|HP CEO Meg Whitman|
PALO ALTO, Calif. ( TheStreet) -- If HP ( HPQ) decides to step back from spinning off its PC business new CEO Meg Whitman will have struck a blow for reason at the embattled tech giant. "There are indeed advantages to sticking with PCs," said Jay Chou, senior research analyst at IDC, in an email to TheStreet. "One of which is component buying power for things like processors and drives that power PCs and servers."
The no. 1 PC maker is reportedly rethinking the potential spinoff of its Personal Systems Group (PSG), according to the Wall Street Journal. Citing people familiar with the matter, the Journal said that new analysis within HP shows that the costs of a spinoff could outweigh the benefits. Tim Coulling, an analyst at Canalys agrees that a PC carve-out would significantly alter HP's relationship with companies such as Microsoft ( MSFT) and Intel ( INTC), who provide software and components for the firm's vast array of PCs and servers. Without the purchasing muscle offered by PCs, HP could take a big hit elsewhere in its business, he warned. "As a result of dropping PSG we would see their buying power with Microsoft and Intel diminish," he told TheStreet. "Their server pricing would go up." HP's possible PC spinoff, one of a host of strategic changes announced by the company's former CEO Leo Apotheker, proved unpopular with investors. Ultimately, the strategy contributed to Apotheker's recent ouster. New CEO Whitman, however, has promised to make some sense of this mess. HP had originally planned to make a decision on its PSG business by the end of this year, but the former eBay ( EBAY) CEO has vowed to speed the process up, and would like to make a decision by the end of the month. The Personal Systems Group, despite weighing down HP's margins, still contributes almost a third of the company's overall revenue, a fact which has not been lost on shareholders. HP's stock plunged when then CEO Apotheker announced his PSG plans in August, and the tech giant's shares are down more than 37% this year. The Palo Alto, Calif.-based company is keen to shift its focus away from low-margin PCs onto higher margin areas such as software and services, although this could mean disemboweling the company, spelling massive upheaval.
HP, it should also be noted, remains the PC market leader in terms of units shipped, revenue and profit. "Clearly there are shifts in the personal computing industry towards mobile and virtualization but HP's PC business is profitable," Gartner analyst Adrian O'Connell told TheStreet recently. "You look at its position in the market and it's the leading PC vendor." HP may also be acknowledging that a PC carve-out would wreck the company's culture, according to Allen Nogee, an analyst at In-Stat "HP has been kind of known as a PC manufacturer, they are probably fearing that they will lose their identity," he told TheStreet. HP's stock dipped 18 cents, or 0.69%, to $25.74 on Wednesday. -- Written by James Rogers in New York.
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