PALO ALTO, Calif. ( TheStreet) - New HP ( HPQ) CEO Meg Whitman's decision to keep the company's PC division has won plaudits on Wall Street, although analysts warn that there's plenty to do before the tech giant truly gets back on track. "This is the first major decision that new CEO Meg Whitman has made and, we believe, the correct one," explained Shaw Wu, an analyst at Sterne Agee, in a note. "The reality is that the PC business is an essential part of HP in running its overall business."
HP CEO Meg Whitman
HP's Personal Systems Group (PSG) accounts for around a third of the company's total revenue and, within enterprises, serves as a vital 'foot in the door', for the tech giant to sell additional technology. PCs are such a core part of HP's identity that getting rid of PSG would have been like disemboweling the company. The possible PC spinoff thus sent HP's shares into a tailspin when it was announced by former CEO Leo Apotheker earlier this year, and contributed greatly to his ouster last month. Sure, margins may be under pressure in the PC market, but the risk of extracting one of HP's vital organs was way too dangerous. "Meg Whitman's first strategic move as CEO is encouraging," added Bill Shope, an analyst at Goldman Sachs ( GS), in a note. "We have noted for some time that we felt that it would be difficult for HP to spinoff its PC business without having a negative impact on its Enterprise Storage, Servers and Networking (ESSN) segment -- HP has a tightly integrated supply chain across multiple divisions, and we believe a PC spinoff would have had negative impacts on the company's growth and cost structure." Still, though, Whitman has plenty of work to do getting HP back on track, not the least of which is repairing the damage done by the PC spinoff snafu. After a period of massive uncertainty, the CEO must now win hearts and minds amongst PC partners and customers. "We believe HP inflicted some unnecessary damage on itself by creating uncertainty with corporate buyers, channel partners and possibly consumers," explained Jayson Noland, an analyst at R.W. Baird. "We believe confidence will be restored over the next couple of quarters but not without some expense, for example, a large brand campaign, buyer concessions."