HP PC Unit Spinoff 'Best Value': Hewlett-Packard Exec Todd Bradley

By Terril Yue Jones

BEIJING (Reuters) - A spin-off of Hewlett-Packard Co's PC unit would be the best value for shareholders, according to the head of its PC division, who added that tablet computing was "relevant" to the future market for any spinoff.

HP stunned markets two weeks ago, when it announced it may shed its PC business -- the world's largest after the $25 billion acquisition of Compaq in 2002 -- as part of a wrenching series of moves away from the consumer market. Those included killing off the TouchPad tablet computer in the face of stiff competition from Apple Inc..

Now, the board of the largest U.S. technology company by revenue is expected to decide before the end of the year whether to hive off its PC arm -- which began selling the TouchPad in July -- into a separate company, considered the best option for shareholders.

Personal Systems Group head Todd Bradley told Reuters in an interview he intends to lead any standalone company created, and expects it to be a full-fledged computer maker.

Asked if there could be a tablet in the future of the separated company, Bradley responded:

"Sure, of course. Tablet computing is a segment of the market that's relevant, absolutely."

He said a spinoff of the Personal Systems Group will bring the "best value" to HP shareholders for taxation and other reasons.

"My intention would be to lead it through this transaction ... and if it's a standalone public company, to lead that."

Selling the PC division to a rival such as Taiwan's Acer Inc, which acquired computer maker Gateway in 2007, or to China's Lenovo Group Ltd, which bought IBM's PC division in 2004, is not a desirable alternative, Bradley said.

"I would just say that the numbers don't support that that strategy works," he said, citing Acer reporting its first-ever quarterly loss last week.

HP has struggled in the PC market -- a high-revenue but low-margin business -- as popular devices such as Apple's iPad lure consumers away.

Bradley is on a trip to China, Taiwan and South Korea to meet with employees, suppliers, government officials and media to convince them that HP's PC business will remain robust and committed to Asian markets.

"China's obviously a critically important market for HP as well as PSG," he said.

SUPPLIERS, DON'T FRET

Bradley said HP will increase investments in Shanghai, and over the next three years expand its Shanghai manufacturing base, consolidate six employee sites into one campus, and make Shanghai a regional headquarters in China for the PSG.

"Regardless of what happens, we're the largest PC company in the world. We need everybody energized, and while this isn't business as usual, we need people to go out and sell products every day," Bradley said.

Suppliers to HP PCs will remain largely intact, although the company may renegotiate and redefine the relationships.

"Unwinding the integration that's taken place within HP will be enormous amounts of work and effort, justified by the return we think we'll be able to provide to our shareholders."

Nevertheless, he said, "we will be one of, if not the largest, customers of all of our major suppliers, be it Samsung to LG to Microsoft to Intel."

The Palo Alto, California-based company is now exploring options for its WebOS software, which it acquired through the acquisition of Palm, of which Bradley is a former chief executive.

Bradley has said that a number of companies had expressed interest in possibly using WebOS as an operating system, but he gave no further details on Tuesday, saying that he is not in China to announce or even negotiate anything regarding WebOS.

(This August 30 story was corrected to make clear in the headline and text that the HP executive did not say the TouchPad tablet would be resurrected but said a tablet could be an option for a spin-off company)

(Editing by Anshuman Daga, Matt Driskill, Edwin Chan and Matthew Lewis)

Copyright 2011 Thomson Reuters. Click for Restrictions

Comments

[trumbull desi]

07:26 AM on 09/06/2011

The whole way they're going about this is bass ackwards.

[ArthroughpadNY]

08:37 PM on 09/05/2011

Seems like HP is making a bunch of extremely bad business decision with their cell phones and now the tablet. They had better get someone onboard that knows what he is doing.

[any mouse]

01:57 AM on 09/06/2011

True

[jfbuf]

07:12 PM on 09/05/2011

I was going to by an HP computer but this news is giving me second thoughts, maybe I should buy a Dell

[ArthroughpadNY]

08:38 PM on 09/05/2011

HP makes excellent computers so it would be a shame for them to get out.

[any mouse]

01:55 AM on 09/06/2011

Because both Dell and HP use the same ODMs, many HP and Dell models share the same internal motherboards and components.

