Vacuum After the Explosion at HP

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 HP’s fourth fiscal quarter…”

see SEC 8-K

“In 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.”
see Announcement

It’s all speculation but there are four choices:

  1. HP could refocus and continue the PC business with some new plan – That seems unlikely considering how public the ruminations.
  2. HP could simply spin off the PC business as a new entity with more or less independence from HP
  3. 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.
  4. 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.

About Robert Pogson

I am a retired teacher in Canada. I taught in the subject areas where I have worked for almost forty years: maths, physics, chemistry and computers. I love hunting, fishing, picking berries and mushrooms, too.
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4 Responses to Vacuum After the Explosion at HP

  1. oe says:

    It would be risky but offering HP hardware to the consumer with an honest choice of OS in an integrated stack based on a choice of in-house WebOS or 3rd party choice of OS be it Canonical (Ubuntu),RHEL, Windows, or others would be workable. It would be interesting to see if kits to self-install OS-X would work, court-challenges to how a product is used after first sale from Cupertino actually might not fare to well in they way their squandering any goodwill they once had. If Redmond wants to charge HP full retail price per license at 200$/seat fine; HP sells to enterprises anyway who directly buy volume licensing direct from Redmond anyway. As to the consumer market they may make real inroads inn the short run by having and OS choice on their hardware. Longer run developing WebOS into a tightly integrated, yet open-source, stack from hardware to UI might be a good bet, and Android for the x86 and what breath is left in it. Using FOSS margins could return, no need to oversea the production. All the while move strategically towards smaller ARM based, eco-friendly commodity hardware.

  2. Yes. If it were my business I would do things to improve the margin. It’s theirs so they can do what they want. It could mean a bunch of jobs leaving USA though.

    Some are writing that HP is choosing to compete with IBM, SAP and Oracle rather than Dell, Lenovo, etc. Seems strange to me. HP has always meant hardware to me. To diversify into software made sense but amputating a going concern seems strange. It’s as if they could see the future and didn’t like it.

  3. oldman says:

    This move by hp is not unsurprising. Like IBM before them they were faced with a desktop market in which they were no longer relevant, and they have now apparently decided that it is time to leave. The interesting thing is that with the apparent exit of hp/compaq from the desktop market the only first tier player left in the USA is Dell.

    Interesting times eh Pog?

  4. Richard Chapman says:

    Too much hardware has been finding a cozy little home for Linux lately. It sure would be a bummer for Microsoft if HP’s PC division went full bore GNU/Linux with, say, Canonical. Or something similar. The defections are beginning to mount up for Microsoft. They might just buy it to keep it out of the hands of the enemy. Now that would be interesting. I can see only two possible out comes if that were the case. It would be a total disaster or a fabulous success.

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