HP to Get Out of the PC Business? Discussion

Yesterday, HP shocked the Internet with a couple of surprising new announcements. It had been rumored that the TouchPad and Pre 3 mobile devices had encountered surprising resistance, with Best Buy reportedly asking the company to take back 200,000 unsold units. Ridding itself of its PC business, though? No one saw that coming.

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The PC business spin-off has been rumored for weeks but formally announcing the PC spin-off in the same press release as the WebOS and Touchpad kill-off, that's the biggest PR mistake in recent years. Since there's currently a $99 firesale on the Touchpad, people are asking when there will be a firesale on HP notebooks and desktops? Who can blame them?

Personally, I think that the announcement has damaged HP in terms of both investor relations and the potential value of the PC spin-off. This is a disaster, and I don't believe that HP can execute the same sort of transformation as IBM.

 

There's a right way and a wrong way to handle a corporate restructuring. HP needed a corporate restructuring, narrowing of their portfolio (better to do a half-dozen things really well than to do everything a little poorly), and some reinvestment in build quality, but this could have been a good thing for them. The way they're handling it, though, with inconsistent announcement and rumors and now fire-sales of newly-released products...I'll be surprised if they survive at all. This is NOT how you do it.

 

Getting out of the phone and tablet market was a good idea IMO, I don't see how HP could have competed there effectively (as in, gained any real market share). Get on the Android or Apple boat; you can't take a slice of pie that doesn't exist. WebOS might be cool but the fact is so few people used it - it was a failure for Palm.

HP has somewhat of a history of buying companies and then going "Oh, we bought this company thinking we could do something, now we don't feel like it so uh, we're just going to assimilate them into our company and put it behind us". Anyone remember the Voodoo PC takeover? Yeah that worked real well ... not a trace of that company left at HP now. There wasn't one even a year after the purchase was completed. Same exact thing with Palm (except it was worse with Voodoo PC since HP ruined a perfectly good company).

From a business perspective, it seems that HP is saying no to a war of attrition with Apple and Google and going the IBM route. Sounds good to me.

But then onto the topic of selling their PC business - what!? Whole different ballgame there, I think it's going to hurt them in the long run. HP has the best quality lineup of any notebook manufacturer, especially on the consumer side.

 

You sound like all of the wall street analysts I saw on TV shows Friday. No one seemed to think that HP either handled the news correctly or is implementing a successful strategy here.

Stock price dropped big on Friday, on top of other recent drops.

What I wonder is how much Dell and Lenovo (and other?) manufacturers will see increased sales.

Best one-liner on this was a supposed Michael Dell tweet, something to the effect of "If HP peels off computers, will they name the new company Compaq?"

 

They were saying the same thing on Tech News Today yesterday.

 

Lol I bet Dell must be having such a field day right now. The problem I see with HP is that there're simply too many product lines at any given time with one model barely distinguishable from another and their naming scheme is a mess. Dell learned their lesson by consolidating and categorising their product lines into as few groupings as possible i.e. Inspiron, XPS, Vostro, Latitude etc. If you're budget-conscious, Inspiron's the likely choice; for power your go for XPS or Alienware or whatnot.... This makes it much easier and hassle-free, from the buyer's standpoint, to have a more informed idea of what you wanna get that can best suit your particular needs.

From my own experience, I found HP's post-sale service as severely lacking compared to Dell...maybe I'd been lucky that Dell had always come through, and the one HP laptop that I'd owned and my experience with their customer service were all sorts of nightmare. While many people may have misgivings about Dell's quality be it their products or customer service, the same can be said about HP, or Acer, or Asus. For me, whenever I need a new computer I'd look at Dell first.

 

I'm not sure that this is good news for any Windows PC manufacturer, or for Microsoft itself. If the #1 seller of Windows PCs is leaving the business because it can't make enough money to make it all worthwhile, what does that say about the other players? It indicates that HP looked at the prospects of PC sales and profit margines with the Windows 8 launch coming up in the spring of 2012 and decided that there wasn't a future in selling Windows PCs. Bad news for HP but worse news for Microsoft and all of the other PC brands, and by extension, even the ODMs.

