HP Chairman Wants PC Business Spinoff To Carry HP Name4:20 PM EST Wed. Sep. 14, 2011
Ray Lane, chairman of Hewlett-Packard, said HP's PC business will likely be spun out as a separate company and that he is lobbying for it to carry on the HP brand.
"(It's) the largest, most profitable (PC) business in the world," he said in comments made at the InformationWeek 500 conference this week in Dana Point, Calif. "I am lobbying, and I don't have to lobby very hard, to call it the HP PC Business. Call it HP. It will be a sister company. Just like Agilent was a very close company with HP when we spun it out. That was very good for customers. It was very good for shareholders. Agilent was a better business once spun off, because it was a very different business from what the rest of HP was doing."
However, Lane said, nothing has been finalized. "If we don't make that decision, it's because of two things: We can't offer a better proposition to customers and investors," he said. "If we can't, it stays inside HP."
Lane also admitted that HP did a poor job of communicating its goals for restructuring its Personal Systems Group (PSG), which includes HP's PC business and would be the actual organization spun out.
Lane made his comments in response to questions from Fritz Nelson, senior vice president and editorial director of InformationWeek. InformationWeek is a sister publication of CRN.
Lane's comments come in the wake of last month's announcement by HP that it is considering options for PSG, including the possibility of spinning it out as a separate company.
Lane said that in his view, HP's PC business will be better as a separate business.
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Keeping the "HP" brand in whatever is done with PSG is important to partners and customers, said Rick Chernick, CEO of Camera Corner Connecting Point, a Green Bay, Wisc.-based solution provider and long-term HP partner.
There's a lot of unknowns about HP's plans for PSG, including whether it will have a separate Board of Directors or how it will be structured financially, Chernick said. But the one question that most impacts customers' buying decisions is the name, he said.
"It still has to carry the HP name, in my opinion," he said. "The customers want to see the HP name. The name change is 50 percent of the issue. What else are you going to call it?"
Ideally, PSG will remain a part of HP, Chernick said. "But HP as the name of a separate company is a good alternative. I can't imagine it as 'XYZ' company."
Kris Rogers, executive vice president of sales for PC Mall, one of HP's largest PSG partners, said the $1.36 billion solution provider, said she sees the HP brand as "invaluable" in a PSG spinoff. "I would be bummed if they don't keep it," she said.
Rogers said has not seen any material fall off in sales since HP signaled it was interested in spinning off the PC business.
"We have not experienced customers pulling back or switching to other vendors because of the PSG announcement," she said. "It doesn’t appear to have changed customer buying behavior and sales have not materially been affected. We see no reason why we will not have a solid quarter with HP PSG . Our focus is full speed ahead with PSG. It is the largest part of our HP business."
Rogers said she has been heartened by an HP Smart Buy program that was launched several weeks ago on select PSG products. That program was ratcheted up, she said, with new financial incentives. "That is a very strong go to market proposition for us," she said of the renewed Smart Buy offensive.
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Lane's comments echo statements made by HP Executive Vice President of PSG Todd Bradley in an exclusive interview with CRN.
"What is going to happen soon as we complete this process is the largest PC company that is a division of the largest IT company will be a stand-alone, publicly held largest PC company in the world, over $40 billion in revenue, over $2 billion in operating profit, operations in over 170 countries," said Bradley discussing the future of the PC business. "The same people that built that huge division are going to now build an even bigger and better PC company standing on its own."
Lane said that even a month later HP's objectives are still not understood by the industry.
What HP announced is a recognition that the PC business, which Lane described as the packaging Windows on Intel technologies, is very different from HP's enterprise server, storage, networking, services, and software business, Lane said.
"They are very, very different business models," he said. "They move at different velocities. One is pretty much a commodity business, again, packaging Windows, and the other is not a commodity business. And (HP) needs to move more towards the world of information management, which requires software and services."
HP actually announced that it would consider the possibility of spinning its PC division out as a separate company, Lane said.
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Such a move would provide two benefits to HP, said Lane. The first benefit is to give the PC business the ability to work with its own business model, he said.
"(It could) do what it needs to do to serve customers and serve investors, without moving at the pace or cadence that HP was moving on the enterprise information side," he said.
The second benefit would be to for investors, who Lane said are looking for cash flow in the form of dividends and stock buybacks but not in the form of innovation.
"I think when you look at a technology company, everybody assumes that investors want you to continue to innovate," he said. "But there are a lot of investors that don't want that. A lot of investors are in HP for the cash flows, in HP for the returns of those cash flows to stockholders, and actually don't like big innovative steps."
The PC business produces tremendous cash flows, but with low profitability, Lane said.
"But it's the biggest PC business in the world by far, and it is the most profitable by far," he said. "But still, in the context of HP, it delivers $2 billion profit per year on a $41 billion business plan. So these are clearly becoming two different businesses. And we think these businesses should be looked at separately. And, if warranted, and we just don't know yet, if warranted, spun out."
Unfortunately for HP, it had to make some sort of announcement to prevent even more confusion later, Lane said.
"If you do all the work to determine whether it's viable to spin out before (you spin it out), we end up with a leak," he said. "We can't afford to have hundreds of people working on a project without some kind of leak, and then we're having to explain it to the press anyway. So we thought it best that we go out and explain that we are going to look at this option for the benefit of that business model, the customers, and the investors."
Additional reporting by Steve Burke