HP decides to keep its PC business

@CNNMoneyTech October 27, 2011: 5:14 PM ET

NEW YORK (CNNMoney) -- Hewlett-Packard announced Thursday that it will continue selling personal computers after all, reversing an earlier decision to exit one of its core business lines.

The company shocked Wall Street and the tech industry alike when it announced Aug. 18 that its board was exploring "strategic alternatives" for its Personal Systems unit. That division mainly comprises HP's PC business, which is the world's largest. A sale or spin-off were two of the options being considered.

Yet HP (HPQ, Fortune 500) now says it believes that PCs should be part of its future.

"It's clear after our analysis that keeping the Personal Systems Group within HP is right for customers and partners, right for shareholders, and right for employees," Meg Whitman, the new CEO HP named last month, said in a written statement. "HP is committed to PSG, and together we are stronger."

The company said it believes the PC business is too ingrained in the company's supply chain and other key HP operations to let it go. Computers also help promote HP's brand, and are a crucial part of the company's "one-stop shop" services that it offers to corporate customers, HP said.

HP's analysis also showed that spinning off the division would be so costly that it outweighed any benefit of dropping PCs.

The decision to ditch PCs came two months ago from then-CEO Leo Apotheker, who favored HP's fast-growing, highly profitable software and server businesses over its low-margin computer business. HP's PC unit was one of the industry's most profitable, but the company still only squeezed out about a 5% margin on the devices.

Apotheker also noted that PCs aren't flying off the shelves any more. Mobile devices like smartphones and tablets have begun to eat into PC sales.

"The tablet effect is real," he said in August. "Consumers are changing the ways they use PCs."

HP's announcement sparked an uproar from many technology analysts. They called an all-in bet on software and services a risky decision for HP, considering that its services business has gone practically nowhere and its software business makes up just 2% of the company's sales.

Hardware has long been HP's cornerstone, and PCs making up a third of the company's revenue. Despite its recent struggles, HP still sells more PCs than any other vendor, shipping 16.2 million PCs last quarter -- enough to give it control of 17.3% of the market, according to Gartner.

Killing off the PC could confuse HP's customer base, some analysts noted -- particularly after the high-profile merger with Compaq 10 years ago that made HP the world's top PC maker.

Apotheker was fired the month after his strategy announcement, though current CEO Meg Whitman said upon her hiring last month that Apotheker's plan to exit PCs would still be considered.

But the company on Thursday drove a final stake into the heart of the Apotheker era.

"As part of HP, PSG will continue to give customers and partners the advantages of product innovation and global scale across the industry's broadest portfolio of PCs, workstations and more," said Todd Bradley, head of HP's Personal Systems unit. "We intend to make the leading PC business in the world even better." To top of page

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