Tuesday, August 23, 2011

The HP Way

HP’s decision to sell or spin off its PC division could turn out to be a big mistake. The rationale behind the decision seems to be that PCs, while profitable, generate smaller margins than other HP businesses. This change in strategic focus was probably going to happen sooner or later, but it still startled some investors (HP’s stock dipped 20% after the announcement). The change, which mirrors IBM’s exit from the PC business a few years ago, was foreshadowed last year when the board of HP chose Leo Apotheker as Mark Hurd’s successor as CEO. Leo Apotheker seemed like an odd pick at the time: He had worked at SAP, the large German business software maker, for over twenty years and had recently been fired after a brief stint as CEO. There is no doubt that there is a lot of money in creating and servicing IT infrastructures for corporations (the areas that HP wants to focus on), but there is no guarantee that HP can thrive in this area. HP will be going up against two stalwart industry giants: IBM and Oracle. HP has, however, increased its chances of success by agreeing to purchase Autonomy Corp, a British firm specializing in gathering, organizing, and analyzing internal corporate data.

Instead of drastically changing course, HP, in my opinion, should have taken the lead that they held in personal computing and used that lead as a foundation to build the next generation of personal computers. Apple has shown that computers and tablets can be enormously profitable if they are built in a consumer centric fashion and marketed appropriately. HP gave up on their mobile platform and their tablet computer, areas of the business that had been championed by Hurd, before they had time to connect with consumers. The HP board must now be looking at the lagging stock price and wondering why they allowed Hurd to leave at all.