Sunday, August 21, 2011

The penny finally drops for HP as it prepares to drop the PC business

It was inevitable that one day HP would tire of the high-volume but low-margin PC hardware business, and now that day has edged a little closer. By shoring up software and services it is following IBM's lead, however it should be noted that IBM - who started the whole "IBM-compatible PC" market in the first place - got out of the mass market for PC hardware years ago. HP will keep making printers but I suspect the lower-value consumer printers will slowly disappear, too, as HP looks for higher margins. But brand pride's at stake as well - so who knows what will happen, or when. HP will certainly look to divest itself of any left-over low-margin hardware or software and ditch any poorer-performing niche products. Why throw more money away when you have already thrown away a lot? So expect a few HP cut-and-run announcements from here, especially in areas where it doesn't really affect the HP brand itself. A prime driver behind these decisions has to be longer-term protection of the brand.

As for PCs overall, they remain a huge if slowly-declining market. When HP leaves the gap will be closed and life will go on. Whilst competition now takes many forms (smart phones and tablets for starters) there remains a need for the traditional big box and monitor, but at low-cost and low margin. We should also expect to see further aggregation into a smaller number of PC makers catering for the mass market as well as a continued splintering into smaller, more profitable niche markets at the top end.   

HP exploring PC spinoff, buying software company |
The purchase of Autonomy, which was founded in 1996 and makes software for companies to search and manage huge databases, fits the strategy of "building a successful software business," he said.

"Autonomy brings to HP higher value business solutions that will help customers manage the explosion of information," he said.

"Autonomy has an attractive business model, including a strong cloud based solution set, which is aligned with HP's efforts to improve our portfolio mix."

Technology analysts said HP's decision to abandon its PC unit recalls that of US computer giant IBM, which sold its PC business to China's Lenovo in 2004 for $1.25 billion.

Gartner analyst Mark Margevicius cautioned, however, that "we're not in an era when the PC is dead.

"The PC market is flat but it's still a huge business," Margevicius said.

It remains HP's largest single revenue generator, but it "just doesn't produce all that much profit," he said. "The PC market has transformed into a tactical, commoditized business.

"HP, as a vendor, has many, many things within its coffers to sell to its customers. It sells services, it sells online stuff, it's got networking stuff, it's got software," he said.

"It's got all kinds of other things that from a business point of view make far better margins and profit than does the PC business," Margevicius said.

"If the PC business was a business that generated 20 percent margins, HP's not dumping their PC business," the Gartner analyst said.

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