HP bails out on the PC

Struggling PC business, tablet boom may have pushed HP to dump the business

The acknowledgement yesterday by Hewlett-Packard (HP), the world's largest PC maker, that it is considering spinning off its massive PC manufacturing business means "they see the writing on the wall," as one analyst put it.

In a flurry of announcements yesterday, HP also said it is killing off its webOS devices -- specifically the TouchPad and its webOS phones -- and planning to purchase analytics software vendor Autonomy for $10 billion in cash.

News that HP may get out of the PC business wasn't a surprise to some analysts, especially given the decreasing focus by consumers, and even enterprises, on desktops and laptops. The quick rise of tablets, particularly Apple's iPad, is not good for companies that have invested billions of dollars in building and selling PCs.

"Right now, we're just speculating about HP's motives, but, to me, I think that they see the writing on the wall with PCs," said Dan Olds, an analyst with The Gabriel Consulting Group. "It's a low-growth and very low-margin business these days and that's not likely to change in the future."

According to HP, its Personal Systems Group (PSG) is worth $40 billion in annual revenues. The PSG includes personal computers, technical workstations, WebOS-powered tablets and smart phones, as well as personal storage solutions.

In the second quarter of this year, HP, which has long been the largest PC manufacturer in the world, accounted for 17.4% of global shipments, according to industry analyst firm Gartner.

Just last month, Gartner noted that HP was holding strong even as it faced new challenges in its consumer PC business.

The trouble, as it has been for months now, is that the burgeoning tablet market has hammered the PC market, especially in the U.S.

A recent Gartner report noted that sales in the worldwide PC market have been slowing. For instance, global PC shipments were up only 2.3% in the second quarter of this year. Gartner had earlier expected them to be up by 6.7% during that period.

"There are other areas where HP can invest its time and money to get a better return and higher growth rate," said Olds. "So it makes sense to get out of the business if that's their rationale. Spinning it off rather than selling it is due to the fact that there aren't a lot of buyers who have the desire and the money to take it off HP's hands."

He also noted that this isn't all that different from what IBM did with its PC division, when Lenovo took its own PC manufacturing business off IBM's hands.

The difference here is that HP is on top of the PC manufacturing heap. IBM was not.

Rob Enderle, an analyst with the Enderle Group, said IBM may have offered HP a good example to follow.

"IBM has been incredibly successful after the PC company sale and, more recently, Lenovo has been the fastest-growing PC company," he added. "That example alone likely would justify this move."

But Charles King, an analyst with Pund-IT, Inc., said the HP move caught him off-guard -- especially, given the company's position in the market.

"I'm surprised mostly by the audacity of the move," said King. "PCs -- and dominating the PC market -- after all, were critical points in HP's 2001 Compaq acquisition. The company's Personal Systems Group also generates more revenue than any other HP business unit. That's nearly one-third of HP's overall revenue. Even spun-off, it'd be a formidable company."

King agreed, however, that PC manufacturing is a tough business.

HP's PC unit delivers lower overall operating profits, on a percentage basis, compared to its higher-margin business IT solutions and services. PC sales also tend to be more volatile than business IT, with sales that are particularly sensitive to seasonal buying trends and economic hiccups.

In that vein, King said getting rid of the PC business could ultimately be a smart move for the company.

"The future for HP is more enterprise hardware, more software and more services -- in other words, a business more like IBM," he noted. "In that version of things, PCs, at least the consumer side of the business, are mostly extraneous, so if this happens, it could be very good for the company."

Q2 PC shipments

Company

2Q11 Shipments

2Q11 Market Share (%)

2Q10 Shipments

2Q10 Market Share (%)

2Q10-2Q11 Growth (%)

HP

14,888,086

17.5

14,454,971

17.4

3.0

Dell

10,621,436

12.5

10,283,074

12.3

3.3

Lenovo

10,225,358

12.0

8,349,272

10.0

22.5

Acer

9,298,989

10.9

11,689,255

14.0

-20.4

Asus

4,467,611

5.2

4,306,241

5.2

3.7

Toshiba

4,411,400

5.2

4,497,576

5.4

-1.9

Others

31,306,987

36.7

29,732,493

35.7

5.3

Total

85,219,865

100.0

83,312,882

100.0

2.3

Sharon Gaudin covers the Internet and Web 2.0, emerging technologies, and desktop and laptop chips for Computerworld. Follow Sharon on Twitter at @sgaudin, on Google+ or subscribe to Sharon's RSS feed. Her e-mail address is sgaudin@computerworld.com.

Join the Good Gear Guide newsletter!

Error: Please check your email address.

Tags hardware systemsdesktop pcslaptopsbusiness managementHewlett-Packard

Our Back to Business guide highlights the best products for you to boost your productivity at home, on the road, at the office, or in the classroom.

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Sharon Gaudin

Computerworld (US)
Show Comments

Essentials

Microsoft L5V-00027 Sculpt Ergonomic Keyboard Desktop

Learn more >

Lexar® JumpDrive® S57 USB 3.0 flash drive

Learn more >

Mobile

Lexar® JumpDrive® S45 USB 3.0 flash drive 

Learn more >

Exec

HD Pan/Tilt Wi-Fi Camera with Night Vision NC450

Learn more >

Lexar® JumpDrive® C20c USB Type-C flash drive 

Learn more >

Audio-Technica ATH-ANC70 Noise Cancelling Headphones

Learn more >

Lexar® Professional 1800x microSDHC™/microSDXC™ UHS-II cards 

Learn more >

Budget

Back To Business Guide

Click for more ›

Most Popular Reviews

Latest News Articles

Resources

PCW Evaluation Team

Michael Hargreaves

Windows 10 for Business / Dell XPS

I’d happily recommend this touchscreen laptop and Windows 10 as a great way to get serious work done at a desk or on the road.

Aysha Strobbe

Windows 10 / HP Spectre

Ultimately, I think the Windows 10 environment is excellent for me as it caters for so many different uses. The inclusion of the Xbox app is also great for when you need some downtime too!

Mark Escubio

Windows 10 / Lenovo Yoga

For me, the Xbox Play Anywhere is a great new feature as it allows you to play your current Xbox games with higher resolutions and better graphics without forking out extra cash for another copy. Although available titles are still scarce, but I’m sure it will grow in time.

Kathy Cassidy

STYLISTIC Q702

First impression on unpacking the Q702 test unit was the solid feel and clean, minimalist styling.

Anthony Grifoni

STYLISTIC Q572

For work use, Microsoft Word and Excel programs pre-installed on the device are adequate for preparing short documents.

Featured Content

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?