HP Partners, System Builders Jazzed About PC Spin-Off

Hewlett-Packard on Thursday said it's looking into a spin-off of its Personal Systems Group (PSG), confirming earlier reports from The Wall Street Journal and Bloomberg.

"HP will consider a broad range of options that may include, among others, a full or partial separation of PSG from HP through a spin-off or other transaction," HP said in a statement.

HP's exploration of a PC business spin-off comes as no surprise to its partners in the system builder channel, who've had a front row seat to the steady decline of the consumer PC business.

"There is very little money to be made in selling PC hardware to consumers, and that's why there are so few channel PC companies that dabble in that market," said Andy Kretzer, director of sales and marketing at Bold Data Technology, a Fremont, Calif.-based system builder.

Jon Bach, president and founder of Puget Systems, a Seattle, Wash.-based system builder, isn't surprised that HP is spinning off its PC business, particularly in light of the meteoric rise in popularity of tablet PCs. "The low end PC market is rapidly evolving as the lines blur between what we call a smart phone, a tablet PC, netbook, or entry level notebook and desktop," Bach said.

HP's consumer PC client sales dropped 23 percent year-over-year in Q2, and 12 percent in Q1. Although commercial PC sales are still growing, the consumer weakness has contributed to HP's lowering of guidance in its past two quarters.

HP isn't alone in dealing with PC market malaise: Dell is also grappling with it and earlier this week slashed its fiscal year 2012 guidance.

To avoid macroeconomic headwinds, some system builders have shifted their focus to higher end PCs and business customers, and they see the HP PC business spin-off as a logical reaction to market forces and the havoc that tablet PCs are wreaking on the PC market.

"We've all been seeing the writing on the wall for standard PCs," said Todd Swank, vice president of marketing at Burnsville, Minn.-based system builder Nor-Tech. "If the leading PC maker decides it doesn't want its results dragged down by consumer PC weakness, that's a watershed moment, and I don't think HP expects to see a PC market recovery."

Erik Stromquist, COO of CTL, a Portland, Ore.-based custom system builder, sees PC market weakness as a chance for the channel to swoop in and grab business. "As the Tier 1 vendors retrench, there is an opportunity for the channel to grow their businesses in the local and regional markets they serve," Stromquist said in an email.

Next: HP's Track Record With Business Unit Spin-Offs

HP in 1999 spun off its electronics testing and analysis business as Agilent Technologies. However, unlike the Agilent spin-off, which was (and is) a very profitable business, HP's PC division is a very low-margin business.

HP solution providers point to IBM's decision to sell off its PC business to Lenovo in 2005 as a comparison that makes more sense -- and ended up benefiting the channel.

"Lenovo is a great partner now, and you couldn't say that about IBM before they sold off their PC business," said Swank. "[An HP PC business spin-off] could be a positive for the channel and make it easier to sell HP products."

However, some HP partners believe the PC spin-off is a mistake. Daniel Duffy, CEO of Valley Network Solutions, a Fresno, Calif.-based solution provider, says HP's ability to offer full suite of integrated, internally developed solutions to the table is one of its strongest selling points.

"Spinning off the PSG business would relegate HP to second-class citizenship in the IT world," said Duffy. "I know I wouldn't want to buy servers and storage from one vendor, and then have to hassle with managing a second relationship and set of compatibilities with a second vendor."

There are plenty of other examples of how selling its PC business could help HP. CEO Leo Apotheker has made a priority of building HP's software, services and cloud computing capabilities, and a leaner HP could also lead to better performance for the already successful ESSN (Enterprise Storage, Servers, and Networking) division, according to solution providers.

Joseph F. Kovar contributed to this article.