Selling HP’s PC business may not be easy

Now that the whole world knows HP intends to rid itself of its PC business, the small matter of actually finding a buyer for that business unit may prove to be rather difficult, according to a story at ComputerWorld. The major hurdles include the fact that HP’s Personal Systems Group (PSG) is large enough to be rather valuable—with revenues of $9.5 billion in Q3 2011—yet its margins, and thus profits, are small.

Against that backdrop, finding an appropriate buyer for PSG could be tough. ComputerWorld spoke to analysts who ruled out some obvious potential candidates for sound reasons: "Dell will likely have no interest as it is moving away from the consumer PC market to focus on enterprises, and Acer is cash-strapped and losing market share." Lenovo is cited as a possible candidate, and it has done this dance before with IBM. Still, the list of potential buyers isn’t a long one.

Another possibility that could be simpler is a spin-off, in which PSG is rolled into a separate company and left to fend for itself. That route may be cleaner and easier, although HP wouldn’t get the immediate cash that it would from selling PSG.

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    • albundy
    • 8 years ago

    anyone get in on those HP tablets going for $99?

      • dpaus
      • 8 years ago

      Most people who I know to have tried found them to be sold out. If true, that’s pretty damn impressive sales: over 380,000 in 48 hours. Well, at least there’s a base of over 750,000 of them to support any developers who [i<]do[/i<] put together any apps for them... In the case of Best Buy, most of them seem to have been snapped up by employees before they were even available to the public.

    • phileasfogg
    • 8 years ago

    it’s very revealing to compare the market caps of ORCL (where Mark Hurd is now co-President with Safra Catz) and HPQ.

    ORCL – revenue $36B, cap $125.5B
    HPQ – rev $127B, cap $49B

    The BoD of HPQ has a lot to answer for and to be ashamed of. It’s steered the company from one wrong turn to another. Little wonder that Larry Ellison referred to them as idiots. And then, in a move that only they could pull off, they bring in Patricia Russo, former CEO of Lucent, to join them on the board. Bravo HPQ, bravo!

    • dpaus
    • 8 years ago

    Let’s see…
    [list<] [*<]first, HP buys Palm for $1.8bn (actually, $1.2bn and then some directly-related expenses bring it up to $1.8bn) [/*<][*<]then, HP makes approx $5.1bn in 'support' acquisitions (music services, video libraries, cloud services, etc.) [/*<][*<]then, HP spends $0.6bn with TV and print advertising for the Veer and TouchPad [/*<][*<][i<]then[/i<], HP discovers that it's going to take another 'several hundred million dollars' {source: earnings call} to achieve tenable position in tablet market. Hmm, spend another $0.7bn to get value out of $7.5bn investment? Obvious solution: pull plug, burn bridges, walk away. [/*<][*<]at the same time, HP's CEO decides he wants HP to be more like SAP. Oh, did I mention that HP's current CEO is the former CEO of SAP? And that he was turfed from SAP for diminishing shareholder value? [/*<][*<]so, HP announces that it's going to buy a software company that sorts e-mails for $10.4bn - approx 35x earnings. Analysts estimate value of company at about $4bn [/*<][*<]the market responds by selling HP stock like it was bubonic plague. Drops 22.6% and still falling... [/*<][*<]Estimated value wiped out in 48 hours on stock alone: $13.9bn [/*<][*<]Estimated value lost in Palm acquisition (so far): $7.5bn [/*<][*<]Estimated value pissed away on 'Autonomy' purchase: $10.4bn [/*<][*<][b<]Total amount of money wasted: $31.8bn[/b<] [/*<][*<]Likely cost of inevitable shareholder lawsuits: unknown [/*<][*<]Value of lost reputation, lost opportunities, etc.... Priceless[/*<] [/list<] You know, I just don't remember covering this method of management in my MBA classes.... Must have been one of the classes I skipped. many EDITS: just can't get some tags to work...

      • Decelerate
      • 8 years ago

      Indeed.

      The funny thing is that their TouchPad ads are still running…

        • dpaus
        • 8 years ago

        That level of advertising is purchased in bulk and well in advance – unfortunately, you can’t just turn it off like a tap without spending a lot more, which they’re obviously not willing to do. On the plus side, the TouchPads are now selling like hotcakes.

