HP to Keep Making PCs, Much to Dell’s Chagrin

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New CEO Meg Whitman hasn’t been on the job for too long, and already she’s setting things right with the world’s largest computer manufacturer. HP has just announced that it will continue to keep producing computers, and will NOT be selling the division off or otherwise divesting it. 

Dell and many
others, then, are
likely disappointed
to hear of
today’s decision.

It came as a substantial shock to many in the industry – other computer manufacturers, enterprise buyers and consumer PC aficionados alike – when rumors broke just a few weeks ago that HP was considering shedding PCs from its business offerings. No one, save those in the boardroom of HP, knew whether the company would keep the division in house, spin it off into its own company, or sell the interests wholecloth to a completely different party.

As a result, other major PC manufacturers, most notably Dell, jumped at the chance this uncertainty represented. Dell founder Michael Dell, took to his Twitter to publicly mock the company for what many saw as a substantial weakness in HP’s public and corporate image.

At Dell World 2011 recently, the company made special mention of a recent third party market research study that noted many enterprise buyers were reconsidering owning and acquiring HP computers and servers – businesses pride themselves on maintaining extremely stable infrastructure, and this news made HP look like anything but. Of course, Dell was pleased with the news since many of those same companies admitted to looking at Dell as their “top #2” choice.

Dell and many others, then, are likely disappointed to hear of today’s decision.

It makes sense for the company to continue making its own brand of computers for a few explicit reasons. Many consumers, while they know companies such as Dell and HP for making their notebooks or desktops, do not realize that those same companies rely on consumers for 30% or less of total profits. Margins in consumer electronics, with a few notable exceptions, are traditionally slim.

HPBig computer manufacturers can use those consumer offerings, however, as a strategic wedge in their enterprise and data center space. It’s often quoted that only 10% of the hard drives produced may end up in servers, with the rest (if we’re limiting ourselves to the larger, 3.5-inch variety) going into desktops. Buying that other 90%, however, lets companies like HP buy the important 10% at greatly reduced cost.

Perhaps most importantly, it was obvious to HP that despite the slow growth represented by their Personal Systems Group, or PSG, it still marked a division with close to $41 billion in revenue for the last fiscal year. Moreover, owning that image as the world’s largest manufacturer of PCs can only help when it comes to brand awareness in other, more lucrative fields. 

Sources within HP have noted rumors floating within the company suggesting that the public was never meant to be made aware of the uncertainty floating around the future of HP’s PSG. When it seemed like the story was going to break, however, then-CEO Leo Apotheker took the news public in an attempt to stay on top of the story.

As hindsight shows, however, that attempt was met with something less than success.

Although Meg Whitman’s tenure at the head of HP is generally thought to be temporary, she already seems to be comfortable in the role. The former eBay head is the third HP CEO in as many years; Mark Hurd was forced out over what turned out to be baseless allegations of sexual impropriety. His replacement, Leo Apotheker, will likely become known for being hired without an interview and overpaying for HP’s acquisition of enterprise information management software maker Autonomy, at the princely sum of $10.3 billion.

The decision comes just days after news broke that Lenovo has jumped to become the world’s number 2 PC maker behind HP, relegated Dell to third place status. CEO Michael Dell has publicly disagreed with the results, suggesting that while Lenovo may sell more PCs, they can’t be making as much money.

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