HP partners jazzed about PC spin-off option

Partners aren't surprised to hear that HP is considering spinning off of its PC business.

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HP partners jazzed about PC spin-off option Mulligan doesn’t believe there will be any short or medium-term impact to HP’s PSG business.
By  Manda Banda Published  August 22, 2011

Ever since news broke that technology powerhouse HP is looking into a spin-off of its Personal Systems Group (PSG), channel partners in the Middle East and elsewhere around the globe have received the news with mixed feelings.

The vendor said in a statement that it will consider a broad range of options that may include, among others, a full or partial separation of PSG from HP through a spin-off or other transaction.

HP's exploration of a PC business spin-off comes as no surprise to some of its partners in the channel, who've had a front row seat to the steady decline of the consumer PC business.

"I am not surprised at the announcement as I have been expecting this for some time. However, I do believe that it could take more than one year before we see any tangible outcome," said Patrick Mulligan, general manager at Emitac Distribution, one of HP's PSG distribution partners in the Middle East region.

"The motivation is clear, to prioritise focus and resources to areas which can generate the best return to HP. I do not believe there will be any short or medium-term impact to the PSG business. At Emitac we have been focused on the other areas of the HP portfolio for some time now," said Mulligan.

He pointed out that the channel should be careful not to assume that the departure of HP from the PC business will give rise to the system builder channel, as there can be many strategic options available which meet HP's objectives, but which will not necessarily create a gap in the market. "A management buyout, a sale of the brand and sub brands to an Asian manufacturer, a spin off into a separate company, are just some of the strategic possibilities, none of which would create a market gap," he reckoned.

Industry watchers say HP isn't alone in dealing with PC market malaise: Dell and recently Acer have also been grappling with it.

Mulligan said the PC market is challenging today in terms of profitability in all parts of the value chain except perhaps retail. He pointed out that this is what people mean when they say it has become commoditised. However, Mulligan believes the PC market is still a very large market, especially in the developing world. "We are well placed to take advantage of this opportunity. However, from a vendor perspective, I think the focus will move from lowest cost producer, to lowest cost of total operation including distribution. This will necessitate changes to the way things are done today, and will bring opportunities for those who can position for advantage," he noted.

Mulligan pointed out that the recent announcements are all about ensuring HP continues to be a Tier 1 technology solutions provider to the enterprise channel both today and into the future. "Whether all elements of the solution are produced by HP, is immaterial, in my view, as long as the solution is the best in terms of meeting the customer's needs. The future is in software and services, as HP sees it, and I think they are making some bold moves to ensure they take a good share of this business," he said.

HP's consumer PC client sales dropped 23% year-over-year in Q2, and 12% in Q1. Although commercial PC sales are still growing, the consumer weakness has contributed to HP's lowering of guidance in its past two quarters.

Industry pundits say to avoid macroeconomic headwinds, some system builders have shifted their focus to higher end PCs and business customers, and they see the HP PC business spin-off as a logical reaction to market forces and the havoc that tablet PCs are wreaking on the PC market.

Ashish Panjabi, chief operating officer at Jacky's Electronics, an HP power retail partner in the Middle East region, said HP's decision to spin-off its PSG unit is a surprise especially as the technology powerhouse has been extremely strong in the Middle East region. "It's no secret that HP has been our biggest partner for laptops but such decisions are taken in California, not Dubai," he said.

Panjabi added that in big corporations, decisions like this one have to be strategic in nature and HP has obviously decided their core focus area will be enterprise in the future. "This isn't the first time HP has looked at changing the status of the PSG unit as during the tenure of Carly Fiorina, there was talk of merging IPG and PSG. When Mark Hurd took over, there was a change of heart and PSG continued as an independent unit.If you look at HP's acquisition history, they have been buying a lot of companies in the networking, data storage or enterprise space. Palm was probably one of the few consumer companies they purchased," he said.

"Such spin-offs are not new though. If you are trying to do enterprise and consumer, it's a fine balance to do justice to both spectrums of the market and it may be better to run them independently. We've seen it in the fast moving consumer goods (FMCG) space, in telecoms Motorola split into two companies at the beginning of this year and as a result Motorola Mobility is being acquired by Google and in IT the IBM and Lenovo deal in 2005 deal is an example of this," he added.

Panjabi doesn't believe this announcement will give rise to a stronger system builder channel in the Middle East region. "Local system builders will struggle as the price points and critical mass that major multinational brands have reached have made it very difficult for them to survive. Even today, there is a constant price war for all PC vendors with the exception of Apple who've managed to keep a much higher average selling price (ASP) in the last few years," he said.

Asked what will happen to HP's ability to offer a full suite of integrated, internally developed solutions to the market, Panjabi said it's difficult to say without speculating but one can only hope that HP's consumer focus continues in whatever shape or form the company takes.

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