HP to keep PSG division in-house

HP decides not to spin off PSG unit; ex-CEO's announcement was 'unmitigated disaster' says analyst

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HP to keep PSG division in-house HP found that the cost of spinning off PSG would outstrip any benefits, says Whitman. (Getty Images)
By  Mark Sutton Published  October 29, 2011

HP has decided to keep its Personal Systems Group (PSG) as part of the company, and will not now spin it off.

The company said that it has completed its review of PSG operations, and ruled against a sale or spin off, as first proposed by now ex-CEO Leo Apotheker in August.

Meg Whitman, president and CEO of HP said in a statement: "HP objectively evaluated the strategic, financial and operational impact of spinning off PSG. It's clear after our analysis that keeping PSG within HP is right for customers and partners, right for shareholders, and right for employees. "HP is committed to PSG, and together we are stronger."

HP, which is the world's largest manufacturer of PCs with revenues of $40.7bn in 2010, said it had completed a ‘data-driven evaluation' of the PSG business, using subject matter experts from across various divisions and functions.

The strategic review showed a great depth of integration across key operations such as supply chain, IT and procurement, a significant contribution to solutions portfolio and overall brand value, and that trying to recreate these in a standalone company would not be cost effective. It is estimated that to establish PSG as a new brand would have cost around $1.25bn.

"As part of HP, PSG will continue to give customers and partners the advantages of product innovation and global scale across the industry's broadest portfolio of PCs, workstations and more," said Todd Bradley, executive vice president, Personal Systems Group, HP. "We intend to make the leading PC business in the world even better."

HP did not make any comment on the future of its webOS division however, leading to speculation that it may be shut down. HP acquired the business in April 2010 from Palm, and had been using webOS for its now-shelved TouchPad tablet device. HP has stated that it will continue development of tablets, on the Windows platform, but has made no such commitment to webOS or the 500 staff it has working on the platform.

Ovum chief analyst Carter Lusher welcomed the move, calling the announcement by Apotheker "an unmitigated disaster".

"We applaud HP CEO Meg Whitman, appointed to that position on September 22, for acting swiftly and decisively to eliminate the uncertainty surrounding HP's intentions for the Personal Systems Group (PSG). The announcement by now former-CEO Leo Apotheker that PSG was undergoing a strategic review and could be sold or spun off was an unmitigated disaster," Lusher said.

"Apotheker's August announcement about PSG was a critical blow to his credibility after announcing in a much hyped analyst event only five months earlier how important PSG's products were to HP. In addition, Apotheker said that the decision would not be completed until well into 2012. Everything around the PSG strategic review decision sent shock waves of uncertainty through the enterprise and public sector IT executive circles as it called into doubt HP's ability to execute a clear strategy for any product or solution. IT executives need insights into strategic vendors' intentions in order to make multi-year commitments and HP's actions called into doubt its stability.

"Whitman is demonstrating early that she is not hesitant about reversing Apotheker's decisions and that she will act swiftly. These are two characteristics that IT executives welcome as it shows that Whitman might be able to stabilise HP and return it to its previous status as a strategic supplier to IT," Lusher added.

Ovum said that while it found that many IT decision makers still consider the PC to be an important part of their infrastructure, they are looking for more innovation in PCs and for devices that are easier to manage, than simply ‘better, faster, cheaper' PCs. HP should therefore look at areas such as greater integration with HP management software, and enabling business models that will support BYOD (bring your own device) from both a business and consumer perspective, the analyst company suggested.

2157 days ago
Vinod Mehra

I am sure HP is finding it hard to maintain profitability in the PCs business and necessary resources are being taken up by PSG. Hence reversal of decision is not the solution rather a firm strategy to make it profitable would be the resolution to get back the business confidence.

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