But the low margins inherent in the PC business make PSG the company's least profitable division.
"I still think HP’s initial intuition was right, that the PC business, as driven by Microsoft and Intel, will increasingly become a race to the bottom — with the two Wintel allies sucking all the profits. Instead of 'rooting for a fantastic Windows 8' [as Gassée quotes Whitman], HP should root around for a buyer for its PC business."
Which gets to the root of HP's dilemma. Every quarter the company hangs on to PSG, its potential spinoff value diminishes. I think that was the assumption driving Apotheker's decision to get HP out of the PC business -- a decision, as Gassée and I both have noted, which was approved by a board of directors that included Whitman.
But the problem was that HP was coming off an absolute disaster with the TouchPad tablet. In fact, part of Apotheker's bombshell last summer included the news that HP would kill off its webOS mobile operating system upon which the TouchPad was based.
Meaning that Apotheker couldn't say, "Folks, HP can now afford to get out of the PC business because we're so well-positioned in the tablet and mobile markets!"
In other words, HP had no evolving business to pick up the slack from losing nearly 30% of its revenue, low margins or no low margins.
This is in contrast to IBM, which sold its PC business to Lenovo in 2005. By then Big Blue had been building a global services business for years that comprised nearly half of the company's revenue. PCs, meanwhile accounted for just 13% of IBM's $96.3 billion revenue in 2004.
Meanwhile, HP's services revenue is growing, but at a snail's pace. Year-over-year growth in the most recent quarter was 1%. The quarter before that it was 2%. And yet still services should overtake PSG as HP's biggest revenue generator in the current quarter, assuming another drop in PC sales.
The painful truth for HP shareholders is that the company currently isn't well-positioned to transition away from PCs, thus it will be extremely risky to walk away from that business in the near future. Yet the longer HP waits to sell its still market-leading PC business, the less it will be worth. It's a classic lose-lose situation.
OK, readers, if you were CEO of HP, what would you do? If you have any suggestions for Meg, feel free to leave a comment below. I'll make sure she gets it.