HP: The Wrong Decision?

I think everyone on the Street is relieved that Hewlett-Packard came to a quick decision on its internal debate on whether t0 keep its personal computer business. (In case you missed it, they’re going to keep it.) So was it the right call?

First announced in August by former CEO Leo Apotheker, the process of deciding what to do with the PC business was originally projected to take 12-18 months. So badly was that call received on the Street that it sealed Apotheker’s fate. While there was plenty of debate at the time of the announcement as to whether selling the PC business was a good idea, the idea that it could take a year or more to decide was widely viewed as a value destroying nightmare. The CEO of one large Valley company told me that his IT department simply stopped buying HP PCs while it was deciding if HP still wanted to be in the business.

Now the question is not when they will decide – but whether they came to the right conclusion.

Ticonderoga Securities analyst Brian White assets that they should have gone the other way.

“We believe HP has made the wrong decision as the PC industry is a challenging market with the lowest margin profile in the HP portfolio,” he writes in a research note this afternoon. “We believe the company would do better for shareholders to focus its efforts on enterprise initiatives that play into secular trends in the data center such as cloud computing. We don’t view this decision positively for HP, while the market is likely to view this negatively for Dell as the uncertainty around HP’s PC business has been removed.”

White notes that on a call with the Street this afternoon the company points to three key takeaways for keeping the business:

• Financial value created.
• Avoidance of $1.5 billion in upfront costs for a spin off.
• The business can stay under the HP umbrella.

“In our view, you cannot be everything to everyone,” White writes. “We believe HP’s time and capital is better spent investing in the higher margin enterprise strategy with a focus on cloud computing and a stronger software strategy. We point to IBM’s decision to cut loose its PC business in 2005 that we believe set the stage for the company to focus on the enterprise market that has positioned the company very well to take advantage of the shift into the cloud.”

Investors appear mildly pleased; HP shares in late trading are up 9 cents, or 0.3%, to $27.08.

Eric Savitz - Forbes