HP's PC division, by the (profit and growth) numbers

Why would a company give up its market-leading position in a major hardware segment -- especially if that business is still profitable? That was one question a number of customers were asking after Hewlett-Packard (HP) said it's looking to sell its Personal Systems Group and get out of the PC business -- despite being the top vendor of personal computers worldwide.

HP operating margins by segment

One answer? Profitability. The hardware business is by far HP's least profitable segment, with an operating margin of 5.9%. Excluding financial services (at 9.4%), every other HP business segment's margin was in double digits last quarter. Its software division rang in at 19.4% profits from operations, more than triple Personal Systems. Given those numbers, is it surprising that HP's management finds the software business more appealing?

Another reason: slower growth. Tablets, netbooks and other mobile devices are expected to eat into PC sales. And, unlike in the personal-computer space, HP doesn't have much penetration in tablets and smartphones (or didn't until the $99 TouchPad fire sale ignited a wave of buying. But those are highly unprofitable sales.) HP's desktop and notebook sales each dropped 4% last quarter compared with a year ago. In contrast, software sales soared 20%.

HP Q3 growth by segment, year over year

Sharon Machlis is online managing editor at Computerworld. Her e-mail address is smachlis@computerworld.com. You can follow her on Twitter  @sharon000, on Facebook, on Google+ or by subscribing to her RSS feeds:
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