HP's PC spinoff will help reinvent the company

By spinning off Hewlett-Packard Co's personal-computer business, Chief Executive Officer Leo Apotheker is shedding a unit the founders never liked anyway. David Packard only reluctantly agreed to focus on PCs in the early 1990s. And Walter Hewlett, a board member and son of co-founder Bill Hewlett, mounted an unsuccessful campaign to block the 2002 acquisition of Compaq Computer Corp, a deal that vaulted Hewlett-Packard to the top of the PC industry. From Hewlett-Packard's beginnings in 1939, the company's founders set out to invent one-of-a-kind products and tools for engineers. They never intended to become the biggest provider of a commodity product, said Michael Cusumano, a professor at the Massachusetts Institute of Technology's Sloan School of Management. Now that PC profits are waning amid competition from Asian rivals, Apotheker is poised to return to that philosophy. Article continues below "Their DNA never included being a commodity consumer products manufacturer, which is what the PC has become," Cusumano said. "It's certainly not where the action and innovation is in the business these days. They can reinvent themselves. They may have the capability to do it." While the PC unit accounted for 30 per cent of sales last quarter, it only generated a 5.9 per cent operating margin. That's less than at any other division in the company. Hewlett-Packard, based in Palo Alto, California, dropped $5.91, or 20 per cent, to $23.60 on the New York Stock Exchange on Friday, the biggest decline since October 1987. Hewlett-Packard's move mirrors a broader shift among US technology companies, with fewer of them designing and selling PCs — a trend that began when International Business Machines Corp offloaded its PC unit to China's Lenovo Group Ltd. in 2005. Dell Inc, the second-largest PC maker, also is focusing more on services, though PCs still make up about half its sales. The US and European PC markets declined last quarter, while Asia Pacific, excluding Japan, grew more than 12 per cent, according to research firm IDC. Local manufacturers benefited more from that growth than Hewlett-Packard. Its shipments grew 3 per cent in the quarter, compared with 23 per cent growth for Lenovo and 6 per cent for Asustek Computer Inc, the Taiwanese maker of low-cost computers. "All the PC vendors in the US are now more focused on services," said Pat Becker Jr, a fund manager at Portland, Oregon-based Becker Capital Management Inc. His firm holds Hewlett-Packard shares as part of the $2.2 billion it oversees. "You look at the margin structure of the PC business and the cyclicality, and it's best led by somebody outside our borders." Hewlett-Packard was a reluctant and relatively late entrant to the personal-computer market, which IBM turned into a mainstream product with the release of its first PC in 1981. Years before, Hewlett-Packard had turned down a proposal by one of its engineers to buy the design for a home computer he invented. The employee, Steve Wozniak, turned the idea into the Apple I in the 1970s. Still, Packard never expressed regret for the decision.