Consumer Electronics

HP May Keep PC Albatross

There are news reports that Hewlett-Packard (NYSE: HPQ) may not spin off its large PC business. The business is a financial drag on the company’s prospects. HP will be hurt if a spin-off or a sale does not occur.

Meg Whitman, HP’s new CEO, may decide that part of her early stamp on the company is to repudiate some of the plans of her predecessor, Leo Apotheker. His announcement about disposing of the PC group was sudden and unexpected. The operation is large enough that without it HP might be a much smaller company. But it also might be a company that has businesses with reasonable margins, undiluted by those of the personal computer group.

In the quarter that ended on July 31, the HP’s Personal Systems group had revenue of $9.6 billion, against the firm’s total revenue of $32.1 billion. The operating margin on the unit was only 6%. HP’s overall operating margin was 10% for the period. Margins at the company’s software and services businesses were even better.

Disgraced former HP CEO Mark Hurd began to recast the company as a high-end business tech consultancy operation that could offer hardware and software as well. This shift was behind HP’s buyout of EDS in 2008. HP’s financial success and stock price were indications that Hurd’s plan to maneuver HP into a position to compete with IBM (NYSE: IBM) had begun to work.

What Whitman and the HP board may not have admitted to themselves is that the future of computing has already shifted to tablets and smartphones. HP does not have a single product in these sectors. It may be the largest PC company in the world, but that will not help it compete in the industry in five years, once transformation in computer devices is nearly complete.

HP has a one-time chance to continue that transformation of its operation. If it retains the PC operation, that can never happen.

Douglas A. McIntyre

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