HP Will Keep PC Division

Hoping to end months of corporate turmoil, CEO Meg Whitman promises to clarify HP's mission and to take another stab at the tablet business using Windows 8.
HP has decided to retain its Personal Systems Group (PSG), the company said on Thursday, reversing former CEO Leo Apotheker's plan to exit the PC business.

Meg Whitman, CEO and president of HP for the past five weeks, said in a statement that HP has evaluated the cost of spinning off its PC division and has decided that doing so wouldn't be in the best interest of the company.

"It's clear after our analysis that keeping PSG within HP is right for customers and partners, right for shareholders, and right for employees," said Whitman. "HP is committed to PSG, and together we are stronger."

In a conference call held to elaborate on the decision, CFO Cathie Lesjak estimated that the cost of spinning off PSG would amount to a one-time charge of $1.5 billion and diminish operating profit by $1 billion annually. She explained that HP gains significant supply chain and procurement leverage by being one of the largest purchasers of PC components. The company's scale helps its margins, she said.

[ Find out more about HP's identity crisis. Read HP Must Decide What It Wants To Be. ]

"HP and PSG are better together," said Whitman on the call. "...At the end of the day, the cost and the risk of a separation are simply greater than any value we could create [by spinning PSG off]."

Whitman said that the decision to keep PSG is not necessarily a reprieve for webOS, which Apotheker cast into limbo in August when he eliminated HP's webOS tablet. Whitman said HP will take another run at the tablet business using Windows 8 and is still evaluating the fate of webOS.

"We have to make a more holistic decision about webOS," she said.

As it exited the webOS hardware business, HP bought enterprise content management company Autonomy for $10 billion, signaling a strategic shift toward the enterprise services business and away from HP's hardware manufacturing roots. Competitors began circling, sensing an opportunity to win disaffected HP customers. By the end of September, Apotheker had been fired and Meg Whitman, who once ran eBay, had been appointed to revive HP.

Whitman said that HP plans to deal with the consumerization of IT--the increasing prevalence of personal devices in the workplace--by making products that are highly desirable both for consumers and CIOs. She also said she's reviewing HP's business unit strategies and will provide further guidance when the company reports its earnings on November 21.

Gartner VP Mark Fabbi in a phone interview said that HP's about-face isn't a surprise. Apotheker, he said, didn't care about HP's hardware business and was interested in developing higher margin software and services. Whitman, he said, is taking a more balanced, pragmatic approach.

Fabbi said that while the PC business may not have many growth opportunities, it continues to be important as a way for HP to maintain relationships with suppliers and customers.

"A large number of HP's enterprise customers rely on the company for PCs," he said. "Moving away from that business undermines those relationships."

Ultimately, HP's decision to continue in the low-margin PC business was a financial decision. "The cost of getting rid of [PSG] was more than the cost of keeping it," he said.

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