HP's decision to keep its Personal Systems Group business may have saved the company's supply chain by giving it the clout needed to weather the coming hard drive shortage caused by the massive Thailand floods.
By keeping its PSG business, which accounts for sales of over 60 million PCs a year, HP can take advantage of long-term relationships and scale to overcome expected flood-induced issues causing a huge slowdown in hard drive and drive component shipments, said HP President and CEO Margaret "Meg" Whitman.
"We benefit from not only our scale but our long-term relationships," Whitman said. "We've been doing business with these suppliers for many, many, many years. And I think that's gonna help us get our fair share, or maybe even more, of the disk drives that are clearly gonna be in short supply in Q1, no question about it."
Whitman was speaking Thursday at a press conference called shortly after HP unveiled its decision to keep its Personal Systems Group as a part of the company instead of selling it or spinning it out as a separate company.
That decision ended two months of speculation about the company's plans for its PC business.
It also comes just in time to help HP in its scramble to have adequate supplies of hard drives in the face of record flooding in Thailand caused by larger-than-normal monsoons.
Those floods have inundated Western Digital hard drive factories as well as factories supplying key components to other hard drive manufacturers, causing a major disruption to the world's storage market.
Whitman said that PSG contributes significantly to HP's supply chain, component pricing, distribution channel, and solutions portfolio.
"We also gain a lot from our shared infrastructure," she said. "In a separation, we'd lose many of the strategic and financial advantages that we've achieved over the years, like consolidating areas like real estate, finance, HR (human resources), and IT."
Cathie Lesjak, executive vice president and CFO, echoed Whitman's statements by saying there is a real value in the combination of HP and PSG.
"We have significant supply chain and procurement leverage from the combination of Enterprise Server Storage and Networking (ESSN) and PSG," Lesjak said. "As you know, we are one of the largest purchasers of components worldwide. We ship two PCs every second, and a server about every 15 seconds. This scale helps our gross margins for both PSG and Enterprise Server Storage and Networking."
Todd Bradley, executive vice president of HP's PSG, said HP is engaged with its hard drive vendors to both ensure supplies and to off them any needed help.
For HP, keeping PSG is a key part of ensuring a steady supply of hard drives, Bradley said.
"I think this is a real-life example of what validates the decision to keep our businesses together," he said. "Our ability to leverage our scale, our capabilities to drive the right solution for our customers through tragedies like this is a huge piece of what makes HP as great as it is. We're working this every day. I think Meg and I and our supply chain guys have talked to every hard drive supplier in the past week (to offer) them our help and condolences, and at the same time to get as much surety as we can on supply."