HP's Metamorphosis: 5 Winners & Losers

Microsoft analyst comment has been added to this story.

PALO ALTO, Calif. ( TheStreet) -- The shock waves from HP's ( HPQ) massive corporate restructuring are reverberating around Silicon Valley.

By looking to spin off its PC business, ditching its WebOS hardware and shifting its focus firmly away from consumers, HP's bold moves could have a major impact on a host of tech heavyweights.

HP's PC buddies such as Microsoft ( MSFT) and Intel ( INTC) and rivals like Dell ( DELL), IBM ( IBM), Cisco ( CSCO) and Research In Motion ( RIMM) will all be watching the company's shape-shift with great interest. For most, this could spell new revenue opportunities.


The bit of good for the Windows purveyor: The decision to ditch WebOS hardware removes a pile of non-Microsoft software-running consumer devices from the market.

The bad: HP's spinoff plans reflect a stagnating PC market, which has always been key to rolling out yet another successful Windows OS refresh cycle. A bad scenario for Microsoft would be if HP's PC unit gets picked up a company that would shift its focus away from Windows. HP, after all, is the largest PC player in the world.

Any number of companies could potentially grab HP's PC operation. Asian giants Acer, Toshiba, Samsung and Lenovo, which bought IBM's computer business in 2005, could be acquirers. Then there's Google -- what if Google decided that it wanted to further stake its claim in the gadget market? Far-fetched though it may be, a Google deal would pose a big challenge to Microsoft.

The weakening PC market also ups the pressure on Microsoft's yet-to-be-launched Windows 8, the mobile device platform that faces two heavily-entrenched market leaders: Apple's iOS and Google's ( GOOG) Android.

" Microsoft has already bet the company on Windows 8," said Al Hilwa, a software analyst at IDC. "With Windows 8, Microsoft is trying to pull its PC OS into the mobile world."

And as Hilwa points out, a weakening PC market isn't necessarily new news to Microsoft. "To be honest, this is much more positive than negative for Microsoft ," he said, adding that HP's move away from PCs partly validates Microsoft's partnership with Nokia ( NOK) in the growing smartphone space. " HP's decision doesn't tell Microsoft anything about the PC market that they didn't know."


Dell, of course, is most obvious beneficiary of the HP spinoff. As the No. 2 PC maker, Dell is expected to capitalize on the uncertainty that now surrounds HP's vast computer business and increase its footprint even further.

"We expect HP's Personal Systems Group to lose market share to Dell and others as the decision-making process is expected to take 12-18 months," said Jayson Noland, an analyst at Robert W. Baird, in a note released on Friday.


Cisco, HP's partner-turned-rival, also stands to benefit from the PC upheaval in Palo Alto. HP's vast PC installed base has helped the firm sell additional products into enterprises, a useful weapon as it ramped up sales of its competitively-priced networking gear against Cisco.

"The company has noted that the supply-side scale provided by the division was a critical competitive advantage for other hardware categories," said Goldman Sachs analyst Bill Shope, in a note. "Therefore, a spinoff may bring some operational challenges that may not be immediately obvious."


Expect IBM, the behemoth that turned from consumer to enterprise more than a decade ago, to increase the pressure on its server and services rival while HP gets out of its consumer businesses. IBM is already entrenched in many of the areas HP expects to grow.

IBM has already made inroads into the lucrative cloud computing market, where it expects to generate around $7 billion of revenue by 2015. HP, whose CEO has said cloud represents an important front for the company, is just getting started there.

HP's second-quarter software revenue, despite growing 20% year-over-year, accounted for just over 2% of the company's total sales. IBM's software sales, in contrast, made up almost a quarter of its total revenue during the company's recent fiscal second quarter.


Troubled handset maker Research In Motion, which is no stranger to execution problems, at least has one less tablet and smartphone rival to worry about. Now it can to focus all its attention on making gains on Apple, whose iPad leads the tablet and whose iPhone recently surpassed RIM in smartphone market share.

Shares of RIM, which is said to be exploring the launch of a new streaming music service, were up 5.98% at one point in Friday's trading, far outpacing the modest uptick in tech stocks that drove the Nasdaq up 0.24%.

--Written by James Rogers in New York.

>To follow the writer on Twitter, go to http://twitter.com/jamesjrogers.

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