HP Explains Decision to Shop Its PC Business

Paul Lilly

Hewlett Packard created more waves than a tsunami yesterday when the OEM confirmed rumors that it plans to dump its PC business, yet still managed to surprise industry analysts by announcing the end of operations for webOS devices, and specifically the slow selling TouchPad and webOS phones. Now that the the dust has settled, it's time to look at why HP thinks reinventing itself is a good idea.

In one of several press releases issued late yesterday, HP said it has the full support of its board of directors to evaluate "strategic alternatives" to its Personal Systems Group, "including the exploration of the separation of its PC business into a separate company through a spin-off or other transaction." In the same breath, HP makes the claim that PSG is the leading manufacturer of PCs in the world with revenues topping $41 billion in 2010. If that's the case, why even consider moving away from PCs? The answer, according to HP, is evolution.

"The personal computing market is evolving with new form factors and application ecosystems," HP explains. "Given these realities, HP believes it is in the best interests of the company and its shareholders to explore ways for PSG to position itself to address these rapid changes and maintain its technological and market leadership positions."

With tablets and smartphones and who knows what else threatening the PC landscape, HP is betting big on software, so much so that it's spending billions on Autonomy, a major player in infrastructure software for the enterprise.

"In March we outlined a strategy for HP, built on cloud, solutions and software to address the changing requirements of our customers, shaped heavily by secular market trends that are redefining how technology is consumed and deployed. Since then, we have observed the acceleration of these market trends, which has led us to evaluate additional steps to transform HP to meet emerging opportunities," said Léo Apotheker , HP president and chief executive officer. "We believe the acquisition of Autonomy, combined with the exploration of alternatives for PSG, would allow HP to more effectively compete and better execute its focused strategy."

In sort, HP is threatened by the move to mobile devices, and in particular tablets. In speaking with The Wall Street Journal , Apotheker said, "The tablet effect is real, and sales of the TouchPad are not meeting our expectations." Had the TouchPad sold better, or been able to sell at all, perhaps HP could have held onto its market share lead for mobile PCs (which includes tablets), but it yielded the No. 1 spot to Apple . On top of it all, WSJ reports that even though HP's PC division still makes a profit, it's a low margin business.

Rather than wait until things get really bad, HP would rather shop around its PC business while it still has value, and expects a deal to be done within the next 12-18 months.

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