Friday, August 19, 2011

HP To Dump PC Business

HP surprised the market with its CEO's announcement yesterday that it is planning to spin its PC operation off from the rest of the firm.

This morning I listened to one pundit attribute this to CEO Leo Apotheker's software background, i.e., he isn't a hardware guy, so, *poof* goes the hardware unit.

I doubt it was really that simple.

Take a look at the nearby five-year price chart for HP and the S&P500 Index. Mark Hurd, the prior CEO, left under an ethical cloud at the end of summer last year. Prior to that, he'd led the firm as it decisively outperformed the index in the four years to that point. Since then, it's been largely downhill, with a few positive reversals.

For the entire period, however, HP shareholders essentially took more risk than the index for no different performance.

One of today's Wall Street Journal pieces about the HP announcement observed that the then-defining deal Carly Fiorina completed- the merger with Compaq- was now being reversed. That's true enough. And to an extent is a commentary on HP from a longer perspective.

To me, it's no accident that HP's plan to separate from its PC unit comes within a week of this post from nearly a month ago, in which I wrote,

"Despite Intel's attempts to rebut the analysts' 'death of the laptop' theme this week, I believe the latter are correct. Schumpeterian dynamics are hitting laptops with a vengeance.

Just as lighter, cheaper and better laptops eventually made consumer desktop computers obsolete, so, too, are the many X-pads, particularly the iPad, rapidly cannibalizing laptop sales growth.

Yet another reason not to sell Apple short, literally, just yet. But I wouldn't want to be caught holding equity in HP or Dell."
Dell's quarterly results disappointed investors earlier this week. Intel has been attempting to reassure one and all that its chips are too still vital, even as it has missed most of the smartphone and tablet markets.
Now HP essentially throws in the towel on a unit that it bought, rather than grew organically, while also announcing the end of its tablet and smartphone ventures.
Would Mark Hurd have been capable of leading/managing HP to a different end? Would he have materially affected the firm's outlook in the past twelve months, so that its share price wouldn't have cratered? I doubt it. Hurd couldn't personally change market demand for smartphones and tablets which affected PCs. Perhaps he'd have developed a stronger tablet entry. Perhaps not.
I see little more here than conventional Schumpeterian dynamics finally catching up to HP. It bought into business services and servers. It bought a computer business. What still works is the printer business which it has grown for decades. Printing isn't likely to entirely disappear, while PCs are fast becoming a niche commodity market. And every company depending upon PCs is fighting a losing trend.

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