HP To Retain PC Division, Yet No Word on WebOS

Technology giant Hewlett-Packard Co. (NYSE:HPQ) has now abandoned its previous proposal to spin-off its PC division, which has led to the ouster of its ex-CEO Leo Apotheker.

Apotheker's successor Meg Whitman, who had served as CEO of eBay (NASDAQ: EBAY) for a decade, said HP has decided to retain the personal systems group (PSG) saying that the cost advantages of retaining PSG outweighed the benefits of separation.

HP objectively evaluated the strategic, financial and operational impact of spinning off PSG. It's clear after our analysis that keeping PSG within HP is right for customers and partners, right for shareholders, and right for employees, said Meg Whitman in a statement. HP is committed to PSG, and together we are stronger.

PSG unit, which made HP the world's largest PC maker, has generated more than $40 billion in revenues in fiscal year 2010.

With the change of senior leadership, we believe it was inevitable that HP would keep the PC business, for several reasons. First, HP damaged the asset that it was trying to sell, when it made the unusual and unprecedented announcement that it would evaluate the business, BMO Capital Markets analyst Keith Bachman wrote in a note to clients.

But, still there is no word from HP over its stance on webOS business, which it has decided to wind down in August along with its announcement of exploration of strategic alternatives for its PC unit. HP got webOS from its $1.2 billion acquisition of Palm in April 2010 and ran the software on its Touchpad tablet, which was buried by HP less than 7 weeks after its launch.

Meanwhile, Guardian reported that the staff within the webOS division is expecting the imminent closure of the business, a move that would affect over 500 jobs. The recent top-level executive departures from webOS group show that such a possibility cannot be sidelined. Earlier this week, Richard Kerris stepped down as HP's vice-president of webOS worldwide developer relations to join Nokia.

We have heard that PC employees have been leaving or seeking to leave, so HP will need to focus on employee retention, Bachman said.

Now, the unnecessary overhang is removed, the analyst believes that HP will need to focus on trying to win back large commercial customers, who the analyst believes had concerns about how HP would provide post sale support for PCs if the business were to be sold.

However, Bachman said consumer demand has not been affected by during the evaluation period. Further, HP may have used aggressive pricing to try and retain share during the period, which may negatively impact margins.

Shares of HP closed Thursday's regular trading session at $27.09. In the after-hours, the stock gained 26 cents to trade at $27.35.