Five Reasons Why HP Would Sell its PC Lines

Hewlett-Packard, the world's biggest computer company, will sell or spin-off of its PC lines, it announced Thursday. It also said it will discontinue its smartphone business. The announcement came as HP announced lower-than-expected third quarter results.

HP is also in talks to acquire Autonomy, one of the biggest British technology companies, which would enhance the Palo Alto, Calif.-based company's service lines and shareholder value. The deal value could reach $10.3 billion.

The move would reflect the strategy of new CEO Leo Apotheker, a former co-CEO of SAP, Europe's biggest software company, and a rival of Oracle, the U.S. database giant. Oracle now employs former HP CEO Mark Hurd, who resigned after questions were raised about his relationship to a woman hired as a corporate consultant.

Here's why Apotheker would divest the PC lines:

PCs, while profitable, don't fetch margins as high as advanced computers and servers, plus software, bought by business. Under a former CEO, Carly Fiorina, HP bought market share via the $25 billion 2001 acquisition of Compaq Computer, a PC pioneer. HP, a master of the printer business, knows how to make money with them. PCs, as commodities, are getting cheaper and cheaper.

HP has studied history, especially the IBM turnaround. This month, IBM celebrated the 30^th anniversary of the IBM PC, a latecomer to a PC market initiated by small companies like Apple and Compaq. By the early 1990s, IBM had become too big to compete with them, spinning off its lines into IBM PC Co., a freestanding division. Ultimately, the remainder was sold to China's Lenovo Group.

Apotheker, as a new boss, doesn't owe anything to decisions made by Fiorina and Hurd, and his software background reveals an understanding of higher margin sevices.

Other top computer makers like Unisys left the PC field long ago.

HP is not benefitting yet from the smartphone and tablet boom. While the company paid $1.2 billion to acquire wireless patents and systems from smartphone maker Palm, it hasn't yet shown much success in the sector dominated by Apple and products running on Google's Android OS.Now it will exit and concentrate on what it knows best, leaving the sector to Apple and the rivals. HP still enjoys close ties to Microsoft, Google and others in the sector.

HP's TouchPad, introduced only last quarter, was a relative flop with its first release. HP could exit tablets and place its chips on smartphones, where market researchers predict sales to soar.

Buying Autonomy lets HP compete better with Apple. The British tech company specializes in sophisticated searches in text as well as audio and video. Earlier, it acquired U.S. companies like Viisage and Zantaz, which allow easy search of video archives and words. That would speed competition with Apple and IBM, as well as Oracle and SAP.

New CEO Apotheker can make his mark. Like Louis Gerstner, the American Express CEO brought in to turn IBM around in 1993, Apotheker is an outsider. HP is highly profitable, whereas IBM was near collapse when Gerstner came in and saved the company.

But Apotheker, the first non-American CEO of HP, whose office was held by electronics legends like Bill Hewlett and David Packard, then by their successor John Young, will be able to make his mark.