Michael Dell doesn't have any spectacular results to show, but he has stuck with the core business and has even made moves to shore up profit margins. Not that there's any signs of a potentially successful post-PC business model at Dell.

 

I remember a time where there were no big companies other than IBM, Wang Labs, NCR and a few others making PC's in the mid to late 80's. Today there are way too many PC makers who have just lowered profit margins to where it's not worth it even for the Big guys.

Back then you built your own PC and bought the best parts available. I still do that today. I don't buy pre-built desktops from anyone.

I wouldn't say this is the last exit. It could also be Dell and a few others only to be gobbled up by the Asian PC makers like Lenovo and Toshiba.

Still PC's will be around for a long time. Not so much for the consumer but for businesses.

 

(Sorry this is so long. I feel passionately about this issue. Perhaps it should be moved to an Apple-centric news thread, but only mods can do that. In any event, this post flows directly from HP's moves last Friday.)

I concur 100% (with the above-quoted post), but would add what I think follows, ominously, from this analysis: The Big Winner From This Will Be Apple.

When HP - and other computer makers - speak of "tablets" taking away their market share, they mean "IPADS," as these make up nearly 90% of the tablet market. And though they have not said this, nor have any other PC makers - yet - the newest MB Airs and the expected MB Pros to soon follow are spooking the market even more than the iPad.

It is abundantly clear that Apple is adjusting their strategy from making excellent products for which they charge a huge premium and make a lot of money with a 10% market share, to using price, quality and brand cache to go for Volume, seeking market shares of 25% to 75% (the current iPhone and iPad respectively, are even higher than those numbers) in every market segment they go into. With the exit of HP, the increasing weakness of all PC and tablet competitors, who find it increasingly tough to compete on price because they lack the financial capacity to do the necessary R&D and endure short term losses to compete and maintain their market share against the Apple juggernaut, I think Apple is going from 11% presently to 25-30% of the laptop market within 3-5 years.

All of this depresses me greatly. First, I detest Apple's deplorable corporate conduct - squeezing suppliers, dealing with suppliers who exploit child labor, top executives publicly dissing competitors, petty bickering with companies like Adobe due to Jobs' personal grudge against Adobe's CEO. Second, I personally dislike OSX. and I believe that Apple will ultimately go back to making its products run poorly, if at all, on any other operating system, because it's clear strategy is to get your credit card number and give you one-click purchasing of hardware, software, music, movies, games, "apps," and ultimately perhaps even non-electronic products. This strategy is greatly aided by forcing customers to use their "ecosphere" - OSX/IOS/iTunes, which will soon meld into one unified OS, to the exclusion of all others. Purchase a Mac PC lately? You can't complete its setup without opening an iTunes account; this is but a taste of the future.

And worst of all, as Apple knocks off competitors consumer choice will plummet for two reasons. First, Apple tends to make 1-3 products for each market segment and "makes choices for us" in their paternalistic and arrogant way. Even if their products are great, with all the amazing technology out there it is impossible to satisfy the needs and desires of more than 10% of buyers with only one or two products. It forces many of us to become Apple customers not by choice, but because the alternatives may be out of business in less than a year leaving us without support. The deterioration of consumer choice will be exacerbated as most competitors utilize the strategy that HP, Dell and Samsung are already employing: design products that mimic Apple's and try to undercut them on price and add a few features. This means that we have the choice of Apple products made by Apple or virtually identical, lower quality products made by the few remaining competitors.

I wish I had more faith in Google or Microsoft to maintain clear alternatives as Google presently appears to be doing with Android - on phones, not on tablets), but I think both companies have demonstrated a tone-deafness and overall lack of expertise designing products and creating partnerships that provide consumers the kind of elegant, seamless integration of all their devices and media that Apple does and that consumers will come to expect, and demand. I'm rooting hard, and I won't buy an Apple product, even if I pay more for a slightly inferior one, but I'm afraid the deck is heavily stacked against those of us who want choice.

Bad, bad day for the computer consumer; great day for Apple shareholders.

