Should HP Keep Its PC Business?

It's OK to say you were wrong. If a company as big as Netflix (Nasdaq: NFLX  ) can backpedal on an ill-conceived move, so can Hewlett-Packard (NYSE: HPQ  ) .

It's even easier when your predecessor made the decision in question. HP CEO Meg Whitman has a lot of decisions to make by the end of her first month in office. She will need to decide the fate of webOS as well as the Personal Systems Group, or PSG, better known as the company's PC business.

Ex-CEO Leo Apotheker's parting gift of the planned and pricey acquisition of British Autonomy has closed without a hitch, with almost nine out of 10 Autonomy shareholders giving a thumbs-up to the deal. HP can now officially begin taking on IBM (NYSE: IBM  ) and Oracle (Nasdaq: ORCL  ) head-to-head.

The Wall Street Journal is reporting that HP is reconsidering the controversial spinoff, as internal calculations show that the costs trump the benefits. Whitman has publicly stated that she will finalize a decision by the end of October. HP Chairman Ray Lane had also previously said: "We have no intention of getting out of the PC business. Why would we get out of a $43 billion PC business that is No. 1?"

HP's PSG segment brought in $9.6 billion in revenue last quarter and $567 million in operating income. Although the margins are lower than in its Services segment, the PSG makes HP the world's largest computer maker by revenue.

Without the PSG, HP would lose a lot of bargaining power with suppliers, as it would sacrifice its economies of scale, which would also muddle its supply chain and potentially hit margins. HP executives remain mixed, with some for and some against the prospect. Some of the analyses that HP is running suggest that HP should hold on to the segment.

I don't see any compelling reasons in favor of the spinoff. HP's brand is synonymous with PCs. Re-creating an entirely new brand identity takes loads of time, money, and direction. IBM successfully pulled it off when it moved away from the consumer-PC business, but HP has been sorely lacking in the strategic-direction department of late.

Add HP to your Watchlist to find out whether it keeps pumping out PCs.

Fool contributor Evan Niu holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Oracle and IBM. Motley Fool newsletter services have recommended buying shares of and creating a bear put spread position in Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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