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HP bails out on the PC

The struggling PC business and tablet boom may have pushed HP to consider dumping its PC division

August 18, 2011 05:15 PM ET

Computerworld - The acknowledgement Thursday 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, 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.



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