Channel community sticking with HP’s PSG. For now

Published: August 19th, 2011

The news Thursday that Hewlett-Packard Co. (NYSE: HPQ) will explore either a sale or spinoff of its personal systems group (PSG) is being taken in stride by the channel, but the decision to dump the WebOS tablets and smartphones just a year after the US$1.2 billion acquisition of Palm Inc., is raising some eyebrows.

The obvious model to look to is when IBM Corp. sold its PC business to Chinese vendor Lenovo to focus on its higher margin services business. James Alexander, senior vice-president with London, Ont.-based Info-Tech Research Group, called HP’s decision to move out of the low-margin PC business a “pretty courageous move” reminiscent of when Intel’s Andy Grove and Gordon Moore dumping the RAM memory business when they realized they couldn’t make money at it anymore.

“I think it’s a good move, and not just because the economy is tanking and it sidesteps having to explain why the financial results won’t be there,” said Alexander. “With the whole bring your own device trend and the consumerization of IT, the PC is going the way of the consumer and it’s the consumer companies that make millions of devices a year that have the distribution and manufacturing resources to exploit that as it continues to commoditize.”

While he was said he was as shocked by the news as everyone else, Rick Reid, president of distributor Tech Data Canada, said in hindsight it makes sense for HP to decide the competitive PC business with its single-digit margins doesn’t fit well with the rest of its high-margin software and services business.

“It makes IBM’s move of five years ago look incredibly astute, and I’m not sure HP will be as fortunate (making a profit on the sale),” said Reid.

However, whether the unit is spun off or sold to a competitor like Lenovo or Acer, he said while the market has taken a hit from the rise of the tablet, PCs will remain an important part of the commercial business for the channel and a big part of what Tech Data does.

In the short term, Alexander said it’s disappointing for partners because they’d come to rely on HP as one-stop shop they could partner with across a broad portfolio of hardware, software and services for their mid-market customers. That will soon change, but he said looking back to IBM’s sale of its PC business to Lenovo while it took a couple of years for Lenovo to get its act together, today Lenovo has a simple and successful business model that partners are successfully executing against.

“And within HP, PSG operated as a distinct business unit from the enterprise division, under the same umbrella partner program but with different incentives and components for different groups,” said Alexander. “Partners have had to deal with the complexity of three different programs within one vendor in the past anyway.”

David Reid, president of Winnipeg-based HP partner Epic Information Solutions, one of CDN’s Top 100 Solution Providers, agreed PSG has always been a little bit on its own within HP but, as a partner that moves a lot of HP PCs he liked having it all under the same umbrella.

“I’ve enjoyed having that aspect of HP within HP, one manufacturer to go to for soup and nuts, and it would be disappointing to see it spun off or acquired,” said Reid.

While there were some individual aspects to the partner programs, he said it was still one framework for all product lines. HP has operated its ProCurve networking operation as a separate HP business, and Reid said he found them a bit “odd” to work with at times.

“If they spun PSG off and completely separated it we would be analyzing our options in terms of preferred vendors for desktops and laptops,” said Reid.

In the interim though, Reid said its business a usual and clients shouldn’t have any concerns around what will happen, with the Lenovo example providing a likely scenario for how it could play out.

Dumping WebOS

The more surprising move to some is the decision to drop hardware plans for WebOS and put the future of the software itself into limbo. Alexander said he’s disappointed, because he saw a lot of promise around WebOS enabling a new platform of devices.

“It’s a shame,” said Alexander. “It seemed they had all the building-blocks of a good strategy across a variety of form factors.”

Epic’s Reid said he was also quite excited about the TouchPad product and WebOS, calling HP’s decision to kill it a “real shocker” to Epic. He speculates HP could have had legal concerns around the product, and may have decided just to cut its loses instead of fight a lawsuit.

“To just shut it down; there must me more to it than just what [HP] said,” said Reid.

Follow Jeff Jedras on Twitter: @JeffJedrasCDN.


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