Whitman Puts HP Back on Track, Talks Windows 8, Avoids WebOS Commitment

By David Roe (@druadh20) Oct 31, 2011

On the stock market, everything is about perception. Share prices go up and down depending on how a company is viewed on trading floors all over the world, sometime even regardless of how the company’s products are performing. This probably explains why HP has decided to keep its Personal Systems Group (PSG) rather than spin it off.

It also seems, at least on the surface, that for the first time in nearly 18 months, the company has settled down and is starting to get on with its regular business; and the change coincides with the appointment of Meg Whitman as president and CEO.

Personal Systems Group

Apart from the departure of CEO Leo Apotheker, the first sign that things were changing appeared at the end of last week when a statement issued by the company said that it had done an about-face on the decision to spin off PSG, which includes its PC division.

The decision, which was announced in August, left many people scratching their heads, and many others looking to get out of HP. Friday’s statement changed that. It read:

HP objectively evaluated the strategic, financial and operational impact of spinning off PSG. It's clear after our analysis that keeping PSG within HP is right for customers and partners, right for shareholders, and right for employees…

HP is committed to PSG, and together we are stronger."

The review the company referred to showed that the hardware business was making a “significant” addition to brand value and that it was so deeply integrated into HPs other businesses and operations that it would have almost been impossible to set the hardware business up as a standalone.

Then there was the cost. According to CFO Cathie Lesjak in a conference call to explain the revised decision, to set it up as a standalone business would have cost an estimated US$ 1.25 billion.

Market Reactions

It would have also cut operating profits by US$ 1 billion annually, which even for a heavyhitter like HP would be hard, especially for a decision that was at best pointless, and at worst… well that’s what the whole stock price drop was about, and no one was really sure when that was going to stop.

Cited on technology site, itp.net Ovum chief analyst Carter Lusher welcomed the move, calling the announcement by Apotheker "an unmitigated disaster."

We applaud HP CEO Meg Whitman, appointed to that position on September 22, for acting swiftly and decisively to eliminate the uncertainty surrounding HP's intentions for the Personal Systems Group (PSG). The announcement by now former-CEO Leo Apotheker that PSG was undergoing a strategic review and could be sold or spun off was an unmitigated disaster," Lusher said.

Given recent figures from Gartner on PC shipments worldwide, you can see where he’s coming from. Earlier this month, its figures showed that instead of declining, HP’s PC market continues to grow.

In a statement, Gartner said:

HP’s PC business grew faster than the industry average, and its market share reached 17.7% in the third quarter of 2011, with strong growth in the U.S. Overall, HP's share increased from 26.9 percent to 28.9 percent worldwide.”

So the market drop precipitated by the August announcement appears to be more than just perception. Since Apotheker took over in November last year of 2010 the HP share price fell by 45%, and started climbing again when rumors that he might be replaced started to surface.