The Three Faces of HP

Michael Vizard
Slide Show

PC Market Returns to Positive, Though Gains Remain Small

Worldwide PC shipments increased 2.6 percent in the second quarter of 2011.

The problem with managing any large IT company is that in order for it to really grow at rates that will increase the value of the stock, it has to jump into adjacent areas to boost revenue.

For the most part, IT companies do a pretty good job of doing this, but there have been some notable exceptions of late. The first is Cisco, which recently pulled back on its attempts to jump into consumer IT with the acquisition of the Flip video camera, and the second is Hewlett-Packard, which arguably jumped into the PC business with the acquisition of Compaq at just the wrong time.

Now HP is pretty much seeking to reverse course by possibly selling off the PC division and shutting down its WebOS operations, which, as many of you will recall, are based on the recent $1.2 billion acquisition of Palm.

The reasons for this reversal are tied to HP wanting to focus on higher-margin enterprise IT opportunities tied to software, servers and services. HP basically wants to copy IBM's playbook, which, based on that company's financial strength, just might be the way to go. But for HP to play in that space, it needs a lot more cash, especially to fund things like a $10 billion acquisition of a company called Autonomy, which HP now admits to coveting. The trouble these days is that once a software company goes up for sale, it tends to attract the attention of Oracle, IBM and SAP, all of which have a lot of cash and stock value at their disposal.

The third element of the HP lineup that now seems more isolated than ever is the HP printer business. HP tried consolidating the printer business with the PC business only to discover that any synergies there were elusive. Whether HP will keep the printer business is unknown. But it should be noted that IBM not only sold its PC business to Lenovo, it spun off its printer business to create Lexmark. Like the PC business, margins are under pressure in the printer business as well, but HP says it has no plans to sell this division, even though in somebody else's hands the PC and printer divisions of HP might be more valuable.


On the positive side, HP's PC business today is much more competitive than when Dell was routinely beating the pants off of HP. And the WebOS fiasco notwithstanding, Apple has shown there is plenty of money to be made in this sector.

That means that there are three probable outcomes for the HP PC business. An Asian manufacturing company in search of a brand might buy the assets of the PC division, and either Dell, Lenovo or Acer might try to take HP PCs off the board all together, or an investment firm, probably with some help from Intel and Microsoft, which have a major interest in limiting consolidation in the PC industry, may decide to run the business as an independent entity. Unfortunately, HP says it will take 12 to 18 months for all this to play out, which is an eternity in the PC business.

In the meantime, it's pretty clear that HP's current executive management team is most comfortable in the enterprise IT business. That's probably a good thing in that focus usually leads to better outcomes. But there is no guarantee that HP will be more successful simply because it is moving to spin off its PC business. HP itself could become a more tempting target for acquisition, especially if someone thought that spinning off both the PC and printer division would help pay for most of it.

When all is said and done, this is just the latest chapter in the long-running drama that is HP. How it will all turn out is still anybody's guess, but the one thing that is for sure is there are more cliffhangers to come.

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