Thursday, August 18, 2011 at 8:40 pm.
HP made the right moves: It’s no Apple, so it shouldn’t try to be
HP made several bold moves today, announcing plans to spin off its PC business and shut down its struggling phone and tablet unit. While these decisions are controversial, I believe they are the right ones.
In all of these markets, the company that HP is chasing is Apple. The Mac is capturing the high end of the consumer PC market, the iPhone is capturing the majority of the mobile industry’s profits, and the iPad is the only tablet that matters.
But HP is no Apple, and CEO Leo Apotheker knows that he is no Steve Jobs. So he is smart to cast off the past and look for a future more within his and HP’s competency — such as its $10 billion acquisition of enterprise software firm Autonomy, also announced today.
First, let’s look at the PC business. With leading market share, why would HP spin it off or sell it?
Because everything about HP’s view of the PC industry is undesirable, even though it’s on top today. It faces strong competition from iPads. The industry is either barely growing or shrinking, depending on the quarter and exact segment. It is becoming further commoditized, and Asian companies are in better position to deliver lower prices for similar products. (The fastest growing segment is Chinese piracy boxes.) And with all those factors in mind, margins are sure to head south.
So it’s better to sell now, before things get ugly. HP can get a decent price for the business, either fully divesting it or keeping a minority stake in a company that someone else can run. There just isn’t a compelling reason for HP to own it anymore.
But what about tablets and smartphones? That’s where the industry is going, so shouldn’t HP be playing there?
The answer is: Only if it can do a good job and make a profit. But HP clearly doesn’t have the leadership or products to do a good job right now, and there is no clear road to success or profitability. So why should HP waste its money trying?
Demand for HP phones and tablets isn’t just low; it’s almost nonexistent. Former Palm CEO Jon Rubinstein — a former Apple engineering exec — has already shifted roles, and hasn’t gotten the job done. And even if HP poured billions of dollars into the segment, there’s no guarantee that it will turn itself around or thrive. It’s a huge risk, with the wrong team in charge.
So here, too, HP is probably in a better position to let someone else run with WebOS, and either rid itself completely or somehow retain a stake.
But HP just bought Palm, you may say. That’s true. But not having an emotional attachment to sunk costs is a true sign of a good leader. (And anyway, HP is a different company today than it was when it bought Palm.) If anything, Apotheker’s willingness to cut where it hurts is a good sign for the future.
Ultimately, these look like the right moves. Yes, it might mean HP is smaller, and its future addressable markets aren’t as big or as cool.
But the alternative is worse: Running a money-losing tablet and phone business into the ground, watching a PC business suffer through a shrinking market, and not having the capital and time to focus on promising, new opportunities when they present themselves.
HP isn’t Apple. So it shouldn’t try to be.