For two months, it’s been a constant “will they or won’t they” debate as to the fate of HP’s Personal Systems Group within the IT giant.
Thursday afternoon, Hewlett-Packard weighed in on the matter. And if you picked “they won’t,” then congratulations.
HP confirmed recent rumors that it was leaning towards keeping PSG in the fold and continuing on as usual.
“The decision was actually very straightforward,” said new CEO Meg Whitman in a Thursday afternoon conference call with press. “HP and PSG are better together.”
If it was an easy decision, it was one that certainly required a lot of analysis. Whitman said that at one point, there were 18 different teams pouring over the numbers for PSG and other business units. Every angle was considered, from the costs HP would incur in spinning off PSG to the cost synergies afforded HP’s massive buying power when it comes to components.
CFO Cathie Lesjak said that spinning off PSG and building a new brand – even one that retains the HP name – would have cost the company $1.25 billion (U.S.) Much more damning to the spinoff idea, Lesjak said PSG is a dominant factor in HP’s supply chain efficiency – cutting PSG would have cost HP more than $1 billion in operating profit every year based on loss of buying power and increased supply chain complexity from suppliers through to channel partners.
The argument took channel partners back to the Mark Hurd days, when Hurd would pull out his famous easel and pen and illustrate how the scale of PSG and ESSN together lets HP get common components (most notably processors, memory and storage) at lower costs, and thus be more competitive. And make no mistake – it’s the lower-margin, higher-volume PSG business that’s benefiting the more profitable server lines in that equation.
In light of the costs the company would incur in the spinoff and the loss of financial benefits, Lesjak surmised that “right now, we have much better ways to allocate our capital to generate higher returns.”
The announcement ends two months of debate that began after an ill-conceived announcement by then-CEO Léo Apotheker in mid-August. Apotheker announced that HP was deep-sixing its webOS-based hardware lineup, and then added, in an almost “Oh, by the way…” tone that HP was seriously considering selling off or spinning off PSG. Despite making an announcement that was guaranteed to generate fear, uncertainty and doubt in the market, Apotheker said the company would likely take 12 to 18 months to make a final decision.
That timeline quickly changed, as by mid-September, HP was hinting at a quick decision on PSG’s fate either way. Those hints were confirmed days later when Meg Whitman was named CEO of the company and she said the decision would be made by the end of the year.
With that distraction out of the way, the world’s largest (and often most profitable) PC business can get back to work, and Whitman can move onto other issues.
Thursday’s conference call provided some guidance on what to expect from PSG in the near future – HP’s getting back in the tablet game. No, the company’s isn’t also rescinding Apotheker’s other major August 18 announcement, the demise of the TouchPad. Rather, Whitman said HP would return with a tablet based on Windows.