      • PeterD
      • 8 years ago

      You forgot to mention that it all actually started when HP bought Compaq.
      So it’s much worse.
      I can’t image lots of people will be confided to buy something from HP in the next few months. I am not. And I had a Compaq and a HP-Compaq

        • phileasfogg
        • 8 years ago

        did you mean ‘confident’ rather than ‘confided’? and ‘imagine’ versus ‘image’?

          • PeterD
          • 8 years ago

          confused + confident

      • jpostel
      • 8 years ago

      My standing prediction is that Leo Apotheker is gone in 12 months.

      The trick with transforming from a hardware company into a big software sales and services company is that it might take years to tell if it worked. Judging by stock value alone, it took IBM 2 years to get back to where it was after the sale to Lenovo. And add to that the fact that the stock drop for IBM was not anywhere near as bad in the short term as it is for HP. If HP’s software and services groups don’t post big number in Q42011, I would be shocked if heads didn’t roll.

        • PeterD
        • 8 years ago

        IBM didn’t do it.
        They’re still in mainframes, and they never really believed in pc’s.

      • shank15217
      • 8 years ago

      This is the ‘talent’ that the industry talks about when referring to the high wage earning CEOs who actually make bad to horrible business decisions then move to another company to do the same. It also seems like no one is up to task taking on Apple and all they had to do is just emulate it instead of having a massive and confusing consumer product line.

    • trackerben
    • 8 years ago

    Looking back on events, it seems HP has an opportunistic response to Motorola and other M&A deals. Google may be retreating to a hardware-software model to defend its market foothold and so its Android partners see the need to consolidate around viable platforms which are less subject to uncertain litigation and owner perfidy. Of which there are only three – iOS, which remains closed, WinPhone, which will acquire the same issues as Android if Microsoft gains Nokia, and either Intel/Meego or HP/Palm.

    Intel could use Palm to buff up Meego’s IP base, but this does nothing for its x86 everywhere strategy. It’s more likely that HP is being courted to setup Android-like open licensing by consortiums of mobile wannabes seeking an alternative to Google’s scheme. Perhaps Asus+Acer+Lenovo+Huawei, or Toshiba+IBM, or even Sony+Philips+Alcatel. HP could be expected to be asked to cede its position in the PC markets in return for being the new Microsoft at the center of this possible bright future. Giving up PCs is doable since HP sources mostly OEM business anyway and its PC business is not anchored on huge industrial or profit bases. In a industry nearing sunset, Chinese manufacturing may have the long-run national edge in extracting diminishing margins anyway. The PROC encourages the evolution of Chinese-controlled mobile OS for sensitive military and industrial apps, and IIRC much WebOS precursor development was done by Chinese anyway.

    • kmieciu
    • 8 years ago

    Canonical would buy it giving Ubuntu a boost 😀

    • NeelyCam
    • 8 years ago

    Charlie said Samsung. So it’s Samsung.

      • dpaus
      • 8 years ago

      I’m mortified by this, but I have to agree with him this time.

      • mutarasector
      • 8 years ago

      I thought the same thing. Samsung might be a candidate, although on thinking about it some more, I’m not so certain. Samsung certainly doesn’t need webOS as it already has Bada, so unless some significant patent IP comes along with webOS, I don’t see how it really benefits them.

      PSG’s PC business might be attractive to Samsung, but just what that business gets them besides assuming a lot of liability (not to mention the cost of HP’s massive notebook battery recall), one has to wonder if Samsung really wants that headache or not.

      Personally, i tend to think the company most likely to benefit from buying HP’s PC business would more than likely be >Asus<, especially since Asus has been reinventing themselves in an Apple-esq manor the past few years as a CE company. They might even be interested in webOS as a hip-pocket hedge against Googlerola, although Asus has never been a strong software company.

      No matter how one slices it, webOS appears headed towards being a red-headed stepchild, with one possible exception as I see it. I’ve mentioned something like this before, but RIM purchasing webOS is one interesting possibility – assuming RIM itself can survive much longer, that is.

