HP team of 100 helped decide PC unit's fate

Hewlett-Packard's decision to reject the plan to spin-off or sell its PC division came after an intensive, six-week study by a team of 100 people at the company.

One of the co-leaders of this study, Tony Prophet, senior vice president of operations for HP's Personal Systems Group, said the team came up with three key reasons for keeping this division. They were related to the supply chain benefits, internal IT issues and extensive back office integration.

In the end, the company concluded that the costs of separation are greater than its benefits.

"We are the largest purchaser of many of the commodities that go into both PCs and servers," said Prophet, citing memory technology, hard disk drives, microprocessors, and in some cases, Microsoft operating systems.

The servers and the PCs are built in similar supply chains and in the same factories, he said. The logistics in which they move are similar, Prophet added. "In the enterprise space, [PCs and servers] are often sold to the same customer," he said.

There are "many, many common threads between the PC business and the server business from the component level all the way to the customer level," said Prophet

HP would have lost some of those benefits by spinning off or selling the PC division. Separating the unit from HP would require some $1.5 billion in one-time costs, while the company would have lost some $1 billion annually in operating profits, the company said Thursday.

Meg Whitman, who was appointed CEO last month, initiated the study to follow up on the idea launched by then-CEO Leo Apotheker. He believed that HP might be better off to focus on high margin areas, services and software in particular and not on lower margin PCs.

His approaches displeased investors and the board, and Apotheker was forced out.

The two other leading reasons for rejecting the idea involved the cost to HP of pulling apart its internal integration. HP's IT systems, supply chain, general ledger, ERP -- everything that the company drives its business on -- are highly integrated, said Prophet.

Separating back office functions would also be costly, said Prophet. Getting rid of the PC business would affect all the people taking orders, paying invoices, and working in functions such as HR and benefits administration.

As for the future, Prophet said the company is "very enthusiastic about Windows 8," and that Intel's Ultrabook is "a core element of our strategy."

Prophet said HP is working closely with Intel around what defines an Ultrabook.

Intel's Ultrabook plan includes thin designs that run Windows 8 . The Ultrabooks may include tablet-like touchscreen capabilities.

Prophet indicated that the study will likely lead to additional benefits for HP, but he wasn't going to disclose them. "We did uncover some things we think are going to be beneficial and further extend our competitive advantage."

Prophet said the study effort was "a period of high energy, intensive focus, rigor and long hours, and for me just a great journey in learning more about the company."

Patrick Thibodeau covers SaaS and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov , or subscribe to Patrick's RSS feed . His e-mail address is pthibodeau@computerworld.com .

Read more about pcs in Computerworld's PCs Topic Center.