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Potential Suitors, Continued: LG Or Private Equity?

Face-Off: Does HP's PC Business Affect Us Enthusiasts?
By , Alan Dang

Alan: Yeah, a lot HP monitors use LG panels, so just switching to Samsung would be a great move. Samsung could be going for the Best Buy, Walmart, Costco PC buyer, which isn't a bad market to have.

Actually the best move for Samsung is to only partner with whoever buys HP. The organization buying HP needs to be more cost efficient. If Samsung meets with said organization and offers superior pricing for a pure Samsung-supplied DRAM, hard drive, SSD, and LCD, Samsung would win without actually taking on extra risk.

Whenever there's Samsung, there's LG. LG also makes excellent notebooks, but unlike Samsung, LG doesn't sell its notebooks in the US. An acquisition of HP PC business would provide LG with many of the same benefits that Lenovo's acquisition of IBM had. LG would gain the business expertise required for managing a multinational PC corporation that it currently lacks. It would gain access to a wider market than it currently owns and leapfrog its PC business.

Like Samsung, LG has been aggressive with smart appliances, and that’s where webOS would be valuable. Its TVs already feature an App store! Since LG uses Plex to power its media streaming, it could use a consumer line of PC products preinstalled with the Plex Server to showcase home entertainment products. Like Lenovo, LG would have to purchase HP's business and keep it largely intact. From a financial standpoint, this works in the short term. Long term, LG won't have the ability to do anything that HP couldn't. It could get a few years of profitable business—remember HP personal computing division actually makes a profit. It's the long-term goal of sustaining that profit that will be tough. In this last financial quarter, LG Home Entertainment actually turned a profit when everyone else was losing money. Samsung is probably the more likely candidate, but it all depends on the vision of the CEO and what HP is willing to sell its PC business for.

Chris: I think that LG's lack of a business computing play similarly hurts its chances of succeeding by running the business like HP. It'd need a different approach entirely. If anything, I wonder (and doubt) that the addition of PC business and webOS would add enough to LG's already-divergent direction to warrant considering this a viable move, though.

Alan: Yeah, I'm just throwing it out there. Last, you have a private equity consortium. Private equity firms love to buy distressed companies, turn them around, and then sell them for a profit. To do this though, HP has to be sold at a fire sale price.

HP's plan to exit the PC market while it’s in the #1 position means that it has no confidence in the long-term success of the PC. This is the only time I can recall in history that a company in the #1 position has decided to bail out. There are three scenarios that can play out.

One, HP is acquired by a firm that is able to succeed where HP could not. Samsung is one such company that could potentially have lower manufacturing costs and more economies of scale. If this happens, mainstream consumers will win with cheaper hardware.  Unfortunately, this will also shift the balance of power between building and buying a computer. If HP-Samsung actually happens, and Samsung is able to decrease the cost of manufacturing even further, then enthusiasts lose. The cost of components from Newegg and a Windows 7 software license would be more than buying a pre-fab machine from Best Buy. Enthusiasts would be more likely to buy and upgrade such a machine than build their own. That means add-in board manufacturers and CPU cooler manufacturers, and all the small companies making unique products for the PC would die out.

Chris: This is far from a certainty, though, for two reasons. First, the factors that compel enthusiasts to build today won't change. You'll still end up with tier-one boxes loaded with garbage software, leaning on cost-reduced boards that lack much of the functionality an enthusiast is ultimately looking for. Second, Samsung's manufacturing extends to memory, storage, and display technology? With the possible exception of SSDs (and this being less true over time), I don't see where you'd get a lot of added value from a Samsung-built PC. I certainly wouldn't anticipate savings significant enough to alter the enthusiast's mind-share and compel do-it-yourselfers to start gutting Samsung machines.

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Top Comments
  • 13 Hide
    AlanDang , September 3, 2011 5:47 AM
    Who is Alan Dang? He is supposed to be Turkish. Some say his father was German. Nobody believed he was real. Nobody ever saw him or knew anybody that ever worked directly for him, but to hear Kobayashi tell it, anybody could have worked for Soze. You never knew. That was his power.
  • 10 Hide
    amk-aka-Phantom , September 4, 2011 2:45 PM
    To sum it up: HP is drunk with silly ideas and therefore wants to jump ship. They said that iPad was successful... you know WHY? Because Apple spend a lot of money CONVINCING people that iPad is great! It's called advertisement! So do yourself a favor and advertise your product, otherwise of course no one will buy it!