        • dpaus
        • 8 years ago

        I don’t think the RIM option is viable; if RIM can’t even get a native e-mail client running on the PlayBook after 7 months, I really can’t see them doing the the Frankenstein thing with WebOS’s API layer grafted onto a QNX foundation (as cool as the thought is…)

    • albundy
    • 8 years ago

    I guess the last one standing is Dell. I wonder how many jobs this is gonna cost, not that it matters to the execs.

    • Thresher
    • 8 years ago

    Assuming it’s not spun off as a separate company, I could see ACER loving this. While they already have Gateway, I think HP would be a great addition. It would give them a more prominent player in the market.

    • Game_boy
    • 8 years ago

    A spinoff WOULD earn immediate money. They sell shares in the new company to the public at a price totalling the value they want to sell it at.

    • just brew it!
    • 8 years ago

    How about Asus? I don’t think they’re big enough to buy HP PSG outright, but they’re *pretty* big, and IIRC supply a lot of HP’s motherboards. Maybe HP could form a joint venture with Asus, with the eventual goal of spinning it off completely.

      • mutarasector
      • 8 years ago

      I thought the same thing, and mentioned it upthread. Asus may not be as big as HP, but that would not preclude the possibility assuming Asus is even interested in HP’s PC business. A deal could be fashioned in a “Tramiel-esq” fashion. Just as Jack Tramiel bought Atari from Warner after Commodore nearly destroyed them in the early home computer wars, and after leaving C=, he got the money to do so from Warner in a stock swap. Asus could do the same thing also and buy HP’s hardware business by getting HP to go for a stock swap to swing the deal.

      The upshot would be that Asus could rapidly expand its smartphone line, and have HP as something of a partner with a vested interest in supporting Asus on the software side, possibly with webOS development, and Asus doing what it does best as a core competency – namely, hardware.

      The upside for HP is that they could quickly shed the current liability it has, including that massive ongoing notebook battery recall expense.

      In terms of jobs lost, I don’t see this as a major loss as the manufacturing is already offshore anyway.

      The more I think about it, I even like the thought of this scenario panning out.

    • BobbinThreadbare
    • 8 years ago

    I was thinking about this when the announcement first came out.

    Anyone with the cash to buy HP’s PC business could just start their own business of selling PCs if they wanted to. So the only reason to buy it is for the HP name.

      • 5150
      • 8 years ago

      …which they probably wouldn’t get.

      • Geistbar
      • 8 years ago

      The big issue I would think would be acquiring all the contracts that HP has right now. Any business, school, or organization that gets their computers replaced through HP would just have all of that transfer over to the new owner. I doubt many of those customers would jump ship, except in the most tumultuous of transfers. This would be a rather significant deal for any company wishing to break into the market (if anybody actually wants to break into such a low margin field) or expand their market share.

      They would also likely acquire (or get royalty free licensing) for any patents involved in the operations of the PC business. I doubt that is too significant a bonus, but it is important to remember that there are benefits to buying companies already in a market, if you actually want to join it.

      As for the name, I would expect something similar to how it worked with IBM & Lenovo: a temporary ability to use the name. Just long enough to rebrand the products under the new owner’s name.

      • Game_boy
      • 8 years ago

      Unless they give up hp.com, the new company will lose most of its customers who want an HP PC.

    • wira020
    • 8 years ago

    What about Apple?….. lol

      • codedivine
      • 8 years ago

      Given the market cap drop of HP, Apple indeed has enough cash to buy the whole of HP.

        • derFunkenstein
        • 8 years ago

        right, but it goes back to the low margins thing – Apple won’t touch something like that, I don’t think.

      • Decelerate
      • 8 years ago

      They wouldn’t touch it with a 10″ pole.

        • BLToday
        • 8 years ago

        You mean they wouldn’t touch it with a 10″ iPad.

        • shank15217
        • 8 years ago

        Apple would rather just hire the talent from that group and be done with it and I bet you they are scalping the talent right about now.

    • codedivine
    • 8 years ago

    More likely to be spun-off. I dont think anyone would risk buying a unit that large.

      • PeterD
      • 8 years ago

      Except maybe for the Chinese.

    • BiffStroganoffsky
    • 8 years ago

    Just roll it off and call it…Compaq.

      • jpostel
      • 8 years ago

      Best idea I have seen yet.

    • 5150
    • 8 years ago

    JUST DIE!!

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