Hewlett-Packard stunned the public yesterday when it announced plans to either sell or spin off its PC business in order to focus on the higher-growth areas of software and services. This came as a surprise because HP is an industry leader in hardware. Its Personal Systems Group (PSG), which makes desktop and laptop computers, is the group’s largest business segment, generating $40.7 billion in revenues last year, or 32% of sales. (Altogether, HP achieved total sales of $126 billion in 2010, including printers, enterprise storage and servers, software, and services. Those divisions aren’t going anywhere.) Top rival Dell, on the other hand, earned $61 billion last year, and half of that – $29.5 billion — came from hardware.
But the decision to sell off the PC business positions HP into becoming less like Dell and more like IBM. IBM celebrated its 100th year in business this year, so it knows a thing or two about changing with the times. IBM used to make punch cards, for Pete’s sake, and sold its PC business back in 2005. The move didn’t really affect IBM’s bottom line as it quickly shifted into a full-service technology services company.
HP seems to following the same path. While the PC business is its largest segment, there’s not much room for growth anymore. And the company hasn’t had much success in its efforts to release new products to compete in the growing mobile market. Last year it bought Palm, the maker of the Palm Pilot, which was a hit, what, 10 years ago? HP revamped Palm phones into seven new models (including the Veer and the Pre3), but by that time the public had moved onto iPhones and Blackberries. It also planned to launch the TouchPad, a mobile computer comparable to the iPad, but that product was killed with the divestment announcement. (I imagine the TouchPads that were produced will become very valuable rarities one day, perhaps lovingly evaluated on a future version of Antiques Roadshow.)
But this isn’t HP’s first rodeo in selling off a major division. The company got its start in 1938 when Bill Hewlett and David Packard began selling audio oscillators and other scientific measuring equipment. The company spun off the division as Agilent Technologies in 1999. Smart move, as Agilent has had its ups and downs over the years, going from 41,000 employees and $8.3 billion in revenues in 2001 to 18,500 employees and $5.4 billion in revenues in 2010. The Agilent spinoff allowed HP to purchase Compaq in 2002, the deal that brought HP to the forefront of the PC market.
Will HP spin off the business into a separate publicly traded company? Or sell it to an Asian competitor (like IBM did with Lenovo), or dare I say, Google? Either way, we’ll have at least another year to see where this goes, as the deal could take 12 to 18 months to complete. Dell CEO Michael Dell has a suggestion on the new name, Tweeting, “If HP spins off their PC business….maybe they will call it Compaq?”