HP PSG UK head: what's all this talk about us 'quitting' the PC business?

HP's UK head of the Personal Systems Group – that's the part of HP that Leo Apotheker put on the block last week – has sent around a message for clients and customers, which we'll reproduce here, with our own comments.

A message from Paul Hunter, head of HP PSG UK and Ireland.

There's no denying that it's been a strange week at HP. I've spent 16 years with HP in the UK and I certainly can't remember a time like it. But change happens, and I fundamentally believe that HP and PSG are stronger following the announcements surrounding webOS and PSG.

I'd like to firstly clear up any misunderstanding that has arisen from the earnings announcement around the future of the Personal Systems Group. There have been a number of incorrect stories saying that HP is quitting the PC business.

Let me be absolutely clear in saying that at no stage has HP said it is quitting the PC business. Three options are being investigated, and whether the company is spun off, sold or kept in the HP portfolio, the team in the UK remains committed to creating and supporting great products and services.

Two out of the three options offered there involve HP quitting the PC business (because it wouldn't have a PC business in-house any more). And HP's overall profit margins would improve by about 2%, from 10% to 12%, if it got rid of PSG. Overall, PSG is the least profitable division, in percentage terms (ie profits/revenues) of HP by a substantial margin: its average profitability is about half that of the next-worst division, HP Financial (which does leasing, and is tiny).

Getting rid of PSG would raise the margin, which would raise profitability, which would raise the earnings per share, which would raise HP's share price. "Adding value for stockholders" is how companies are meant to work. Absent a long-term plan for transforming the PSG business (perhaps with tablets? Oh, perhaps not) it's hard to see the justification for keeping it in purely fiscal terms. There could be other justifications - that the experience in designing software or hardware feeds back into other parts of the company, or that winning PC business leads to more profitable services contracts - but the numbers themselves don't speak well.

Hunter continues:

I'd also like to reaffirm our commitment to our UK customers regarding both PC products and those that bought webOS devices. HP is the world's largest PC manufacturer. We are the number one PC manufacturer in UK and Ireland. HP PSG UK is only going in one direction, forwards and that means customers can have confidence that existing HP products will be supported under the terms of their warranties as will any future purchases. Likewise, all webOS products will be supported and HP fully intends to support the future development of the webOS platform, though again how that will be managed is still under discussion.

Clear as mud on WebOS. You can see that HP would be very worried that customers and potential customers might be deserting. I'd be astonished if Dell's sales force weren't on the phones all this week
Obviously the announcement has raised a number of questions outside those mentioned above. We are still working through some of these, but I wanted to try and address as many as I could.

Regarding PSG activity in the UK, it's very much business as usual. Actually, it's more than business as usual. PSG is a $40B annual business. We operate in 170 countries and have more than 180,000 channel partners. Whatever the future strategy, we have a mission and responsibility to all of our employees, customers and partners to continue to deliver fantastic products. To that end, you will see a ramping up of marketing and advertising activity in the UK as we look to raise awareness of our great products ranges like ENVY and TouchSmart for consumer and Elite and ProBooks for business users.

That's PCs, which have an uncertain future.

Another obvious question is why has HP decided to stop supporting webOS hardware devices. Due to market dynamics, significant competition and a rapidly changing environment, continuing to execute our former device approach was not in the best interest of HP and HP shareholders. HP is fully committed to the ongoing support and service of customers who purchased webOS devices.

We hear: for some reason the iPad didn't roll over at the approach of the TouchPad, even though ours was the same price, just slower and with fewer apps. Quite what the "rapidly changing environment" was, we don't know, and HP hasn't elucidated.

I know that questions will remain, and I will do my very best to answer these as and when they arise. I apologize that we have been slow to answer some of the questions around webOS. The sheer scale of interest in the discounted products took us a little by surprise. We are now working on ensuring everyone that owns a webOS device has a positive experience.

Translation: we're waiting for the rest of the stock, which was meant to last until Christmas but sell at a profit, to arrive so we can sell it at a loss. HP management wants this to happen.

And that is my focus now; to ensure each and every interaction with the PSG UK business, be that from a customer, reseller, partner or journalist is a positive one. These are changing but exciting times. My UK team and I are fully committed to leading this world class business to a new and prosperous future.

We're sure he is, and we wish him the best. It's just going to be tricky, that's all.

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