HP to decide on PC spin-off plans by year end

Company is reportedly thinking about keeping the Personal Systems Group, which sells PCs and smartphones

Just over a month after Hewlett-Packard said it would sell or spin-off its PC business, new CEO Meg Whitman on Thursday said the company will decide on a proposal to spin-off the PC unit by the end of the year.

Under former CEO Leo Apotheker, HP in mid-August said it would explore the sale or spin-off of the Personal Systems Group (PSG) unit, which deals in PCs, smartphones and tablets. News agency Bloomberg earlier reported that HP was reconsidering a proposal to spin-off the PC unit, citing a source familiar with the company's plans.

Speaking on a conference call Thursday, Whitman said that a decision on the group's future would come sometime in the next three months. "With regard to the potential spin off of PSG, we're committed to doing the work right now to determine the best path forward and we expect the board to make a determination by the end of the calendar year if not sooner. This decision is solely based on the value to investors and value to customers," Whitman said.

Whitman was appointed as HP's CEO on Thursday after the company board identified weaknesses in former Apotheker's leadership and felt the need to bring in new leader, said Ray Lane, executive chairman at HP on the conference call.

With razor-thin margins and slowing sales, the PC unit has become a drag as HP moves to emphasize more profitable business areas such as enterprise software, services and hardware. HP in mid-August also said it would kill webOS smartphones and tablets, and a buying frenzy ensued after HP started selling its TouchPad tablets at US$99 to clear out inventory.

Analysts said that the PC business is an integral part of HP's operations and could remain in the company's fold.

"They are the largest PC vendor is the world, the most profitable after Apple. Talking about spinning that off without any resolution on it was a surprise," said Ezra Gottheil, senior analyst at Technology Business Research.

The plan to sell the PC business without a clear direction damaged trust with customers and partners, and may have cost Apotheker his job, Gottheil said.

"How would you as a customer have responded? I believe they are worried. They took a very large installed base and customer base and made them wonder." Gottheil said. "I don't think it ever was a good idea, and it's never going to happen."

Whitman's top priority should be to stabilize the chaos surrounding HP's direction among employees, partners and customers, Gottheil said.

Though challenged on margins, the PC business is HP's largest revenue source and is self-sustaining, said Roger Kay, president of Endpoint Technologies Associates. The PC business will help HP retain strong distribution and logistics capabilities, and be a key component in HP's printer and higher-margin enterprise hardware and consulting businesses, Kay said.

"Aside from synergies, the PC business is still a contributor to the bottom line," Kay said.

However, PSG's webOS software and hardware business could be toast after being mishandled by Apotheker, Kay said. Apotheker inherited the webOS business after HP bought Palm last year when Mark Hurd was CEO. HP killed the tablets and smartphones, but said it would retain webOS software and license it to third parties.

HP's TouchPad became hot only after it a drastic price drop to $99 from $499, so Apotheker must have prematurely dismissed the market, Kay said. Had the TouchPad sold for $299, HP would have sold a few thousand units, enough to establish a beachhead in the market, Kay said.

There is also little interest in licensing WebOS, Kay said, adding that it stands little chance against competing mobile platforms such as Apple's iOS and Google's Android. Microsoft's upcoming Windows 8 OS for tablets will make it even more challenging for WebOS to survive.

"Nobody wants to license [WebOS]. If they don't build their own hardware and can't license it, they bought Palm for nothing," Kay said.

Disagreeing with analysts, consultant Steven Protter said HP should move ahead with plans to spin-off the PC business to maintain financial integrity. Protter specializes in HP server and software integration.

"I believe that the PC business is low margin and agree with HP's decision to spin it off so long as they retain their server business," Protter said.

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