Can’t fix it, can’t sell it: HP gives PC business to investors

Hewlett-Packard’s breakup into two companies in a tax-free distribution of shares, as reported by the Wall Street Journal yesterday, was the company’s third choice to save itself. The first two – a turnaround and the sale of the business – haven’t worked. According to Re/Code, HP approached both Dell and Lenovo to acquire the business and were rebuffed. Under PC and printer chief Dion Weisler, the business unit has started growing again, but it appears that HP’s boat has been raised by the incoming tide of a new cycle of PC growth, which Richard Windsor of Radio Free Mobile once predicted. But in the longer term, the PC business isn’t a growth business.

Windsor sees a bump in the PC business largely from the XP end of life and convertible tablets with keyboards, such as the Microsoft Surface Pro 3, that from a hardware perspective are Wintel devices – Intel hardware, Microsoft software, and built by the PC supply chain. But even the most optimistic people aren’t predicting a PC revival. Market forecaster IDC predicts low or no growth from desktops, notebooks, and tablets.

I spoke to Windsor about HP’s move. He began the conversation by saying, “after all the noise, turns out that Leo [Apotheker] was right after all.” Apotheker, the former HP CEO, went public a few years ago with his plans to sell off the PC business. But when HP CEO Meg Whitman took the helm three years ago, she shelved the plan.

Other than more layoffs and cost cutting reported by the Wall Street Journal today, what can HP do after the split? Asked to speculate, Windsor said, “HP hasn’t demonstrated a strategy but needs to do something. It’s not obvious what splitting up the company will do. Instead of one company without a strategy there could be two. Without a strategy, the only way to grow profit seems to be to cut costs.”

HP didn’t have a fourth option like Dell to take the company private while it restructured without having to report potentially unsettling quarterly reports to public investors. By combining the PC business and its narrow 4% margins with the 17% margins of the printer business, the new company can restructure to meet the long-term challenges of the desktop and notebook market with less pressure stemming from its quarterly reports to investors. But the company will have to move more slowly and carefully than Dell will.

Windsor said “HP’s PC business is strongest with the consumer.” That seems to be the rationale for the division into enterprise hardware and services and PCs and printers. The best-performing companies in the consumer electronics category, such as Samsung and Apple, lead with smartly designed smartphones and brand marketing. Asked if the standalone HP PC and mobile products business could follow Samsung and Apple’s lead, Windsor explained the company’s dilemma.

“HP really has a void here. Meg Whitman said two years ago that HP was getting back into the smartphone business after its WebOS/Palm failure, but nothing has materialized. PC makers like Dell, Acer, and Asus haven’t done well selling smartphones, so it’s not a small decision or investment to get back in. It will take money, a new team of mobile marketers, designers and engineers, and very fast execution. There aren’t any obvious acquisitions for HP like there was for Lenovo when it acquired Motorola.”

HP has not only been missing a widely distributed family of smartphones to promote its mobile brand, its tablets aren’t well-known either. According to Gartner, HP tablets aren’t in the top five.

Without some spark of strategy, it looks like the HP PC and mobile business is in for a long and slow restructuring and stiff competition for the bump up in Wintel device-related growth.