It has been said for years that if Apple were willing to engage in a price war, it could easily drive its major U.S. competitors in computers out of business. Apple, of course, has done nothing of the kind, focusing on design and charging a premium price for nearly all of its computer offerings, but that may have been enough. From what we’ve heard yesterday and today, HP is talking about a desperate reorganization that it may not survive.
In spinning off its computer platform business, HP will not just be unloading the low-margin part of the company. It will also be losing its identity. HP wants to be known as a systems integrator like IBM. Some in the company also want to tie its brand to its ink-jet printers. Both are risky moves, especially right now. The home ink-jet printer market could be decimated by the decline in printing, the end of the photo print era, and competition from solid-ink and laser printers (both of which are suitable for low-volume printing in a way that the ink of ink-jet printers is not). The corporate systems market is likely to be an especially tough business in the recessionary times of this year and next, and in a business where a can-do attitude is everything, beating a hasty retreat from the computer business will further mar HP’s image.
HP’s computer business can’t be expected to survive on its own any better than Motorola’s mobile phone business has. Its only plausible destiny is to be bought out by a company like Oracle or Microsoft, or to shrink until it is small enough to be bought out by another computer maker. And so, though the move might be labeled a spin-off, it is really more like a slow-motion shutdown.
HP, then, is about to split into two companies, neither of which will be viable separately. Wall Street has responded accordingly, sending the stock price down to about half of its May peak.
HP’s new moves come after word of the spectacular failure of its iPad knock-off, which even with a price cut had reportedly sold only a token quantity in its first few months. With margins getting squeezed across its computer business, it had to do something, and the latest reports suggest its situation is more urgent than it appears from the outside.
With Sun and Gateway gone and Dell also staggering, that doesn’t leave many of the major players of the U.S. computer business of the 2000s still rolling along. Perhaps the stripped-down product lines of Apple and IBM are more of an advantage than they appear.