Michael Dell: HP PC Spin Off Would Mean Price Increases On HP Servers

Cisco Systems isn't the only vendor warning that Hewlett Packard will be forced to raise prices if HP spins off the PC business.

Dell CEO Michael Dell Tuesday told Oracle OpenWorld conference attendees that if HP moves ahead with a PC spinoff that price increases on other HP products such as industry standard servers would be inevitable.

"The client business provides really enormous scale and if you give up that scale you go from being one of the largest buyers in the world of those components to not really being in the top five or perhaps even the top 10," said Dell. "That is a huge problem. It means the price of those products has to be raised."

Dell said price increases would be inevitable given that 95 percent of all the disk drives, processors and memory in the world go in PCs with the remaining five percent going into other hardware offerings including servers and storage.

Dell's comments mirror the strategic analysis in a hard-hitting internal memo from Cisco that maintains an HP PC spinoff would result in "lower gross profits, price increases" and a weakened brand that will make it difficult for HP to compete in its remaining hardware businesses.

HP has said that its "board of directors has authorized the evaluation of strategic alternatives for its Personal Systems Group (PSG), including the exploration of the separation of its PC business into a separate company through a spin-off or other transaction."

HP had not commented on the Dell comments at press time. But Todd Bradley, the executive vice president of HP's $40 billion Personal Systems Group (PSG), has urged the HP board of directors to move quickly to make a decision on whether or not to spin off the PC business to remove the uncertainty that has caused "ripples" across the HP business.

New HP CEO Meg Whitman has promised to get to a decision as soon as possible. "The best thing we can do is to get to a decision on PSG as fast as possible," said Whitman in her first call with financial analysts and investors on September 22. "This decision is not like fine wine. It is not going to get better with age. We have got to do the analysis, get to the decision and then tell our customers and the market what it is we are going to do."

Next: Dell Takes A Page From Former HP CEO Mark Hurd's Playbook

Dell did not mention HP by name, but he left little doubt that was who he was referring to when he noted that not every company is committed to the PC business. "It seems these days not everyone is so totally committed (to the PC business)," he said. "You can guess who I am talking about. They used to say that the computer is personal again. I guess you might take that personally if you had bought some PCs from them."

Dell also took a page from former HP CEO and current Oracle President Mark Hurd's playbook at HP, emphasizing Dell's footprint as a complete end-to-end provider of IT solutions from the client to the data center.

"Dell is not a PC company," he said. "Dell is an end-to-end solutions company that understands that the (client system) end point is a huge part of the solution. Servers are a part of it. Storage is a part of it. Networking is part of it. Security, services and client (systems) are all integral parts of the solution."

Dell said one of the benefits of having client systems is an ability to "deliver an entire solution so you can optimize everything with services end to end."

Hurd, the one-time HP CEO and now Oracle President, introduced Michael Dell to the thousands of OracleWorld attendees. "Dell is a great customer of Oracle," said Hurd. "They have been a great partner for over 20 years. Michael is going to talk to you about the value of solutions and still greatly values the client as part of those solutions that they bring to market."

Hurd singled out Dell as "a great company to work with, a company we are going to be doing more with as the years go on. We deeply value their access to emerging markets and small and medium business in this country and others."