HP Likely to Keep PC Division, Dell Nods Approvingly

Posted 10/13/2011 at 11:04am | by Paul Lilly

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Market research firms International Data Corp (IDC) and Gartner both report that HP still sits on top of the world as the largest PC maker, shipping more units than other computer maker in the third quarter. Given that HP is maintaining a sizable lead despite all the turmoil surrounding the company's past, present, and future, why on earth would HP go forward with plans to sever its PC business? That's a question HP itself is having trouble answering, and it now looks as though newly appointed CEO Meg Whitman wants to back off plans to spin off or sell HP's Personal Systems Group (PSG).

According to a report in The Wall Street Journal, HP is rethinking its plans that were set in motion by former CEO Leo Apotheker. After crunching the numbers and analyzing the market place, HP executives are fast coming to the conclusion that the company is better served by holding onto its PC division, which added $40.1 billion in revenue and $2 billion in operating profit to HP's bottom line in its last fiscal year.

There's also a trickle down effect to spinning off the world's largest PC business. HP would lose its leverage with component makers and ultimately end up paying higher prices for parts it can get at bulk discounts. Either way, HP plans to continue selling servers, but would lose its price advantage when it came time to stock up on processors, hard drives, and other parts.

Count Dell CEO Michael Dell among those who believe HP should hold onto its PC division. At the Dell World conference, Mr. Dell offered up three reasons why HP shouldn't go through with a spin off or sale, according to Mashable.

"It's a growth market," Mr. Dell said, pointing out that there will be 2 billion PCs within the next few years. He also said that "from a cost standpoint, you can have enormous scale." Finally, Mr. Dell explained that once you sever your client business, employees of those companies are less likely to buy your other products.

"We know from our history there is enormous connection from one device to another," Mr. Dell said.