HP is the OEM which ships the most x86 PCs. They are considering getting out of the PC market. What will be drawn into that vacuum?
“On August 18, 2011, HP announced that it will discontinue the manufacture and sale of all of its webOS hardware products, including its webOS smartphones and the HP TouchPad, and will explore strategic alternatives for the webOS software. In connection with this decision, HP will record a one-time charge in its fourth fiscal quarter of 2011 of approximately $1 billion for restructuring and related shutdown costs. Substantially all of these charges will be paid in HPâ€™s fourth fiscal quarter…”
see SEC 8-K
â€œIn March we outlined a strategy for HP, built on cloud, solutions and software to address the changing requirements of our customers, shaped heavily by secular market trends that are redefining how technology is consumed and deployed. Since then, we have observed the acceleration of these market trends, which has led us to evaluate additional steps to transform HP to meet emerging opportunities. We believe the acquisition of Autonomy, combined with the exploration of alternatives for PSG, would allow HP to more effectively compete and better execute its focused strategy.â€
It’s all speculation but there are four choices:
- HP could refocus and continue the PC business with some new plan – That seems unlikely considering how public the ruminations.
- HP could simply spin off the PC business as a new entity with more or less independence from HP
- HP’s business could be bought or merged with another OEM of PCs – That’s a good possibility because HP’s brands and designs will have a lot of value, but what smaller OEM could absorb such a large business? The OEM game has tight margins and cash could be a problem.
- HP’s business could be bought by some outfit that wants an entry or to do more with PCs – Samsung is a candidate. They make PCs now but are loving smart thingies.
3. is a possibility as a merger perhaps. Dell could do it. Lenovo could do it. They both have access to lots of cash and think big.
4. is intriguing. Samsung is huge and HP’s PC division would not bother them much. They could also manage to sneak in ARMed PCs particularly with M$ porting to ARM. That would minimize the perceived risk. Samsung is beholden to M$ but could ship ARMed PCs with Android/Linux or GNU/Linux. They know Linux works for them. Imagine how hard they could bargain with M$ for prices with Linux in the wings… Imagine HP’s volume of PCs potentially going to FLOSS… Imagine WebOS and the PC business of HP going to the same player who wanted to run with it…
We live in interesting times. It is a shocker to see the leading maker of PCs considering quitting while on top but that is the best time to sell. A buyer could also be looking for a good price considering the slump PCs are in as a business. Slumps are great for FLOSS. It maximizes value for money. This could be a big opportunity for FLOSS as M$’s current product has not saved the PC industry from a slowdown and “8” is still vapourware. I do not see a deal for HP languishing until “8” emerges so the change will come at a critical time, before RTM, and probably around the time beta-testing starts. Anything M$ throws in to induce OEMs to cooperate could add value to what HP gets for the PC business.
These are bold steps for HP. It’s as if HP is acknowledging entry into PCs was a mistake from the start. Such recognition will really focus the minds of any who consider buying the business. How are they to increase the margins? Move everything to China? Use FLOSS? Use ARM? Anything is possible. When you look at the reasons why the PC business has such tight margins, of the order of 6% ($9.592billion revenue, $567million earnings), M$ is huge. Of the 15million PCs HP shipped in Q2, M$ got about $50 each, $750million total. Why does the guy who just gives permission to make a copy of software rake in more than the guy who designs, builds, sells and ships the PC? With FLOSS, HP would be making $1300million in earnings, 13.5%, and not considering selling the business. HP is not considering selling the printers group which had revenue of $6087million and earnings of $892million, 14%. Perhaps a buyer will see the light.