HP: Stay or Leave the PC Industry The computer industry is a tough and competitive business.

Companies are constantly competing to have the newest and greatest advancements in technology that will make their product the most appealing to consumers. It is a multi billion-dollar industry, but in mid August Hewlett Packard, the worlds largest PC distributor made the announcement that it planned to exit the Personal computer industry to focus on other aspects of their company. This shocked not only consumers, but also other competitors in the industry. Just a few months after Leo Apotheker, the CEO who made this decision, was fired from his position and replaced by Meg Whitman. When Whitman was hired she made it clear that Apotheker's plan to exit PCs would still be considered. For about three months this left Investors unsure about the HP stock and in just three days the stock dropped about $10 per share. It wasnt until late October that Whitman officially announced the HP would stay in the PC business. Was this the right thing to do for the company or should they have exited the business to focus on other facets of the company? Hewlett Packards revenue from last year was 92,755 million. The Personal Computer Group (PCG) brought in more that 30% of that revenue pulling in 30,458 million. Looking at this data it seems that getting rid of this line would be foolish and risky for the company. Apotheker though was focused more on the operating margin the PC industry was producing. The operating margin is an important number because it can distinguish between a profitable product and one in which money is just being wasted with. After looking at the financial data, the Profit margin for the Personal computer line was only 5.9% meaning that only $.059 was being collected for every $1 of sales.

Although the line was still profitable its understandable how a company would like to see a number much higher than 5.9%. Apotheker felt that they should focus on other aspects of the company like, financial services, general computer services, enterprise servers, storage, networking, software and imaging and printing. Each of these groups brought in less revenue but in return held a much higher operating margin. The next lowest operating margin for the company was in the financial service aspect, which held a margin of 9.4%. Apothekers focus seemed to be on HPs software line, which didnt bring in much revenue but was highly profitable. CEO Leo Apotheker, who favored HP's fast-growing, highly profitable software and server businesses over its low-margin computer business. HP's PC unit was one of the industry's most profitable, but the company still only squeezed out about a 5% margin on the devices. Another reason he was looking get rid of the PC line was because of his fear of new technology. He felt as though smart phones and personal tablets like the iPad would replace the need for personal laptops and computers. New devices could easily replace everything that can be done on laptop smaller, quicker and cheaper. Apotheker also noted that PCs aren't flying off the shelves any more. Mobile devices like smart phones and tablets have begun to eat into PC sales. () HP isnt the only company that has thought about or even followed through with getting rid of their PC division. With companies like Apple Inc. and Dell, IBM decided in 2004 to sell its PC division. The difference between HP and IBM though is that IBM was losing money on their PCs while HP is still profiting. Even though the operating margin is low for Hewlett Packards PC group, the fact that they were still making profit off of it cant be over looked. Its also important to realize that While the PC unit accounted for 30 percent of sales last quarter. Either

way you look at it that is still a significant amount of income that helps support other parts of the company. By cutting this division out of its product line it could affect all of the other parts of the business. With the way the economy has been lately it makes it hard to budget certain costs and projected sales as well as the price at which you can offer other products or services. By having this large amount of income it can help sustain another division that may encounter higher production costs or lower sales. Another way it can uphold other parts of the company is by helping be an entry for other products. The printing and imaging division is a large part of the company and it seems that there is strong correlation between printing and PCs. It makes it easier on consumers to go to place and pick up a Hewlett Packard computer and printer. By offering these necessary items together HP, like other companies have done, can use this as a market strategy and offer price discounts for both which can lead to higher sales in both. Computers also help promote HP's brand, and are a crucial part of the company's "one-stop shop" services that it offers to corporate customers, HP said. The personal computer business also seems like driver for HPs software sales. Technology is constantly growing and changing. People are not going to buy a new product every time some new advancement comes out so updating software easy way to keep up to date for consumers. The Personal computer divisions seem to be strongly associated with the other aspects of the business and it seems to help support these divisions profits as well. If HP had gotten rid of its PC business it could have a serious effect on the rest of the company. Hewlett Packard announcing that they were even planning on spinning off their PC industry hurt their business because it both scared and confused investors. With other companies like IBM who had done the same years ago some analyst feel as though HP

