Hewlett-Packard CEO Meg Whitman crunched the numbers and determined that the company had to keep its PC division. The big question now is how far HP will go on pricing to defend its PC market share.
- Without the PC division, HP would have incurred $1 billion in higher supply chain costs.
- A spin-off would have cost $1.5 billion in separation and startup costs. For HP, $1.5 billion shouldn't be a lot of money, but the company paid $10 billion in cash for Autonomy. It needs to build up its cash hoard again.
- The lack of PCs would have hurt HP's server, networking and storage business as well as the primpany wasn't ready. When IBM sold its PC unit, the company had other divisions doing well and the computer bus
- nter unit.
- It's unlikely that HP had any realistic buyers and credit was tight for private equity to step in.
- There's also a branding problem in a spin-off. "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."
- iness was hived off. HP's PC business is too integrated to extract easily.
Analysts Friday morning were supportive of HP's move--actually they'll take any sign of stability they can. Deutsche Bank analyst Chris Whitmore summed up the consensus view.
While not a surprise, HP made the right decision (in a timely manner) and correctly assessed a PC spin would be value destructive in terms of scale/procurement, global reach and pricing flexibility (bundling etc). This is the first step in the right direction but many uncertainties remain.
Indeed, HP has to integrate Autonomy, cook up a tablet strategy beyond me-too Windows 8 devices, sell WebOS and fix its services unit. However, a lot of uncertainty still remains for the PC unit. Just because HP said it is keeping its personal systems group doesn't mean that it's all clear sailing from here. Whitman on Thursday's conference call already hinted that there was turbulence ahead.