Maybe now the bleeding will stop. That’s what analysts view of yesterday’s decision by HP to backtrack on the proposed spin-off of PC business, announced by ex boss Leo Apotheker last August, to focus on software.
Click to enlarge
At August’s bombshell, HP also revealed it had forked out $11.7bn for British software giant Autonomy, which was part one of its ‘abandon the hardware ship strategy’ and dive into expanding its software business, which Apotheker branded a “bold action.”
The move “presents an opportunity to accelerate our strategic vision to profitably lead a large and growing space,” said CEO Apotheker, declared at the time.
But bold moves don’t always pay off apparently, with most shareholders, HP customers and staff alike against the move to abandon a business which is worth $40.7bn to the company, which is still No.1 PC maker by shipments.
And the U-turn announced yesterday confirmed what a potentially devastating decision it would have been for Palo Alto to lose its still profitable Personal Systems Group, costing it potentially billions of dollars.
“HP objectively evaluated the strategic, financial and operational impact of spinning off” the PC business, Meg Whitman HP CEO said in a statement yesterday.
Keeping the PSG group “is right for customers and partners, right for shareholders, and right for employees.”
Keeping the company together and building on its market sucess was the way forward in new CEO Whitman’s view.: “H-P is committed to PSG, and together we are stronger”.
Closer examination of options available “revealed the depth of the integration that has occurred across key operations such as supply chain, IT and procurement,” making it impossible to break up the hardware and services giant without major disruption.
“It slowly but surely became very clear that the math just wasn’t going to work on this one,” Cathie Lesjak, HP chief financial officer, revealed in an interview.
“It never made financial sense to spin the PC division out,” analyst Rob Enderle of the Enderle Group told MarketWatch, following the announcement yesterday.
“It probably would have ended up in a very unprofitable situation and Whitman was right to reverse the decision.”The move “should probably stop a lot of the bleeding.”And bleeding HP certainly was.
“It slowly but surely became very clear that the math just wasn’t going to work on this one,” Cathie Lesjak, HP chief financial officer, said in an interview.
Spinning off the business would have set Palo Alto back around $1.5 billion including loss of branding and reduced purchasing power.
CEO Leo Apotheker, was seen as incompetent and replaced by ex eBay CEO Meg Whitman, last month. Share prices tumbled 25% and Todd Bradley, HP’s PSG boss, was forced to go on a face saving global tour rallying employees and reassuring clients of HP’s position within the hardware industry.
“HP is flailing, causing more uncertainty and increasing the risk of doing business with it,” Carter Lusher, Ovum analyst noted in August.
In fact, it turned out Bradley, was unaware of the decision affecting his PSG until shortly before Apotheker announced the move to shareholders.