The PC division contributes to HP’s long-term relationship with customers, the company says

No sale or spinoff: HP is keeping its Personal Systems Group

Hewlett-Packard Co. (NYSE: HPQ) has decided to keep its PC division after the company talked in recent weeks about spinning it off.

HP on Thursday announced that its Personal Systems Group (PSG), which deals in PCs, smartphones and tablets, will stay with the company.

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Keeping PSG within HP is “right for customers and partners, right for shareholders, and right for employees,” Meg Whitman, HP’s president and CEO, said in a statement.

HP conducted a strategic review of the group before deciding to keep it, the company said in a press release. HP decided that PSG is a key component of HP’s efforts to create long-term relationships with consumers, including businesses, the company said.

Under former CEO Leo Apotheker, HP in mid-August said it would explore the sale or spinoff of the PSG. For HP, a slowdown in PC sales and its razor-thin margins became a drag as the company emphasized more profitable business areas such as enterprise software, services and hardware. HP also said then that it would kill webOS smartphones and tablets, and a buying frenzy ensued after HP sold remaining TouchPad tablets starting at US$99.

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HP preferred the idea of spinning off PSG, launching a campaign for a separate PC company it tagged a “US$40 billion startup.” On her first day as CEO, Whitman, who replaced Apotheker, said the company would spin off the PC unit by the end of the year. The decision was “solely based on the value to investors and value to customers,” Whitman said.

The original decision to sell or spin off the division was criticized by analysts, who said the PC business contributed to the company’s bottom line and added purchasing power for enterprise hardware parts. Some HP enterprise customers, including members of Connect, an independent HP’s enterprise customer user community, wanted HP to retain the PC unit so they could go to one entity to purchase hardware, software and services. Some competitors like Dell preyed on the uncertainty around HP’s business unit to gain new customers.

But some analysts said that if HP wanted to improve its profit margins, the PC business had to be the first domino to fall. With PC shipments dropping and HP having no clear mobile strategy, it would make sense to refocus the company’s attention on high-margin enterprise businesses, much like IBM did when it completed the sale of its PC unit to Lenovo in 2005, they said.

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