HP sell-off could bring personal gain for Lenovo

PUBLISHED : Saturday, 20 August, 2011, 12:00am
UPDATED : Saturday, 20 August, 2011, 12:00am

Plans by Hewlett-Packard to spin off or sell its personal computer business may clear the way for Lenovo Group and other major Asian players to boost their global market share, analysts said.

HP, the world's largest information-technology company, yesterday announced it was exploring strategic options to shed its Personal Systems Group (PSG), the biggest global supplier of personal computers.

In a conference call with analysts, HP chief executive Leo Apotheker said this process was expected to 'take 12 to 18 months to complete'.

Apotheker said the direction was an important component of HP's strategy to 'focus on cloud [computing], solutions and software accessible to any type of device, while we continue to expand and leverage our strong technologies, including printing hardware, software and services'.

The makeover would turn HP - which had total revenue of US$126 billion in its last fiscal year - into a big-ticket enterprise technology and services supplier in the mould of International Business Machines, which sold its personal computer business to Lenovo for US$1.75 billion in 2005.

United States-based HP also announced it would shut down its loss-making media tablet and smartphone business, more than a year after it acquired mobile device maker Palm for US$1.2 billion. It would also explore options for Palm's webOS platform for smart devices.

Simon Ye, a principal analyst at market research firm Gartner, said the divestment contemplated by HP could open up opportunities to mainland computer giant Lenovo as well as Taiwan-based Acer and AsusTek Computer, which are among the world's top-five personal computer suppliers.

'Operations at HP's largest enterprise clients, which have stable and lengthy contracts, will not change that much, but the consumer and commercial PC markets will consider the long-term implication of that announcement,' Ye said. He pointed out that Lenovo, Acer, Asus and even Dell, the No2 global personal computer supplier, would aim to get market share from HP as it makes its transition into higher-margin businesses.

Carter Lusher, a research fellow at market analyst company Ovum, saw the PSG divestment affecting 'HP's credibility as a predictable strategic IT supplier' in the near term.

'It was only a scant five months ago at the HP Analyst Summit that chief executive Leo Apotheker re-confirmed the strategic importance of PCs to HP,' Lusher said.

'For enterprise and public sector IT executives, predictability is a critical trait for major technology vendors and HP continues to reinforce the impression that it is unpredictable.'

Lusher suggested that enterprise and public sector buyers 'use this period of disruption at HP as an opportunity to drive hard bargains in product and services procurement projects', adding that 'HP is going to need every dollar, euro, yen, pound and yuan to offset the drop in sales that come with uncertainty that naturally follows announcements like the PC division divestiture'.

In its fiscal third quarter ended July 31, HP reported a 3 per cent fall in PSG revenue year-on-year. The company's personal computer sales to the general consumer market fell 17 per cent, while sales to the commercial sector grew by 9 per cent.

'The PC business has become so commoditised, and margins are so low that it is has become a drag on HP's corporate bottom line,' said Tim Bajarin, president of US consulting firm Creative Strategies. 'A key reason they need to spin this off is to get it off of their books.'

By comparison, on Thursday Lenovo reported that revenue in the quarter ended June 30 rose 15 per cent year-on-year to a record US$5.9 billion.

According to market research firm International Data Corp, HP remained the industry leader in the second quarter with a global market share of 18.1 per cent. It was followed by Dell with a 12.9 per cent share, Lenovo 12.2 per cent, Acer 10.9 per cent and AsusTek 5.3 per cent.

Ye said HP's proposed exit from the personal computer industry also presented a new acquisition opportunity for Lenovo if the price was reasonable.

'Lenovo may not be interested in HP's assets in China, but those outside the country could be considered,' he said. 'HP has very good distribution in the US and other mature markets and Lenovo has nothing to lose by talking with HP.'

A Hong Kong-based spokeswoman for Lenovo did not respond to inquiries.

Lenovo, Asia's largest personal computer manufacturer, last month launched a joint venture in Japan with NEC Corp in which it has invested US$175 million. Their venture, NEC Lenovo Japan Group, is now the biggest supplier in the world's third-largest market for PCs.

The company is also set to complete a Euro466 million (HK$5,220 million) acquisition of German consumer electronics company Medion.