SAN FRANCISCO — Breaking off Hewlett Packard’s personal computer unit is aimed at delivering more flexibility in facing off competitive threats. It also isolates a low-margin commodity business at a time when demand for PCs and printers is ebbing.
The split, announced Monday, separates Hewlett-Packard’s PC division from the unit that makes servers, two businesses that share common suppliers such as Intel Corp.
Dion Weisler, who will become chief executive officer of a PC and printers company that will be called HP Inc., will inherit a cash-generating business. At the same time, he may face higher costs in a market where margins are already slim and sales are edging lower, with PC shipments on track to decline for a third straight year. The new company will also find it harder to sell to corporate customers who prefer to shop for a complete range of PCs, software, services, storage and servers from a single supplier, according to Daniel Morgan, a fund manager at Synovus Trust Co.
“The margins are horrible,” said Morgan, whose fund owns 284,771 Hewlett-Packard shares. “It’s not the greatest spot to be in.”
Weisler, who was already running Hewlett-Packard’s printing and personal systems division, is taking charge of a business with $57.2 billion in revenue, and an operating profit margin of 9.4 percent, according to figures published by the company. While printers and supplies offer higher margins, the PC business cuts that in half, indicating the difficulty of eking out profits in PCs.
Hewlett-Packard is Intel’s biggest customer, accounting for 17 percent of revenue at the world’s largest chipmaker, according to a Bloomberg supply-chain analysis.
“I would say any scale loss that there is, we think will be overcome by speed and agility,” said Hewlett-Packard CEO Meg Whitman.
Lenovo No. 1
Hewlett-Packard may be reducing its purchasing power at a time when Lenovo Group is improving its leverage. Lenovo, the world’s biggest PC maker, followed by Hewlett-Packard, is adding IBM’s server business to its earlier purchase of IBM’s PC division.
“This is an issue of scale and procurement,” said Amit Daryanani, an analyst at RBC Capital Markets in San Francisco. “Lenovo just increased their scale.”
Lenovo had 20 percent of the PC market by shipments in the second quarter, followed by Hewlett-Packard with 18 percent, according to market researcher IDC Corp.
Hewlett-Packard, Lenovo and Dell, the third biggest-PC maker, all saw shipments climb more than 10 percent from a year earlier as corporations replaced aging office equipment. Still, that isn’t enough to lift PC shipments for 2014, according to IDC, which is predicting a decline of 3.7 percent in 2014.
By splitting HP Inc. from divisions that concentrate on corporate sales, the PC and printer business might be able to move more aggressively into faster-growing markets for tablets and smartphones, which have lured away PC customers, said Neil MacDonald, an analyst at Gartner Inc.
“They will have the freedom to do it, and the cash to do it,” MacDonald said. “Old HP laptops were not elegant.”
Under Weisler, Hewlett-Packard’s printer division has made the best of declining demand, winning market share with innovative devices such as laserjet printers that use new technology, according to MacDonald. That’s delivering healthy margins and cash that it will give Weisler room to operate.
