HP and the PC business: A partner’s view

HP’s recent announcements came suddenly, but didn’t come as a surprise. When I met the company’s new head, Léo Apotheker, recently, he made it clear that HP was more about software, services and infrastructure hardware than about consumer electronics.

For those that haven’t seen the headlines, what HP has announced, among other things, is that it will stop manufacturing consumer devices, such as tablets and mobile phones, and will conduct a strategic review to decide what to do with its PC business. We don’t yet know what the outcome will be, but it seems likely that HP will spin it off in some shape or form.

Understandably, people want to know why HP is doing this and what it means for the future of the PC. Some speculate that HP doesn’t feel it can compete with other consumer electronics companies in the long term.

I think there may be a slither of truth in that. HP tried to claim a share of the growing tablet market, much as it had previously with mobile phones, but failed to produce something as trendy and appealing as the iPad.

But there are better reasons for HP to review what it is doing in the PC market. HP may not be a ‘cool’ consumer electronics company, but it has always been a superb infrastructure and services company. My reading is that it believes it has much to gain from applying itself in the right areas, which uncoincidentally are the lands of higher margin.

While I might not like it and I may not even agree with it, I can see why HP’s review may make good sense from a strategic point of view. PC businesses selling commodity products have to run on tighter margins than other types of IT business. Shareholders are likely to be much happier with the returns they can expect from investing in a high-margin software or services company.

To me, it seems that HP just doesn’t see PCs as the priority in its new strategy and vision. It is a profitable market, but the margins are lower than they are elsewhere. The story feels similar to that of IBM, which once led the PC business, but now does very well out of services and outsourcing contracts instead of selling commodity hardware.

In any case, I don’t feel the review signals that the PC is dying. Other companies will continue to make PCs because consumer demand is high and there are profits to be made. The PC market will continue to consolidate around fewer and fewer players.

Most will aim to make money by selling high volumes at low margins, and a few, like Apple, will succeed in differentiating themselves so they can sell at high margins, even if they don’t sell anywhere near as many units.

HP’s PC business is still in rude health, and it isn’t really plausible to suggest otherwise. I certainly don’t think it’s something that HP feels it urgently needs to drop. It’s a strong viable business for someone to take on. Whatever happens, it won’t be closing down, and whoever ends up running it will build on its existing assets – excellent products and people.

So, as an HP customer, I wouldn’t be in the slightest bit nervous about the review. In fact, you might argue that an entity that focuses solely on the PC business and volume technology might be even more agile, and flourish even more, than one that is part of a larger organisation that focuses on other markets.

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Martin Hellawell is the managing director of Softcat, a leading provider of software licensing, hardware, security and related IT services. Founded in 1993, Softcat remains privately owned and currently employs more than 300 people. It achieved a turnover in excess of £200 million in its last financial year and has been profitable since inception, resulting in a strong balance sheet and very firm financial foundations.