 

I remember buying my first brand new laptop in 2006. First timer! It was a 17in ZD8000. Had it for just over a month. Started to have graphics issues. Called HP and after about an hr on hold, I finally got tech support. They went through the typical "Check this and check that".
Then they said what happen to it was my own fault and wanted to charge me $600 to repair it. Wanted to cry!
So, I sent it to them to be repaired. 7 months later, it did the same thing. Called and again I was told it was my own fault. I was not about to drop more money on this monster. a couple months out of the 1yr warranty, I was just searching the internet trying to find a way to repair this thing myself. To my surprise, I found hundreds of people having the exact same issue. After careful research, I found out the problem was not my fault, but a design flaw. Not enough cooling to keep the GPU cool so it fried.
I called HP back to see if they would do something about this especially since they lied and said it was my fault. They said there is nothing wrong with the design, but to make me happy, they would repair the laptop for just the cost of the part (motherboard). Ok, how much? $475. OUCH!
No, will never invest a single dime on another HP product.
I hear they make GREAT servers though..

 

They're not shutting down the computer division; they're spinning it off. Volvo, the trucking company, spun off Volvo cars in 1999. Volvo cars didn't die; it actually went on to bigger and better things with an eleven-year-long Ford partnership. (Ford just spun it off, not because it was unprofitable, but because they wanted a capital infusion to turn their core brands, Ford and Lincoln, around).

Furthermore, bigger sales numbers doesn't mean most profitable. GM has outsold Ford for years, but Ford is making money while GM still struggles. If you've been watching the "what should I buy" forum, you'll notice that HP is the GM of laptops. A dv6t is consistently 3/4 the price (counting the online coupons that are always floating around) of ANY serious competitor. How do they do that? HP is selling with a narrower profit margin than Dell, Sony, etc. Or maybe even selling at cost just to make sales.

You don't have to be a luxury goods manufacturer (Apple/Porsche) to have a decent profit margin on each sale. Other mainstream manufacturers, such as Dell and Sony and Lenovo, do a much better job of keeping a workable profit margin on each sale than HP has done recently.

 

I'm not going to requote everything you said. I do agree with what you said with one caveat. YOU DON"T HAVE TO BUY FROM APPLE.

They are not forcing you to buy their products. There are other companies out there and you can build your own PC. If all the PC mfgs and Microsoft left the PC business tomorrow, there are others willing to take their place. I have no desire to buy Apple products as I figured out they are marketing geniuses and their products are overpriced and overrated including their OS.

I'd gladly switch to Linux 100% with a rig I built myself.

 

So it there going to fire sale on HP laptops and PC's?

 

I doubt it.

 

That's definitely a good point. Dell recently slashed forecasts, and its stock took a hit, so futures may not be looking so bright. Lenovo Group, on the other hand, posted nearly doubled profits this quarter and similar gains last quarter: this is likely due to its strong presence in emerging markets where computer ownership is not yet saturated and demand is up.

So, overall, I don't think this move by HP indicates a death of MS or personal computers at all, but rather that computers aren't what they used to be: much the same as hard drive production (where profit margin is often measured in cents), profitability in producing computers isn't great anymore: computers are becoming more of a commodity item than a premium device. That role is being usurped by tablets and other mobile devices. In the interest of boosting profitability and minimizing operating costs, it's inevitable that some companies will leave the competition and further consolidation will occur. It'll be interesting to see who will absorb HP's PC division.

 

They said they were going to sell off their PC division or spin it off. Some other company might just be selling HP computers so there really isn't going to be a great benefit for us between the process.

 

I don't know why, but Asus comes to mind. They might be in a great position to take over HP's PC division, and help bring them to the number one spot. I remember reading here a couple of years back that Asus is striving to take the top spot in PC sales. This might be their chance.
I can't help but to think that this news is actually hurting HP and their sales of PCs now. By openly stating they will consider it in 12 to 18 months, I think a lot of people are going to be hesitant to buy from them in the future, effectively putting the final nails in their PC coffin.

 

...Thanks.

