HP decides that being bigger is better

In rejecting the idea of getting rid of its PC division, Hewlett-Packard Co. and its new CEO Meg Whitman, also made some decisions about the type of company they want.

First, HP doesn’t want to be like IBM and focus on data center hardware, and high margin services and software.

Second, HP doesn’t want to be tone deaf like Netflix and make a decision that could cost it customers and good will.

Third, HP wants to move on. This is a company that wants to put the turbulence of yet-another-CEO ouster behind it and let Whitman, one month on the job, get her footing without major distractions.

But the company that Whitman is now overseeing, which earned $126 billion in revenue last year, is becoming increasingly monolithic. The Personal Systems Group, which sells PCs and tablets and other devices, accounted for more than $40 billion of that revenue.

This is a company that touches almost every aspect of IT operations, and it’s getting bigger as it moves deeper into software and makes big purchases to support its strategy, such as its decision in August to buy enterprise software maker Autonomy for $10.3 billion. That deal closed two weeks ago.

In announcing the possibility of selling off the PC division, then-CEO Leo Apotheker was considering narrowing HP’s focus, IBM-like, on core data center technologies and other enterprise services. PCs are low margin and HP’s tablet, the TouchPad, wasn’t working out so well against Apple’s iPad.

Analysts were, in many ways, mystified by the decision to get rid of the Personal Systems Group. Investors were simple displeased. So, apparently was HP’s board, which dumped Apotheker.

Charles King, an analyst at Pund-IT, pointed to the recent Netflix debacle as a point of comparison. The video company saw a drop in customers and stock value after it raised prices. And its short-lived and unpopular decision to create a separate DVD business called Qwikster did not help it.

“I think we’re entering a period of time where enterprises are becoming much more sensitive to opinions expressed by shareholders and their customers than they may have been in the past,” said King.

There were concerns among analysts that without its PC division, HP would lose sales with businesses and pay higher prices for components if it lost its ability to buy parts, like disk drives and processors, at great scale.

King believes that HP made the right decision to stay intact; other analysts agree.

Frank Gillett, an analyst at Forrester, said that HP doesn’t want to get out of the client business “just as that whole world is becoming unhinged and lending itself to innovation again.”

Gillett cites the coming transition to Windows 8 and the continuing evolution of tablets as good reasons to stay in the personal systems business. He also pointed to the growing smartphone market and the increasing use of personal computing devices in the workplace.

“Why make yourself a clone of IBM by following the path they tread?” said Gillett.

Rob Enderle, principal analyst at the Enderle Group, said the Personal Systems Group decision announced Thursday makes Whitman look good.

“The spinoff of the PC division made no strategic sense for HP, there were simply too many dependencies both ways and it would have crippled large customer loyalty, which is already stressed as a result of the Oracle dust-up,” said Enderle.

The decision to keep the PC division “showcases that she makes measured decisions and is difficult to trick into doing something stupid,” said Enderle. “I think it is another indication that they chose well in regards to bringing Whitman in to right the ship.”

Patrick Thibodeau covers cloud computing and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues. Follow Patrick on Twitter at @DCgov or subscribe to Patrick’s RSS feed . His e-mail address is [email protected]

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