    And you don't need to target an "enthusiast" market to make a good product. Simply stop using these crappy PSUs, ugly-looking chassis and faulty boards with locked BIOS. Is it really that hard? They keep mentioning how great and innovative their workstations are, but what about mainstream?

    HP mainstream computers represent everything that Mac users love to accuse PCs of: loads of bloatware (in case of pre-installed OS), unreliability and ugliness. YOU give PCs a bad name.

    And to address the subject of enthusiast PC becoming a "niche market"... I really don't care what they call them. Sure, the prices will go up, as they did with above-mentioned example of musical setups. But when the world will be tired of playing with toys, desktops will be there.

    There's a whole bunch of arguments for desktops dying for an average user. Let me address a few...

    1) Cloud computing. However, when you think of it a little, average user doesn't need it, because we have external storage that can be used with all your electronics. I've seen people saying that cloud storage will be perfect so that they can access their data from all their iCrap - sorry, you're a minority; the rest of us have USB on our tablets and whatnot.

    2) Tablets and smartphones. When you get tired of typing on the touchscreen and throwing birds at pigs, calling yourself a gamer, come back. Before you say "we're gonna hook up a keyboard and a screen to our tablet, and THEN!..", let me just tell you that you're coming back to desktop already.

    3) Technology gets better, and soon our tablets will be just as powerful as desktop PCs, blah blah blah. A foolish argument, because I don't see what prevents PCs using the same improvement and getting even better, still leaving mobile devices far behind.

    These "experts" keep complaining that the people don't buy new PCs every month, thus depriving them of profit... that's right, you greedy bastards. We won't buy new PCs just for the hell of it. Phones and tablets are made for that (though, if you get a really good one, it will serve you for years, unless you're into getting the most hyped device all the time), PCs are meant to be bought and used until you NEED an upgrade, not just WANT. For some, want = need, but not everyone can afford it. Just like they said, if a person already has a 2-year-old PC and it can do everything s/he needs, there will be no upgrade, and it makes sense.

    Tablets and phones are made to be changed all the time - just look at the OS support... old Android phones would often not support the newest Android, and I don't see a reason for it other than trying to force the consumer to upgrade. After all, even my 10-year old PC supports newest Linux and would support Win7 if it would have enough RAM.

    So, please quit acting like there's something terribly wrong with PCs. We know that you're simply unhappy with comsumers buying a device once and then walking away and not paying you regularly for some reason. So you want to force cloud computing, subscription-based games and streaming services... convert this one-time purchase into a money-sucking session, by all means. I understand that intention. It's perfectly healthy for business. It's not very healthy for a customer, though, but when did it ever stop you?

    All that trouble arises from general computer illiteracy of a common user. You don't need to be able to come up with a perfect desktop build out of your head or remember the list of all CPUs ever made. You just need a little bit of common sense to see what you are paying for. So, what do you want, a device that you buy once and that can do all your work for you (hell, it can be even portable, get a leptop, lol) or a much hyped shiny toy that will play Angry Birds but cost as much as small APU-powered laptop and that becomes obsolete within a few months? I know what I want and why I want it, what about you?

    P.S. Don't tell me "you're an enthusiast, hence you don't understand what non-enthusiasts want" - I know enough non-enthusiast PC users to assure you that tablets and smartphones won't cut it.
  • 10 Hide
    christop , September 3, 2011 3:47 PM
    Enthusiasts and H.P don't go together..
Other Comments
  • -2 Hide
    mayankleoboy1 , September 3, 2011 4:55 AM
    who is alan dang?
  • 13 Hide
    AlanDang , September 3, 2011 5:47 AM
    Who is Alan Dang? He is supposed to be Turkish. Some say his father was German. Nobody believed he was real. Nobody ever saw him or knew anybody that ever worked directly for him, but to hear Kobayashi tell it, anybody could have worked for Soze. You never knew. That was his power.
  • -5 Hide
    tacoslave , September 3, 2011 6:39 AM
    AlanDangWho is Alan Dang? He is supposed to be Turkish. Some say his father was German. Nobody believed he was real. Nobody ever saw him or knew anybody that ever worked directly for him, but to hear Kobayashi tell it, anybody could have worked for Soze. You never knew. That was his power.

    calm down kevin spacey
  • 1 Hide
    cmcghee358 , September 3, 2011 6:46 AM
    Good analysis. The last bit really made me like HP, even though their consumer PCs are cheap enough to justify custom builds to my customers.
  • 6 Hide
    nevertell , September 3, 2011 8:49 AM
    Quote:
    Does HP's PC Business Affect Us Enthusiasts?


