Rumors of HP’s Death are Ridiculously Exaggerated

There seems to be a bit of a disconnect between what HP has said and what some people are reporting. While Leo Apotheker made his plans rather clear, you may be hearing to the contrary.

I’ve noticed a number of incorrect claims in the press that have more or less said HP is out of the PC business or about to exit the business. Consider this lead from the Wall Street Journal, of all places: “Hewlett-Packard Co.’s planned exit of the personal-computer business will leave Dell Inc. as the last big American supplier ….”

This is just plain wrong on multiple levels. CEO Leo Apotheker made no such comment and HP sure hasn’t left the U.S. Here is what he said on the analyst call:

“We intend to evaluate a range of options that may include, among others, a separation of PSG from HP through a spinoff or other transaction. We anticipate that we will take 12 to 18 months to complete this process. Meanwhile, we will be very focused on continuing to drive profitable growth and execution in PSG for HP’s customers, trading partners and employees, who have continued to demonstrate PSG’s market leadership, ingenuity and innovation.”

There is is little ambiguity to what Apotheker said, only in that it’s not clear whether the evalulation and decision-making process will take 12-18 months or the whole process of evaluation and taking the chosen step. Still, it’s an unfair to HP to make the leap of declaring it out of the PC business when it’s still looking at what to do. In this interview on CNBC, Todd Bradley, head of the PSG group, had to correct the host when she repeatedly delcared HP as being “out of the PC business.” He also said the time frame for deciding what to do with PSG is 8 to 12 weeks.

Even if they do spin off PSG, it won’t go very far. Do you think when HP goes in to large clients to make a deal that it won’t include HP desktops and laptops in addition to servers, software and services? The intention is to let PSG operate on its own so it can best react to the market, since the PC business runs at a different tempo than servers and services.

While HP wants to follow the IBM model and divest itself of commodity business, it won’t idly discard such an enormous business. In its most recent fiscal year, the Personal Systems Group (PSG) at HP accounted for $40.7 billion in revenue and $2 billion in operating profit.

Compare that to the $35.6 billion in revenue and $5.6 billion in operating profit from services, and you can see why HP is looking to shed the business. It’s a thin margin business.

But that also means a few things:

1) You don’t dump a $40 billion business casually. Even if HP takes just 12 months to decide what to do with the unit, it will need several more quarters to complete any transaction.

2) A buyer is extremely unlikely. Lenovo paid $1.75 billion for IBM’s much smaller PC business, and even there, it needed help from IBM in the form of IBM buying an equity stake in Lenovo. HP’s PSG is a $40 billion business. There are very few if any players who could afford such a massive purchase.

3) Until a decision is made, HP would be derelict in doing anything less than what it is doing now. The potential value of any deal would be significantly tarnished if it surrendered its top spot to Dell. HP would be squandering enormous sales if it slacks up on the PC business.

4) HP still owns it. Unless a Samsung or Foxconn comes along and buys it, PSG is still an HP unit and an American business. I’ve seen far too many stories like the WSJ one declaring HP to already be out of the PC business when nothing has changed.

Now of course, I could be a fool for believing Apotheker. He likes to make grandiose promises. Remember last February when he declared that all HP PCs would ship with Windows and WebOS by 2012?

Still, we have a rather clear time frame. It will be 12 to 18 months before a decision is made, and then steps have to be taken that will undoubtedly take more time. Until then, it’s business as usual.

(Disclaimer: I don’t own a HP PC. I built my own. My laptop is a Dell.)