Is H-P back in the PC business for the right reasons?


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Hewlett Packard announced yesterday that it was not going to sell its PC business after all, but rather, it would keep the $40.7 Billion division. According to the Wall Street Journal,

Meg Whitman [H-P’s CEO] said Thursday that H-P will keep its $40.7 billion PC division, backing away from its prior plan—endorsed 69 days ago by Ms. Whitman and other H-P directors—to explore splitting the company. H-P said a new evaluation had found the move was simply too costly.

Too costly to sell? Not exactly a ringing endorsement for a division that was lagging industry rivals with a 5% margin. What kind of message does that send to its customers, parters, suppliers and stakeholders? What it tells me is that when the divestiture costs of selling the division become more acceptable, then it will once again be on the chopping block. Who wants to invest in H-P computer products with that type of risk hanging around?

The article went on to give other reasons for not selling the division.

Separating the PC business would have required one-time expenses of about $1.5 billion, said Cathie Lesjak, H-P’s finance chief.

In contrast, the review done for the earlier decision pegged the total cost at around $300 to $400 million, according to people briefed on the matter. Ms. Lesjak declined to comment on the number.

The latest study found that other changes, such as reduced purchasing power and the elimination of joint branding opportunities would have cost H-P about $1 billion a year. “It slowly but surely became very clear that the math just wasn’t going to work on this one,” Ms. Lesjak said.

What’s most significant about H-P’s rationale for reversing their earlier decision is what was not said. You never heard H-P say that they actually wanted to be in the business. You didn’t hear anything about H-P being committed to the business – no reassurance, nothing. And you didn’t hear anyone from H-P expressing any type of optimism that they could successfully grow the business and increase margins. It was all about reasons not to sell, not the reasons to be in the business in the first place.

I asked this question a few weeks ago here; the same question needs to be asked of H-P again today.

If you weren’t already in the PC business today, would you choose to enter it now?

Based on what H-P has been saying (and NOT saying) over the past 24 hours, I’d say that the answer to the question is “No”.

Here’s the takeaway: Just as Peter Drucker challenged GE’s Jack Welsh with the same question thirty years earlier, H-P needs to also think about their reasons for staying in the PC business today.

Republished with author's permission from original post.

Patrick Lefler
Patrick Lefler is the founder of The Spruance Group -- a management consultancy that helps growing companies grow faster by providing unique value at the product level: specifically product marketing, pricing, and innovation. He is a former Marine Corps officer; a graduate of both Annapolis and The Wharton School, and has over twenty years of industry expertise.


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