. You may remember that back in August, HP, which was then under the reign of Leo Apotheker, announced that they will stop manufacturing webOS based devices such as the Palm Pre. At the same time, they also declared plans to sell off their PC business. Leo Apotheker failed to mention any company who was interested in buying their PC business. Up to this point, no company announced their interest in acquiring the personal systems division of HP. If any company was interested, they haven’t made any formal announcement, but unfortunately, it would be too late to do so.
Now before I go into why HP would not want to sell their PC business after all, let me give you a review of what has occurred over the past year. Mark Hurd, resigned from Hewlett-Packard due to certain allegations against him (harassment?). Leo Apotheker was then named the new chief executive officer. Under his, what some might call poor, leadership, he announced their intentions to sell the personal systems group to another company, or spin it off into a separate company. In September of this year, the HP board of directors decide to fire Leo Apotheker in favor of Meg Whitman, as the new chief, due to harsh criticism by HP investors and the media.

Meanwhile, HP has not changed their decision to stop manufacturing webOS based devices such as the Palm Pre and the Touchpad.

But what immediately comes to mind, for most people is, “Why did HP pull back on their plans?” The answer is not glaringly obvious, but makes sense when you think about it. Any company the size of HP would have great difficulty spinning off the personal systems division as a separate company. It would be very costly for them to do so and would not be time efficient in the least. While HP does have other strengths in other areas, such as making printers, personal computers are still a large revenue stream. Eliminating personal computers from their product line up would almost completely pull them out from the consumer market, leaving them with business customers, which would severely hurt their client base. Some have argued that personal computers are very expensive to manufacture and bring in little total revenue after overhead. That is a common misconception, but Hewlett-Packard does in fact get a good source of income from personal computers because of the extra product support and software services they sell and bundle with their products. HP simply can’t do that with business products such as printers.

The final solution for HP’s problems is really unclear now. It may not be clear for a while what HP’s strategy is. But I can tell you that it might’ve been, from a purely financial standpoint, a smart move for them not to spin off or sell their PC business. Long term, I’m not sure what HP can do to succeed. All we can do is hope that Whitman can’t do any worse than what Leo Apotheker has done to the company.

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