Alan And Chris Face Off On HP
Alan: A couple of weeks ago, HP announced that it was going to discontinue making products that run on webOS and was considering selling off or spinning off its PC division. This represents a major paradigm shift in the industry, unlike anything I have ever seen over the last fifteen years. This is completely different from IBM/Lenovo. This is completely different from HP/Agilent.
Chris: Perhaps the most important take-away from this information is the way it came to light: Apotheker's revelation that the company is considering shedding the PC business almost certainly hit its value in a tangible way. If I'm a VAR, why would I deploy HP systems and risk a service/support interruption down the road? And if I previously added value by selling HP PCs and servers, would I continue to sell the servers HP plans to continue manufacturing without the PC business? Strategically, it makes more sense to shift entirely to a competitor able to provide sales and support for the entire infrastructure.
Alan: Like Dell.
Chris: Exactly. And if I'm an enthusiast with money, no longer concerned about the savings attributable to the do-it-yourself mentality, why would I bother with HP's boutique arm when so many other vendors would do battle for my business?
Alan: Like Alienware.
Chris: Right, or any other handful of vendors we've covered on Tom's Hardware that will compete more vigorously, emphasizing their more tailored experience.
And therein lays the motive behind HP's posturing. There's just too little margin up for grabs, despite the fact that the business is profitable. Its mistake, arguably, was sharing that consideration with the world. Now you see public blog posts trying to reassure everyone that it won't, in fact, sell off its business, but would instead prefer to make it some sort of $40 billion dollar start-up. Marketing wasted no time kicking into gear.
Alan: Same thing with webOS. What if it just discontinued the TouchPads for $100 without saying why? That would have been confusion/awesomeness/brilliance all in one. A lot of people say that the HP deal is going to be the next IBM/Lenovo. I really don't think so.
In 2004, IBM began talks of divesting its personal computer business. Although it was the third-largest PC manufacturer, after the dot-com crash, IBM lost nearly $1 billion over the 3.5 years prior to the sale. Based on its profit margins, IBM did not feel that it could sustain the consumer PC industry. What ended up happening was that IBM effectively outsourced its PC business to Lenovo, keeping a 13.4% stake, and Lenovo, recognizing that it lacked the management skills to run a global PC business, kept IBM management and sales teams, effectively outsourcing the management back to IBM after its purchase.
IBM senior VP and general manager of the Personal Systems Group, Stephen Ward, Jr. stayed on-board for the initial transition as CEO. In 2005, William Amelio, former general manager of worldwide operations for IBM's Personal Computing Division and at that time, senior VP of Dell, was brought on-board. He would eventually depart in 2009, leaving Lenovo in the hands of the CEO that ran the company before the IBM merger.
For IBM, the move was exactly what the shareholders wanted. IBM remained profitable, and by December 2010, IBM was the seventh most profitable company in the US, even edging out Apple. Lenovo went from a name that only the most passionate of techies knew about to something a little bit more mainstream. It gained the expertise required to run a global multinational PC corporation and the technical expertise to produce some of the best business laptops on the market. In fact, I'm typing this article on my Lenovo X220.
Chris: Invariably, focusing on business units with higher margins is HP's best shot at consolidating into more profitable opportunities. Do I think the majority of Tom's Hardware readers are directly affected by this? As far as it pertains to more enterprise-oriented efforts, then no, not really. How about the possibility of shedding the PC business? To a greater extent, sure—particularly when it comes to the readers involved in the channel as managed service providers, but not necessarily system integrators. Really, the most relevant news is the decision to step out of smartphones and tablets altogether. I know a lot of our readers were hoping to see a webOS-based device compete with Apple in ways that Android-based devices might be struggling to thus far. But the TouchPad's reliance on more aggressive third-party ISV support (and a distinct lack of satisfaction there) was one variable HP couldn't control. This was part of Hurd's vision, and in a post-Hurd HP, nobody else seemed willing to pick up that torch.