Sources told The Wall Street Journal that Hewlett-Packard is rethinking a potential plan to spin off HP PSG, the $40 billion PC business. The sources indicate that spinning off the PC business will hurt HP’s supply chain. Ironically, Dell CEO Michael Dell made that very statement about HP during last week’s Oracle OpenWorld. Here’s the recap.
HP has spent the past month or two “researching” the potential benefits and challenges associated with spinning off the PC business. The debate ultimately caused HP’s stock to drop significantly, and may have cost former CEO Leo Apotheker his job. When new CEO Meg Whitman arrived in September, Whitman promised to take a fresh look at the potential PSG spin-off. And she promised HP would reach a decision on the debate before the end of 2011.
Now for the twist: Michael Dell didn’t need much time to reach his own conclusions in his own head. During a keynote at Oracle OpenWorld last week, Dell said HP will lose economies of scale if it spun off its PC business but retained its server business. Volume deals on processors, storage and other components would get torn apart if HP’s server and desktop businesses broke apart, Dell essentially told the Oracle OpenWorld audience.
Hmmm… Was someone from HP listening to Dell? That sure seems to be the case, since “sources” are now telling The Wall Street Journal that HP is concerned about losing economies of scale amid a potential PC spin-out.
Smarter Moves
Whatever the case, HP’s reasoning seems to be sound. And it looks more and more likely that HP will retain its PC business, which will likely delight SMB channel partners that work closely with HP.
On a side note: Hewlett-Packard has leaked numerous stories to the media in recent months. Often, those leaks were poorly managed and spiraled out of control. The August 2011 leaks, involving the potential PC spin-out and the Autonomy acquisition, were handled horrendously.
But finally, HP has leaked the right story to the media. HP seems to be leaning toward retaining its PC business.
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Tags: Dell vs. HP | Hewlett-Packard | HP Personal Systems Group | HP PSG | Leo Apotheker | Meg Whitman | Michael Dell | Oracle OpenWorld
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If I were thinking up a strategy for HP I would attempt to spin off or dump my consumer PC/Laptop line and keep making business machines.
The margins are very thin in the consumer space add in support cost, product refreshes and marketing, and a ton of different models to support and it get worse. Whereas business will buy tons of a handful of decent models, they don’t want you to redesign it much, and they don’t always need support.
Matthews: Interesting idea. But imagine the challenge of spinning off all those tightly integrated HP systems and people. The VAR Guy doesn’t have a “great” alternative idea, though.
Other than this: Whatever path HP chooses, the company should spend less time hyping a vision and instead focus 110% on execution.
Remember when Lou Gerstner got to IBM in the mid-1990s and said “the last thing IBM needs is a vision.” He was essentially saying “let’s avoid hype and get down to business.” So too should HP.
-TVG
Economies of scale must not be bought at the cost of nimbleness. It is the biggest companies that find it hardest to adapt to changing market conditions.
The real question is, why is Michael Dell begging his competitor to stay in the market? I think it is so he won’t have to explain why he was the last one to figure one that PCs are a close to zero margin business, and going down, to Wall Street. If HP leaves, Dell will look like a dinosaur as the last hardware business doing all the work to ship all the profits to Intel and Microsoft. Wintel is a bad business to be in for everyone except Microsoft and Intel, hence the name.
As far as economies of scale, it is a fair point that it may harm HP’s server costs. Although IBM and Oracle, Exa boxes, seem to get fair pricing from those component suppliers without having huge volumes. I am sure HP and Dell get slightly better pricing, but the component suppliers do not want to be dependent upon one or two companies so they give everyone a competitive price. Not to mention, if you add IP value to the x86 servers, like IBM eX5 or Oracle Exa, it is not very difficult to overcome a slight component cost disadvantage. The only time component costs are really important is in the 1U “pizza box” server market… and those are low margin commodities like PCs.