HP Hopes for IBM-Like Success as It Spins Off PC Business

IBM in 2005 sold its PC unit to Lenovo, a move that enabled it to focus on its higher-margin businesses. HP is hoping for the same kind of success with its decision to spin off its market-leading PC group.

IBM's decision in 2005 to sell its PC business to Lenovo has proven to be an incredible boon for Big Blue, which has seen sales and profits steadily grow over the last few years, even during the depths of the recession.

Now executives with Hewlett-Packard are hoping for similar results as they prepare to rid themselves of their PC business.

CEO Leo Apotheker announced Aug. 18 that the company is looking to spin out its market-leading PC portfolio within the next 18 months to enable it to focus more of its money and time on its higher-margin commercial systems, software and services businesses.

At the same time, HP also is planning to shelve its webOS-based tablets and smartphones, and to buy infrastructure software maker Autonomy for about $10 billion, a move to further boost HP's enterprise software portfolio.

Overall, HP's decision will put it into even closer competition with the likes of IBM, Oracle, Dell and Cisco Systems in the converged infrastructure and cloud computing markets. And if it works out as well as IBM's decision did, getting rid of the PC business will be a smart move by HP.

"The move by HP to cut away from its consumer computing hardware business will position the company to more effectively compete with rivals such as IBM and Dell, as HP will be less encumbered by low-margin consumer PC sales," Beau Skonieczny, an analyst with Technology Business Research, said in a research note. "HP has aggressively invested in its converged infrastructure strategy and instant-on capabilities through 2010 and into calendar 2011, allowing it to cater to the growing demand for complex cloud solutions for both, large enterprises and SMB customers. TBR anticipates HP will continue to mold its enterprise organization towards high-demand, high-growth and margin-accretive areas such as big-data, analytics, cloud and sustainable IT technology. By divesting its [PC assets], HP will be able to allocate more resources towards driving growth and innovation in the areas that provide more profitable growth."

Gartner analyst Mark Margevicius said HP executives made the decision to ditch the PC business for the same reason IBM did six years ago: the financial numbers.

"It's about making money for HP," Margevicius said in an interview with eWEEK. "It's much the same reason IBM jettisoned its PC business off to Lenovo. They just didn't make enough [money] off of it."

HP's Personal Systems Group in the company's third fiscal quarter generated about $9.6 billion in revenues, a 3 percent drop, and generated profits f $567 million, a 21 percent increase.

However, there are some key differences between the two, one being the state of the PC market. The current PC market is under significant strain, to the point where Gartner analysts in June cut its shipment forecasts for 2011. They cited a continuing lack of consumer interest caused in part by the ongoing volatile worldwide economy, as well as the growing number of other devices, such as tablets and smarpthones.

"Moving forward, PCs will no longer be a market by themselves, but part of a larger device market that ranges from smart televisions to the most-basic-feature phones," Ranjit Atwal, research director at Gartner, said in a statement at the time. "Within this market, consumers and professionals will increasingly use the combination of devices that best suits their particular needs."