Former Apple Exec Calls Out HP Over Its 'PC Addiction'

Hewlett-Packard CEO Meg Whitman's decision not to sell or spin off its PC business may not have been such a shrewd move, according to Jean-Louis Gassée, a former Apple and HP executive and current Silicon Valley venture capitalist.

In a Monday blog post, Gassée said the weak fiscal first quarter results turned in by HP's Personal Systems Group, and HP's lack of a mobile market presence, have put the company in a position where its biggest business is also its least profitable.

"HP has failed to gain any presence in tablets and smartphones, and now finds itself the biggest player in a market that's in a race to the bottom," Gassée said in the blog post.

In Q1, HP's PSG revenue fell 15 percent year over year, as PC sales to businesses dipped 7 percent and sales to consumers dropped 25 percent. Whitman chalked this up to supply chain issues in China and Thailand, where last year's flooding is still putting a crimp on hard drive availability, and to HP's lack of PSG-focused R&D spending in recent years.

The supply chain issues are puzzling because, as Whitman explained last October, PSG is a major factor driving HP's supply chain efficiencies and component pricing, and without it HP would stand to lose around $1 billion in annual operating profit.

Still, HP partners said keeping PSG in-house makes it easier to do business with the company and to sell solutions that include products from across the HP portfolio.

"I am very glad they are still in the PC business," said Arlin Sorensen, CEO of Heartland Technology Solutions, a top HP Midwest partner. "It may not be the cash cow it once was, but notebooks and desktops will have life for a very long time."

Though its profitability is dwindling, HP's PC business serves as a cornerstone for the rest of its businesses, said Daniel Duffy, CEO of Valley Network Solutions, a Fresno, Calif.-based HP partner. "If the PC business were removed today, without something else just as large and viable to replace it, I believe it'd have a domino effect on the rest of the company," he said.

Added Duffy: "Chasing Apple or Google isn't the solution. HP needs to define their own game. They need to do what they've always been good at and reinvest in R&D, and allow their most creative people to do what they do well and innovate."

In HP's Q1 earnings earlier this month, Whitman suggested that HP must cut costs internally before it can start thinking long term investments, and that the process of fixing the current issues could take years to complete. In the meantime, Gassée thinks that ex-CEO Leo Apotheker had the right idea in seeking to unload PSG.

"I still think HPs initial intuition was right, that the PC business, as driven by Microsoft and Intel, will increasingly become a race to the bottom with the two Wintel allies sucking all the profits," Gassée said in the blog post.