[becky bradshaw]

06:41 PM on 09/05/2011

Isn't Hewlett-Packard quitting the PC business somewhat like the 49ers admitting they can't play football? So what's next, a spelling bee? or maybe a quilting circle?

This, coming after more than a decade of predatory behavior, sucking up Compaq, Peregrine, Palm, Ericsson, EDS, and more than a hundred other prime tech companies.

"While Californians lost their jobs, Fiorina tripled her salary, bought a million-dollar yacht and five corporate jets." Senator Barbara Boxer

It says a lot about Hewlett-Packard, that a guy like Todd Bradley runs their PC division. He has never done more than play a role as merger and acquisition specialist. Perhaps if HP would hire a technologist to run their technology operations, this company would do more than serve as a corporate undertaker.

[drp103]

06:41 PM on 09/05/2011

I like PCs. But I build my own. HP? Doesn't that now stand for HuffPost now?

[any mouse]

02:01 AM on 09/06/2011

Most people do not have the expertise to build their own.

Not only that but you have to pay RETAIL for the same components that HP (dell, Apple, etc) get for less than wholesale.

I know what HP, dell, etc pay for components and the wholesale prices I pay and I can guarantee that they pay a lot less than I do and I pay a lot less than the retail price you pay.

[helioszephyr]

10:25 AM on 09/06/2011

why would you do that? these days, that's like saying "I build my own toaster".

[bryanzth]

04:58 PM on 09/05/2011

Will my HP Printer be worth anything after this? :((

BZ.

[any mouse]

01:57 AM on 09/06/2011

Yes, the ink business if very profitable, so HP will still make printers that only work with HP ink and sell them at minimal profit.

[bryanzth]

09:40 AM on 09/06/2011

Oh, my HP printer is a colour laser printer. I use the color aspect minimally (forcing printing in B/W), but I wonder if HP printers are going to continue to be the quality devices they have been.

BZ.

[Rodney Donovan]

03:39 PM on 09/05/2011

HP share holders need to fire the board, CEO, CFO,CTO, and that evil destroyer of planets, Jon Rubinstein. HP is going down the tubes. Check it out. I could have done better. Much better.

Master Rod

[hypnotoad72]

12:09 PM on 09/05/2011

Stuff shareholders.

PCs will be dying as more cloud-computing and content-consumption ventures like self-contained tablets take hold.

Servers will remain, but shareholders want profit due to more sales - PCs are not an industry I'd put real money into.

So forgive me for not believing their reasoning.

[Rob Huggins]

12:45 PM on 09/05/2011

I don't think PC's will die, I think they will just be self made by those that need them. I do things on my desktop that would take 8 times longer on my laptop, and I can't run them at all on a tablet or mobile device. I'm running simulations that take a week on the fastest computer I can afford to build myself. Not to mention that I need RAID seeing how at least one of my hard drives dies every 3-6 months.

I'm on the extreme end, but there are gamers that also need more power than mobile devices will ever offer as well. I envision a Home Depot like market in the future. We already have companies like Best Buy having to sell the same product online for 1/5 the price, because they need the build it yourself computer enthusiasts to buy their products as well. The general public that over pays and thinks the computer is a magic box will eventually only need the weak mobile devices, but there is also a large market of people that will both want the overpriced weak mobile device they can't build themselves and a more powerful PC at home. The only hardware companies that will survive are the ones that sell their mobile devices well. I just hope its not the lowest power, highest priced ones with over done UI's that have a name that starts with A.

[helioszephyr]

10:30 AM on 09/06/2011

" I do things on my desktop that would take 8 times longer on my laptop, and I can't run them at all on a tablet or mobile device."

For the average user (that would be, what, about 99.5%)... that's a short lived statement. The other .05 % is not a viable market for "PC" mobile device mfrs. That's why for applications such as yours (and some of mine... off-line rendering) we'll always be configuring our own systems.

[any mouse]

02:10 AM on 09/06/2011

Ah yes the "cloud computing" myth.

I love how so many supposedly "smart" people have bought into this whole unworkable myth. Some basic reality:

- There is not enough wireless bandwidth in the world, due to basic physics, for Cloud computing to work. There are very solid physic laws that are causing ALL the wireless networks in the world to be overloaded. In other words as more people try to use wireless data connections the speed will continue to DECREASE to the point of un-usability.

