HP leaning towards un-spinning-off PSG 38
New HP CEO Meg Whitman’s been understandably cautious about the direction in which she’ll take HP. It’s rare that an incoming CEO publicly throws out her predecessors plans on day one, and Whitman’s no exception. That said, she did say that she wants to make speedy decisions on Apotheker’s initiatives, especially the planned sale or spin-off of the computer-producing Personal Systems Group.
The $40 billion chunk of HP was planned to be spun off by the ousted CEO, with the intent of turning HP into a purely software and enterprise services company that also makes printers. Investor and industry reaction to the planned lobotomy was understandably on the unhappy side, and HP’s stock price suffered accordingly. It all led to Apotheker’s ouster and the instatement of Meg Whitman as CEO.
According to The Wall Street Journal, HP’s now leaning heavily towards not splitting itself, realizing the added costs that would be incurred on both entities should the division happen. There’s the obvious – dual accounting, human resources, and marketing departments. But then there’s the more nitty gritty: economies of scale. For those of you that weren’t paying attention in Econ 101, economies of scale is the concept that the larger your business, the less it costs to do business (just compare the prices at Wal-Mart and the neighborhood general store).
By splitting off the PSG, both halves of HP would suffer from decreased economies of scale, particularly in supplier relations. HP saves a buttload on component costs because they’re buying of personal computers, servers, printers, and the like. Having two separate contracts with the same supplier would result in lower savings (due to lower purchasing quantities per contract) and thus lower profits – blowing a whole in the reasoning for the spin-off: that the PSG would do better separate from the HP mothership.
So what happens now? Whitman said that she wants to come to a decision about the PSG spin-off by the end of this month. Judging by the Journal’s sources and our own intuition on the matter, we’d say a spin-off is unlikely to occur, for the mere reason that it’d cost too much. HP’s all about increasing shareholder value – the tens of billions of dollars of obliterated shareholder wealth from Apotheker’s tenure should tell you all you need to know about the motivations behind this decision.
Source: The Wall Street Journal; Thanks to everybody that sent this in!