 

Your points are well taken, but I think yours is a minority view. No, neither I, nor you, nor anyone else has to buy from Apple, but I am concerned that they are inevitably moving towards becoming the most appealing choice for most consumers, especially if I'm right about their moving away from premium pricing and towards being the price leader, as they pretty much are with the iPad and, feature for feature, the new MBA. Sadly, people do tend to be lemmings about such things and, frankly, I can't blame people for making the "easy" choice, that will be sure to run reliably and serve their needs.

As to the comment about HP spinning off vs. liquidating its PC business, if they don't do a major about-face from Friday's announcements and the instant total abandonment of the Touch Pad, the brand will be "damaged goods" in short order and whoever becomes the new owner will probably be looking at as little as half the market share HP had has of last Thursday, as pointed out by Roger, above.

IMO, of course.

 

Samsung is one rumor. Lenovo another.

Michael Dell seems to be thinking the same thing I am though, and tweeted that HP should spin-out it's PC Business back into Compaq.

 

In a few years, would HP computers still be called HP computers? What do you think? Since HP bought Compaq I barely ever saw a Compaq notebook. There are a few models on HP's website and in Costco, Walmart, Office Depot.. etc, but not as much as before.

What ever happened to Circuit City? Remember them competing with Best Buy? When Circuit City filed for bankruptcy, someone (I dunno who) bought Circuit City and I never heard from them again.

 

Only the CircuitCity.com domain name was purchased, and turned into a solely online e-tail shop.

If HP sells it's PC division to another company, then the computer brand and model names will be changed. As a spin-off the new company could technically be called something like the Hewlett Packard Computer Company, in which case just about everybody would keep on referring to their computers as HPs.

 

I'm for lenovo. I'd rather have them take over than Samsung.

 

IDK I like Samsung in the sense that make really stylish electronics. I love their Galaxy Tab and Samsung 9 laptops.

 

I think its more to gain for Samsung than it is for Lenovo. Both make decent consumer notebooks but Samsung would really benefit having a stronger business lineup by taking up the Probook/Elitebook range which would make more sense than Lenovo picking against their existing ThinkPad lineup. I would suspect Lenovo would just silently kill off the Probook & Elitebook line should they acquire the PC division which would be a waste in my opinion but that's just my assumption.

 

Well it's the perfect opportunity to eliminate a competitor, and get all their IP! It's no different than Microsoft buying out a company just to eliminate the competition. Buying HP could be in anyone's best interests. This will be interesting to watch.

 

What IP? At this point, there's nothing mysterious about desktop and notebook computers. Looking at HP's business, there's a couple of tired trademarks and a really big consumer operation based on high volumes and high discounts.

I don't think that there's very of any value to be sold? What brand has so little credibility that slapping a HP badge on its product would actually improve their image? How hard is it to sell through big box stores?

HP did a pretty good job of destroying the Compaq brand. Go back a decade, and the Compaq brand was associated with business quality PCs. Now it only appears on the lowest of the low end consumer units sold through big box stores.

 

Samsung makes more sense since Lenovo just bought Medion in Europe and is in a joint venture partnership with NEC Japan.

 

In most industries, when either biz is shrinking or profit margins are in decline for a long time period, consolidation occurs. Read company acquisitions, followed by layoffs. Tried and true way of boosting your profits by literally gobbling up the competition.

Dunno how this'll all pan out in this case, but it sounds like HP just doesn't wanna have a huge amount of their biz in a low profit margin area.

In regards to "Just buy Apple", my personal opinion is that Apple is way overrated and while 'pretty and innovative', it ain't gonna take over the market by any means. Over priced stuff with too much sizzle factor for basic bucks. I mean, just consider how, on this board, people will kill for saving $20 on a memory stick...as long as Apple prices for the premium market, most of the market is gonna go elsewhere. After all, 'puters are just another appliance when it's all said and done.

Apple left the 'puter market behind when Jobs announced the company name change from 'Apple Computers' to 'Apple, Inc.', or sumpin' like that, several years ago. Apple's in the gadget biz now and mainstream Macs are not the direction they're headed. Maybe the ipads are substantial, but old style desktops ain't where they're headed in the future.