HP To Keep PC Division

HP has announced that it has completed its evaluation of strategic alternatives for its Personal Systems Group (PSG) and has decided the unit will remain part of the company. The official release is here

My take :

  • HP has made the right decision but there’s work to do with the Personal Systems Group
  • HP needs to sort its strategy out
  • HP needs to sort its board out
  • HP needs to kill WebOS
  • HP needs to rediscover the thrill of innovation

For the detail….

HP has made the right decision but there’s work to do with the Personal Systems Group

HP’s decision not to offload its Personal Systems Group (PSG) comes after a review announced by Meg Whitman when she joined the company in September. The press release quotes Whitman saying:

“HP objectively evaluated the strategic, financial and operational impact of spinning off PSG. It’s clear after our analysis that keeping PSG within HP is right for customers and partners, right for shareholders, and right for employees.  HP is committed to PSG, and together we are stronger.”

At this point, I think that industry watchers and HP investors are entitled to a little bit of snark. If as a result of an objective evaluation of the strategic, financial and operational impact of spinning off PSG the conclusion is that it’s clear that keeping PSG is “right for customers and partners, right for shareholders, and right for employees” what on earth possessed the company to announce its intention to do the opposite just a couple of months ago? But I’ll get to that in a couple of bullet points.

In fairness though, Whitman has done what she promised to do when she joined HP – I wasn’t blown away by her appointment at the time, but if she carries on with this whole “doing what she said she’ll do thing” then I’m going to warm to her.

HP is making the right decision. Yes, margins are being squeezed, and the consumer business is under pressure, but PSG is a huge revenue engine for HP, and should deliver well over 2bn in earnings to HP over the year. In HP’s last quarterly announcement the company reported that PSG  revenue had declined 3% year over year with a 5.9% operating margin. Commercial Client revenue grew by 9% and Consumer Client revenue declined by 17%.

HP can, and should, improve these margins, and it can and should deliver the kind of innovation and product leadership that can drive both revenues and profitability in this business unit.

HP needs to sort its strategy out

The key to HP’s strategy woes is “Invent” – One of my favourite analysts (and a very long standing friend of mine) once jokingly remarked “It really should be HP INK-vent, rather than HP IN-vent” and as they say, many a true word is said in jest.

A look at HP’s business shows that the Services Business (which I still like to call “EDS”) and the Imaging and Printing Group are the big profit drivers. The Services Business continues to deliver contract renewals, and a good pipeline of new business – HP’s senior leadership should really focus on not interfering too much with the services business right now.

The imaging and printing group continues to show a little growth in hardware sales, but it’s the “supplies” that really deliver the margin. “Supplies” (AKA “ink”) account for 2/3rds of HP’s Imaging and Printing revenues, and the vast majority of the profits that that group brings. HP has done a stellar job of innovation in the domain of printing, and again here’s an area where HP’s senior leadership should be really trying to support this part of the business, rather than interfering with it.

PSG does need attention, however. Yes, HP should be keeping this part of the business, but now it’s made that commitment HP needs to take some of the creativity and innovation that happens in Imaging and Printing and splash it over PSG. HP should be looking to the future – which is filled with smart consumer devices of all sorts (Think Home entertainment, set-top boxes and automation) and driving the group in that direction – Remember it’s called the “Personal Systems Group” not the “PC and Laptop business”.

The enterprise servers, storage and networking business is the third biggest driver of operating earnings. This is a cruelly competitive space, and where HP needs to do the most work. HP’s two biggest competitors at the high-end in this domain are IBM and Oracle – both of whom are much more able to come to clients with a holistic story that combines servers, middleware, database infrastructure and apps. HP’s software business isn’t able to compete with Websphere or Fusion and this is something I think the company needs to address. It doesn’t have to shop for an “equivalent” stack – HP should be majoring on cloud middleware, and pushing to offer hardware, software and services to cloud providers and very large enterprises. At least that way, HP can build on an area of traditional strength in terms of its software business (systems management and automation).

It’s a shame HP couldn’t back out of the Autonomy deal, in my view it’ll represent a very expensive diversion for management, rather than a strong complimentary addition to the HP software portfolio.

HP needs to sort its board out

HP’s board needs a big, big revamp. This is the same board  that thought the dumping the PC business was a good idea two months ago, and which now – after “objectively evaluating” the idea has concluded the opposite. Major changes need to be made, or there’ll be blood on the walls at the next shareholder meeting.

Well, there’s going to be blood on the walls at the next shareholder meeting whatever happens – but all the same, the contribution of the HP board to the company’s future prosperity has seemed a little hard to identify over the past year.

HP needs to kill WebOS

It doesn’t matter how good WebOS is. It’s a dodo, kill it. And never speak its name again.

HP needs to rediscover the thrill of innovation

In the late 90’s and early part of the 2000’s, it was always a little exciting to go and visit HP’s labs. There was always something happening that would make you go “wow”.

My last visit to one of HP’s “Cooltown” labs didn’t go awfully well. We were shown a laser keyboard that didn’t work, a touch sensitive coffee-table that you couldn’t put a coffee cup on (Seriously! I kid you not! Ask Eamonn Kennedy at Ovum, he was there too!) and then the piece de resistance was “HALO” – the most fabulously expensive video conferencing solution ever invented (which HP parted with not so long ago after disappointing sales).

If I were Meg, the next thing I’d do as CEO would be to double the research and innovation budget – get the “thrill” back.

There’s no shortage of talent and creativity within the ranks of HP, it just needs a little nurturing.

Well – a lot of nurturing.

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