HP Reverses Course on PCs, Whitman to Clarify Overall Mission and Strategy

New top exec says evaluation data pointed to value, ROI of keeping PSG intact. Will spell out company’s mission, business strategy going forward.

November 2, 2011

D.H. Kass

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Hewlett-Packard Co. said last week that it will keep its personal computer business after all, scrubbing earlier considerations the company first disclosed in mid-August to sell or spin off the unit.

Officials said that the vendor based its decision to retain the PC business, housed under its Personal Systems Group (PSG), on an internal analysis of 18 teams spanning a number of operations such as supply chain, IT and procurement.

“In the five weeks that I've been CEO, we conducted a comprehensive data-driven process in with cross functional teams, consisting of subject matter experts, looked at the linkages between PSG and the rest of the HP businesses,” said Meg Whitman, HP president and chief executive in a conference call.

Whitman, upon succeeding Leo Apotheker at HP’s helm in late September, said at the time that she would immediately reassess her predecessor’s plan to move away from the high volume, low-margin PC business.

“PSG is core to HP's portfolio, and it makes strategic, financial, and operational sense for HP to retain it,” she said.

Whitman pointed to the key role PCs play in HP’s solutions portfolio, overall value of its brand and the cost associated to rebuild both the tangible and intangible factors as overriding any benefits it may have derived from selling or spinning off the unit.

Cathie Lesjak, HP chief financial officer (CFO) said that PSG provides financial value to HP, generates strong cash flow and offers a good return on investment.

“We estimate that the annual synergies between HP and PSG exceed $1 billion in operating profit per year,” she said.

For HP’s third fiscal quarter ended July 31, 2011, the PSG unit earned $567 million on $9.59 billion in sales, a 21 percent increase from the same period the prior year, even though sales slipped 3 percent year over year, according to documents filed with the Securities and Exchange Commission (SEC).

In the most recent four reported quarters ending with the July period, the PSG unit generated some $2.3 billion in operating profit, Lesjak said.

Lesjak said that to spin off PSG, HP would have incurred some $1.5 billion in one-time start up costs, including building a new brand, and new systems for IT, support and finance.

Todd Bradley, HP PSG executive vice president, said that the vendor solicited and received positive input from key members of its community on the impact of its PSG business in the marketplace, but was cautioned not to dither on whether to keep or discard it.

“I think it's fair to say we got feedback broadly from enterprise customers, partners, big retail partners, really around questioning the decision, understanding the strength that we had brought to the marketplace,” he said.

“But frankly, the focus was on making a decision,” said Bradley.

Mission, business strategy forthcoming.

Whitman also said that next on her agenda is to clarify HP’s mission and business strategy.

“What I want to do is as soon as we can, to have it be right, come out and say what is the mission of HP, what's the business strategy, how do each of the business units' strategies fit in under that, what's the financial strategy for each division, meaning what are the operating margin characteristics, what's the cash flow characteristics, and then finally, a capital allocation strategy for the company,” she said.

“And it's one of my top priorities, because no matter where I go, the first question I get is what is HP?” she said.

TAGS: PC,HP,Meg Whitman,PSG

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