HP decides that being bigger is better

This $126B company decides it does not want to shrink

In rejecting the idea of getting rid of its PC division, Hewlett-Packard -- and its new CEO, Meg Whitman -- made some decisions about the type of company it wants to be.

First, HP doesn't want to be like IBM and focus on data center hardware and high-margin software and services.

Second, HP doesn't want to be tone deaf like Netflix and make a decision that could cost it customers and good will.

Third, HP does want to move on. This is a company that wants to put the turbulence of yet another CEO ouster behind it and let Whitman, one month into the job, get her footing without major distractions.

But the company that Whitman is now overseeing, which reported $126 billion in revenue last year, is becoming increasingly monolithic. Its Personal Systems Group, which sells PCs and tablets and other devices, accounted for more than $40 billion of that revenue.

This is a company that touches almost every aspect of IT operations, and it's getting bigger as it moves deeper into software and makes big purchases to support its strategy, such as its move in August to buy enterprise software maker Autonomy for $10.3 billion. That deal closed two weeks ago.

In announcing the possibility of selling off the PC division, then-CEO Leo Apotheker was considering narrowing HP's focus, IBM-like, on core data center technologies and other enterprise services. PCs are low-margin products, and HP's tablet, the TouchPad, wasn't working out so well against Apple's iPad.

Analysts were, in many ways, mystified by the decision to get rid of the Personal Systems Group. Investors were simply displeased. So, apparently, was HP's board -- which decided to dump Apotheker.

Charles King, an analyst at Pund-IT, cited the recent Netflix debacle as a point of comparison. The video rental company saw a drop in customers and stock value after it raised prices. And its short-lived and unpopular decision to create a separate DVD business called Qwikster did not help it.

"I think we're entering a period of time where enterprises are becoming much more sensitive to opinions expressed by shareholders and their customers than they may have been in the past," said King.

There were concerns among analysts that without its PC division, HP would see its corporate sales decline and would find itself paying higher prices for components if it lost its ability to negotiate volume discounts with suppliers of parts, like disk drives and processors.

King believes that HP made the right decision to stay intact; other IT industry observers agree.

Forrester analyst Frank Gillett said HP was wise to remain in the client business "just as that whole world is becoming unhinged and lending itself to innovation again."

Gillett cites the coming transition to Windows 8 and the continuing evolution of tablets as good reasons to stay in the personal systems market. He also pointed to the growing smartphone market and the increasing use of employee-owned devices in the workplace.

"Why make yourself a clone of IBM by following the path they tread?" said Gillett.

Rob Enderle, principal analyst at Enderle Group, said the Personal Systems Group decision announced Thursday makes Whitman look good. "The spinoff of the PC division made no strategic sense for HP. There were simply too many dependencies both ways, and it would have crippled large-customer loyalty, which is already stressed as a result of the Oracle dust-up," said Enderle, referring to Oracle's decision to stop making software capable of running on machines built with Intel Itanium chips. That move drew a harsh response from HP, which ships the vast majority of servers that are based on the Itanium processor.

The decision to keep the PC division "showcases that she makes measured decisions and is difficult to trick into doing something stupid," said Enderle. "I think it is another indication that they chose well in regards to bringing Whitman in to right the ship."

Patrick Thibodeau covers cloud computing and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov, or subscribe to Patrick's RSS feed . His email address is pthibodeau@computerworld.com.

Copyright © 2011 IDG Communications, Inc.

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