- Cloud computing is nothing more than the old mainframe architecture with a new name. The architecture that users hated and threw out as soon as they could get powerful personal systems with lots of apps into their hands.

- pads and smart phones are read-only devices and can never be capable of being used for meaningful content creation (tweets and short emails do NOT qualify as meaningful content creation).

- Therefore desktop and laptop personal systems will be around for a very, very long time.

[Ozarks]

11:56 AM on 09/05/2011

H&P still eating the results that stupid $25 billion acquisition of Compaq.

[hypnotoad72]

12:12 PM on 09/05/2011

Good ol' Carly.

When she was axed, for her trouble of putting the company in a quagmire, she got a $21 million severance package.  One human, these days, could retire on that for more than 500 years.  A working class real person could live on it for $450 as they pay back student loans for degrees and other apparently useless things in "the new normal" (a paradigm that is as fully contrived as "trickle down economics" was.)

http://motherjones.com/mojo/2008/06/why-carly-fiorina-symbol-corporate-excesses-mccains-favorite-ceo

[JC Phoenix]

06:32 PM on 09/05/2011

Even the current CEO, Leo Apotheker, isn't exactly Mr. Genius. This whole Touchpad thing could have been better managed. Look what happened two weeks ago when the TP was axed and prices cut significantly. Firesale. Madness as people tried to snatch them up from every retailer and distribution channel. I was one of them (and got one!). There is a demand for tablets, but at the current prices and economy, many can't afford one. HP could have sold a decent tablet at a low price like $200-250. Yes, they would have taken a loss or broke even. But then take a cut from app sales like Apple does or do license deals with developers. This is the exact model of the console gaming industry. Sony, Microsoft, and probably Nintendo don't make money from hardware sales; they make it from licensing deals with developers.

[any mouse]

02:22 AM on 09/06/2011

Very true.

It was a terrible mistake, especially because at that time Dell was trying to destroy Gateway (later purchased by Acer) and Compact was collateral damage. Compaq was on its way to the scrap heap.

If HP had waited for a year they could have picked the bones of Compaq for halfpennies on the dollar.

Carly's real goal was to decimate the HP culture that she hated because they ignored her attempts to be dictator. In this she succeeded, but destroyed the innovation in the process, so now HP has nothing for the future.

I used to do star-ups for HP. That is, our group took technology from HP Labs and turned it into products then turned the new product line over to a product division and started all over again. In 2002 after Carly purchased Compaq over the objections of the families, Carly shut down 25 internal start-ups in one day. One of those had a device like a video iPod (think iTouch) and the media service (think iTunes) almost ready to go TWO YEARS ahead of Apple. The technology my group was developing was abandoned (think Android and Delvick). I left HP with a chunk of money and never looked back.

[pablitop]

11:23 AM on 09/05/2011

This is a stupid move.

[hypnotoad72]

12:09 PM on 09/05/2011

For the shareholders that buy into it, yes...

[hypnotoad72]

12:47 PM on 09/05/2011

Also, if China's market is growing, HP would be better to KEEP the PC division and profit from it, rather than selling it off.

The article, and maybe I need to read it again and I will be doing so but that won't stop me from speaking my mind here in the proverbial now, seems to be speaking out of both sides.  Customer base is growing in China, which means higher profits for shareholders, and yet the selloff will help shareholders and things are usually sold off because of a lack in value or perceived value.  (Now is the time to sell because of the increased prevalence of mobile computing and content consumption.  Better to cut one's losses than to be stuck with the proverbial hot potato...)

Even shareholders are customers at one point, but I'm about to digress into a massively different tangent...

[any mouse]

02:28 AM on 09/06/2011

A few slight problems with the Chinese market ...

- Non-Chinese companies are not allowed to own more than 49% of the Chinese company that uses their brand. that is their Chinese partner actually controls everything, including the profit sharing, so US companies actually can't make all that much in China. Not only that but Chinese law allows the partner to buy out the US company at any time for a price the Chinese partner sets. So in a few short years most US companies are going to be thrown out of China with nothing to show for it. They will have decimate their home market and lost access to the Chinese market.

- HP uses an ODM business model. That is HP is ONLY a marketing company. All the design, manufacturing and distribution is actually done by the ODM which leave very little profit for HP.