should eventually ditch their personal computer group and focus on other aspects. In 3-5 years we hope the company sells the group to focus on enterprise infrastructure.() Because the computer industry is constantly changing it is hard to really predict what a company should do, especially if that division of the company is still producing profit and is still generating 30% of the overall revenue. With companies like Apple Inc. who are constantly producing new innovative products and whose computer business seems to growing at a constant pace, leaving the industry may in fact be a good idea for HP if they can first make sure that their other products will be able to keep the company profitable and keep the investors happy. If Hewlett Packard dropped its personal PC division the effects on both the stock price and the overall companies business direction could drastically change. By removing such a significant part of the company I feel as though it would only have negative effects. I know when I think of HP I think of them as a personal computer company that offers a solid product and a great line of printers to go along with it. The only thing that comes into question is, is the fact that is Ms. Whitman basing her decision off of cost accounting or is she thinking more about how her decision could impact the stock and the stock options that she has? By keeping the PC division it keeps investors interested and can make the company more profitable than it really is. I do agree that Hewlett Packard should in fact keep their PC division but only if they can find a way to compete with Apple and Dell, otherwise it does seem like they would be better off using the money from dropping it and put it into something more overall profitable like their software division.

Works Cited The Associated Press. "HP Stock Recovers Some Ground after PC About-face - CBS News." Breaking News Headlines: Business, Entertainment & World News - CBS News. 28 Oct. 2011. Web. 16 Nov. 2011. <http://www.cbsnews.com/8301501366_162-20127245/hp-stock-recovers-some-ground-after-pc-about-face/>.

Goldman, David. "HP CEO Apotheker Fired, Replaced by Meg Whitman - Sep. 22, 2011." CNNMoney - Business, Financial and Personal Finance News. CNN.com, 22 Sept. 2011. Web. 16 Nov. 2011. <http://money.cnn.com/2011/09/22/technology/hp_ceo_fired/index.htm>. Goldman, David. "HP Decides to Keep Its PC Business - Oct. 27, 2011." CNNMoney Business, Financial and Personal Finance News. CNN.com, 27 Oct. 2011. Web. 16 Nov. 2011. <http://money.cnn.com/2011/10/27/technology/hp_keeps_pcs/index.htm>. "HP Wants to Exit PC Business as Tablets Have Made Desktops Archaic - Economic Times." Featured Articles From The Economic Times. New York Times, 20 Aug. 2011. Web. 16 Nov. 2011. <http://articles.economictimes.indiatimes.com/2011-0820/news/29909344_1_tablet-touchpad-pc-business>. Kolakowski, Nicholas. "HP's PC Decision Comes With Risks, Upside - Desktops and Notebooks - News & Reviews - EWeek.com." Technology News, Tech Product Reviews, Research and Enterprise Analysis - News & Reviews - EWeek.com. EWeek.com, 29 Oct. 2011. Web. 16 Nov. 2011. <http://www.eweek.com/c/a/Desktops-and-Notebooks/HPs-PC-Decision-Comeswith-Risks-Upside-619874/>. Loftus, Tom. "Analysts on H-P Decision: A Good Start, but Company Still Has Work to Do - Digits - WSJ." WSJ Blogs - WSJ. WSJ.com, 28 Oct. 2011. Web. 16 Nov. 2011. <http://blogs.wsj.com/digits/2011/10/28/analysts-on-h-p-decision-a-goodstart-but-company-still-has-work-to-do/?mod=google_news_blog>. Patterson, Henry. "Who Benefits Most from HP Exiting the PC Business? - Think It | Map It." Think It | Map It - Clarifying Everyday Thoughts & Discourse in Visual Form. 23 Sept. 2011. Web. 16 Nov. 2011. <http://thinkitmapit.com/who-benefitsmost-from-hp-exiting-the-pc-busi>. Bass, Dina. "Hewlett-Packards PC Spinoff Would Reinvent Company With Return to Roots - Bloomberg." Bloomberg - Business & Financial News, Breaking News Headlines. 19 Aug. 2011. Web. 16 Nov. 2011. <http://www.bloomberg.com/news/2011-08-19/hp-s-pc-spinoff-would-reinventcompany-with-return-to-roots.html>. HP. "HP Reports Third Quarter 2011." Hewlett-Packard. 18 Aug. 2011. Web. 16 Nov. 2011. <http://h30261.www3.hp.com/phoenix.zhtml?c=71087&p=irolnewsArticle&ID=1598003&highlight=>.