    No, it doesn't.
  • -4 Hide
    demonhorde665 , September 3, 2011 12:51 PM
    nevertellNo, it doesn't.

    cheers TO THAT , dumbesta rticle ehader i've seen on tom's todate

    NO real enthusiast buys name brand , they build thier own period. pfft , alien ware, lenovo HP just pffft only a wanna be enthusiast would bther with any of these
  • 2 Hide
    nerrawg , September 3, 2011 1:27 PM
    Good article on a topic that I think a lot of enthusiasts have been dreading. I find it interesting that you guys often metaphorically relate hardware development back to the automotive industry. If PC hardware is the cars, then software is the road network that people driving have to put up with. At the moment I believe that in both cases it is the roadnetwork/software that is the limiting factor. This decade has given us the most thrilling performance cars with incredible bang-for-buck such as the GTR, Corvette, Camaro, M3, Focus RS etc etc. However most of these cars are so fast that most people could never really use them to their potential on a day to day basis. The same can be said about modern PC hardware - its overpowered for the average user. Only the relative handful of consumers who take their GTR to the track on weekends/spend their weekend playing FPS games, can actually take advantage of these products. This in turn is severely limiting the market potential of what on the surface looks like such an amazing product base. People know that even though 0-60 in 3.5 and top 180 is incredible, it makes no difference when your stuck starring at fenders and red lights all day.

    Really, the development in hardware tech is amazing, but what we need to keep it moving is a new class of ubiquitous productivity software that demands better hardware. My suggestion for this is to create more advanced interfaces between the user and the PC - we need to replace the mouse and keyboard with motion detection devices and speech recog that actually works. Once the software can do this I believe we will see a drastic increase in performance demand for office software.
  • 5 Hide
    ZakTheEvil , September 3, 2011 2:55 PM
    If you buy HP computers you're not an enthusiast. PC enthusiasts don't give rat's ass about HP.
  • 10 Hide
    christop , September 3, 2011 3:47 PM
    Enthusiasts and H.P don't go together..
  • -4 Hide
    legacy7955 , September 3, 2011 4:48 PM
    This so called article sounds like "marketing" to me

    Clearly an agenda going on here, excessive greed by Leo Apotheker and his clown posse.

    Notice that "they" keep trying to "INFER" that the PSG division is NOT profitable without saying so, but then have to admit that it IS profitable.
  • 5 Hide
    bugo30 , September 3, 2011 9:36 PM
    Quote:
    The big difference is that, "back in the day," building your own computer was cheaper than buying a computer. In 2011, that's not true. The reason to build a computer is that you can get the parts you want


    I think it's more about the upgrade cycle, different parts need to be upgraded at different rates, so buying a whole new computer every few years is terribly expensive compared to just upgrading the parts as the need arises. (off the top of my head...) My keyboard and speakers are older than 10 years, my case is about 9 years old, my monitors are about 7 years old, my PSU is 5 years old, my three hard-drives range in age from 6 to 2 years old. When I upgrade later this year, the only parts I will be replacing will be the motherboard, memory, cpu, and graphics card, and for around $400-$500 I'll have a computer beats the pants off any $400-$500 pre-built. (the one thing it won't have will be a blu-ray drive, but I can't remember the last time I even opened my DVD-drive, so whatever).

    So if you think of it as a cycle, I think you'll find it is much cheaper to maintain a high-end computer (or even a mid to low end one) by continuously upgrading a custom build.
  • 0 Hide
    cangelini , September 3, 2011 10:19 PM
    demonhorde665cheers TO THAT , dumbesta rticle ehader i've seen on tom's todateNO real enthusiast buys name brand , they build thier own period. pfft , alien ware, lenovo HP just pffft only a wanna be enthusiast would bther with any of these


    I'm just going to assume you didn't read it through (rather than completely missing the point).

    legacy7955This so called article sounds like "marketing" to meClearly an agenda going on here, excessive greed by Leo Apotheker and his clown posse. Notice that "they" keep trying to "INFER" that the PSG division is NOT profitable without saying so, but then have to admit that it IS profitable.


    And same here. It's pretty clearly spelled out in the story that HP's PSG is profitable. Nowhere does it claim otherwise.
  • 2 Hide
    marraco , September 4, 2011 5:13 AM
    Consider the entire number of x86 processors made by Intel and AMD each year.

