HP's PC spin-off puts pressure on Microsoft to nail Windows 8

Microsoft must 'hit the ball out of the park' with Windows 8 on tablets

Hewlett-Packard's sale or spin-off of its PC business will put pressure on Microsoft to "hit the ball out of the park" with Windows 8, an analyst said today.

"This is concerning no matter how you look at it," said Wes Miller, an analyst with Kirkland, Wash.-based Directions on Microsoft, a research firm that specializes in following Microsoft. "HP has been a very strong partner of Microsoft for a very long time, so you have to ponder the change in its strategy."

A sale of HP's Personal Systems Group (PSG) is an indication of the decline in the importance of the PC -- and thus Windows, which powers the vast majority of personal computers -- in favor of other devices, including smartphones or tablets that run other operating systems, said Miller.

And that puts the heat on Microsoft to crank out another OS winner.

"This re-emphasizes the need for Microsoft to hit the ball out of the pack with Windows 8," Miller said.

Windows 8, which doesn't yet have an official release timetable, will radically revamp the 21-year-old operating system's look and feel and will run on tablets, Microsoft has said.

Earlier Thursday, news outlets, including Bloomberg and the Wall Street Journal, cited sources familiar with the matter who claimed HP would announce the spin-off of PSG later today during or after its quarterly earnings call, which is scheduled for 5 p.m. ET.

HP has confirmed that it is shuttering its webOS-based device business -- including the just-launched TouchPad tablet -- and looking at "strategic alternatives for its Personal Systems Group" that may include "a full or partial separation of PSG from HP through a spin-off or other transaction."

"HP sees the future where the PC is not the focus," said Miller, "just like IBM did in 2005."

Six years ago, IBM sold its PC Company Division to China's Lenovo.

But a sale or spin-off of HP's PSG -- the world's largest seller of PCs last quarter, according to Gartner -- doesn't mean the death of the personal computer.

"PCs will remain highly strategic because they run the apps that run businesses," said Mark Margevicius, a research director at Gartner. "The fact that everyone is struggling [selling PCs] does not makes the platform any less strategic to business. PCs are a worldwide, 100-million-unit business. It's not dying in any way."

The PC sales attributed to HP won't suddenly evaporate because the division is run as a separate entity, or sold to a rival, said Margevicius. "Ultimately, someone will own the business."

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
Source: Gartner (July 2011). Data includes desk-based PCs, mobile PCs, including mini-notebooks but not media tablets such as the iPad.
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