Dell, HP: The Pros and Cons of Selling Off Their PC Businesses

 
 
By Jeffrey Burt  |  Posted 2012-08-31
 
 
 

No Title - Page 1

PROS:

No Title - Page 1

PC Businesses Are a Drag

As Rob Enderle, principal analyst of the Enderle Group, told The Wall Street Journal, "If you took out the PC business, [Dell] would have had a damn good quarter." Dell saw revenue in its Enterprise Solutions unit grow 6 percent, while notebook PC sales fell 26 percent and desktop revenue dropped 9 percent. HP saw its PC revenue drop 10 percent, and the decision to fold it in with the stalling printer business won't help.

PC Businesses Are a Drag

It Worked for IBM (and Lenovo)

By 2004, IBM executives saw that PCs were going from expensive and sought-after systems to commoditized products, and they wanted out. Later that year, IBM sold its PC business to Lenovo, enabling the company to focus more of its energies and resources on high-growth and high-margin efforts, and Big Blue has done just fine. For Lenovo, the $1.75 billion deal instantly made it the world's third-largest PC vendor, and now in 2012, the company is making a move to displace HP as No. 1.

It Worked for IBM (and Lenovo)

Focus

In an email to eWEEK, Enderle said that right now, companies that are more focused—such as Lenovo in PCs and EMC with storage—seem to be doing better than larger companies with a broader array of offerings. HP and Dell could use a little more focus on their enterprise efforts, without the distraction of the PC businesses. At the same time, companies like Intel and EMC—and even to some extent Dell—seem to have found a way of keeping that focus while also expanding their capabilities by partnering with other vendors or buying companies and operating them as subsidiaries rather than absorbing them, he said. Intel has done that with McAfee, while EMC has done that with RSA and VMware.

Focus

Price

Dell and HP profit margins will continue to be pressured by the likes of Lenovo and Acer (whose Iconia is pictured), which are leveraging lower prices to compete more effectively with their larger rivals.

Price

PC Market Could Continue to Stagnate

Analysts with both IDC and Gartner have said that PC sales continue to stall, thanks in large part of the rapid rise of such mobile devices as smartphones and tablets (particularly Apple's iPad). And those devices aren't going away, as sales continue to climb. For example, IDC expects tablet sales to hit 107.4 million units this year and 142.8 million next year.

PC Market Could Continue to Stagnate

New Efforts Impacted

Both HP and Dell are looking to shift a greater portion of their businesses to enterprise solutions and services, efforts that include significant investments in acquisitions and in-house innovation. However, a key problem is that right now, the degradation of their PC businesses is happening at a faster rate than they can grow their enterprise solutions offerings.

New Efforts Impacted

Postponing the Inevitable

Some analysts believe that while HP and Dell may want to keep their PC units now, eventually they'll have to let them go. After HP's Whitman last year said HP would keep its Personal Systems Group, ISI Group analyst Brian Marshall said the move made sense, but only in the short-term. "While we believe keeping PSG inside [HP] is appropriate, given the state of the company currently; in 3-5 years we hope the company sells the group to focus on enterprise infrastructure (similar to IBM's move in late 2004)," he said.

Postponing the Inevitable

No Title - Page 9

CONS:

No Title - Page 9

Reaction to HP's Plans

When HP's former CEO Leo Apotheker announced plans to spin off the Personal Systems Group, the reaction from analysts and users was quick and harsh. That reaction eventually led to a further drop in HP's stock price and to Apotheker getting bounced from HP, and after taking over, Whitman quickly reversed the decision. Among other things, she said keeping PCs in the fold would remove the confusion and doubt surrounding HP's future.

Reaction to HP's Plans

Windows 8

It hasn't been only tablets and smartphones that have kept consumers from buying PCs; some have been holding back until systems with Microsoft's new Windows 8 OS hit the market later this year. Executives with both HP and Dell, as well as those with Intel and other vendors, anticipate a significant bump in PC sales once these systems go on sale. Whether that happens is still to be seen. Windows 8 comes with some key changes in how it works, and not all reviews have been strong. At the same time, the new OS will be optimized for tablets, which could convince even more people to abandon PCs.

Windows 8

Ultrabooks

Intel, whose executives have consistently touted the strength of the PC market and the belief that tablets are complementary devices, are putting a lot of time, money and effort behind its Ultrabook drive. Intel officials expect the ultra-thin and light notebooks to grow into as much as 40 percent of the notebook market by the end of the year, and that they will continue to grow in popularity as their performance and capabilities grow and their prices drop. As many as 140 new designs are on the way to market this year, and while they haven't shown a particularly big bounce yet, if they do catch fire, that would only help HP and Dell.

Ultrabooks

Scale

HP and Dell executives have argued that the scale they get by having PCs in the fold has enabled the companies to leverage greater purchasing power for components, better manage their supply chains and help cost efficiencies, not only for PCs, but also for other products, such as servers and storage. As Enderle said, "If you give up PCs, you lose volume advantages from suppliers like Intel who serve both markets and a bidding advantage for blended bids."

Scale

Avenue for Other Products

HP and Dell both have been able to leverage the PCs they sell to customers as a way to sell other enterprise offerings, from server and storage hardware to software and services. They'd risk losing that capability by getting rid of their PC businesses.

Avenue for Other Products

Revenue

Ditching the PC businesses could mean removing a good chunk of revenue from the companies. For example, according to analysts, Dell's PC sales account for more than 50 percent of all the company's revenue. Cutting that much out of the revenue stream could be difficult. Another thing to keep in mind: It's the consumer PC numbers that are really hurting; the commercial PC businesses are doing okay.

Revenue

Who Would Buy the PC Businesses?

It's not as though there is a huge market out there of tech vendors looking to buy expensive businesses that deal in commoditized products. It could be difficult for either Dell or HP to find a buyer that would offer them a fair market value for these multimillion dollar business units.

Who Would Buy the PC Businesses?

Rocket Fuel