    Then take the number sold by HP, Apple, or Dell.
    It a small, tiny percentage. Nothing.

    IBM made the PC. IBM left the business years ago, and nobody cares. They don't matter.

    It’s a lie to say that HP going out of business is “a change of paradigm”, “the end of PC”, or whatever. All those companies are meaningless.
  • 1 Hide
    eddieroolz , September 4, 2011 7:04 AM
    Though I believe HP's downfall probably won't affect the enthusiast market, the analysis stepped outside the box. If I understood it correctly, this article tried to explain the enthusiast market to the success of the consumer market, which was what I was not expecting.

    Oh, and it was a pleasant surprise seeing the NTT DoCoMo i-mode mentioned!
  • 2 Hide
    amk-aka-Phantom , September 4, 2011 1:53 PM
    Quote:
    The big difference is that, "back in the day," building your own computer was cheaper than buying a computer. In 2011, that's not true.


    BS. 'Nuff said.

    Quote:
    The reason to build a computer is that you can get the parts you want (which ultimately are cheaper than buying a pre-built computer and then upgrading it).


    THAT is the reason, and he contradicts his previous sentence with it.

    @all of you who thinks that enthusiasts don't care about HP, here's a good quote:

    Quote:
    If HP was using Asus motherboards, don't you think that the sales of HP motherboards helped Asus subsidize development of other high-risk, enthusiast-grade products?
  • 3 Hide
    amk-aka-Phantom , September 4, 2011 1:57 PM
    Quote:
    It even has reason to purchase webOS. That would be an excellent platform to run on its smart TVs, phones, and tablets. Samsung could do what HP couldn't by using Samsung memory, displays, and storage.


    Again, load of BS. Samsung already has Android and Bada. The hell would they do with another OS?!
  • 3 Hide
    amk-aka-Phantom , September 4, 2011 2:01 PM
    Quote:
    Intel still charges $1000 for its top-end enthusiast CPU…because it can. AMD would charge $1000 as well, if it had something competitive. The only reason we pay so much less for processors today is because AMD slots in between price point in Intel's lineup where it can offer competitive performance. Frankly, I think that if Intel wanted to charge more for its Sandy Bridge-based chips, it could (come on—$220 -2500Ks blow away even more expensive models in Intel's own LGA 1366-based lineup). But it's so afraid of getting burnt on anti-competitive practices that it pulls the bar down.


    This is another bunch of self-contradicting BS. First, he mentions i7-980/990X, then suddenly jumps to SB... And how is Intel keeping prices low just because they're afraid of "getting burnt on anti-competitive practices"?! They're doing it because otherwise nobody would buy Sandy Bridge, that's all!
  • 3 Hide
    amk-aka-Phantom , September 4, 2011 2:03 PM
    Quote:
    I disagree. You and I have desktops, laptops, and mobile devices. But we're techies. If you had Office on an ARM device, casual users aren't going to be buying PCs anymore.


    They think that people are gonna be better off typing on a tablet or something?!
  • 0 Hide
    amk-aka-Phantom , September 4, 2011 2:07 PM
    Quote:
    In 2011, I'd love to build a small system like the FireBird. Three hundred and fifty watts doesn't sound like a lot, but it's plenty for a Core i5-2500K or i7-2600K, a Radeon HD 6870 or GeForce GTX 560 Ti, and an SSD or two. I'm not sure where I can find a cheap, reliable external PSU with that kind of power.


    What. The. Hell. So he thinks 350W is enough for i7 plus GTX 560 Ti? This is final; I don't think that either of the two people in the interview know enough about PCs. Or am I missing something here? :D 
  • 1 Hide
    amk-aka-Phantom , September 4, 2011 2:13 PM
    Quote:
    But PC power supplies are almost always a box at the back of the chassis with a bunch of wires that travel everywhere.


    For hell's sake, stop trying to improve something that doesn't need improvement. The PSU is a box with a bunch of wires that travel everywhere because that's what a PSU IS!

    Quote:
    On the enthusiast level, we have awesome power supplies like the Seasonic X series, but the best we've been able to do is sleeve the cables to limit turbulence and to have modular PSUs so that we can take out unused cables.


    So far, I haven't seen a single mainstream HP desktop with a good PSU. They all crap out within a year or two. And it's always either a mess of unneeded cables (who the hell needs 10 4-pin power connectors in 2010?!) or so few cables that they're barely enough to connect everything that the PC had in it when it was bought.
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