One day ago as I looked at the initial reports of Hewlett-Packard’s decision to split into two companies, I was missing important details. As the day went along, it became clear that I had missed the gist of what was going on. Hewlett-Packard is ditching the PC business and apparently the printer business too.
As it is spelled out in the plan at Hewlett-Packard, businesses virtually don’t buy traditional PCs or printers anymore. People have been saying the PC is dead for three years now, and of course that is an exaggeration, yet there must be something to it if HP, at one time the largest PC brand in the world, now says its PCs are no longer suitable for its business customers. The spinoff “Compaq” company focused on laptops and printers, apparently to be called “HP Inc.” in the official plan, does not expect to sell to businesses in any significant volume. Instead, it will offer its computers, printers, and related hardware exclusively to consumers.
Consumers? This is a horse of a different color. Consumers, of course, do buy business-style computer hardware, but when they do, they tend to buy the same things they are familiar with from the office. If the HP brand is fading from the office, visible only on the oldest and most out-of-date equipment there, consumers will look elsewhere when they want office equipment at home. The best way to gauge how well this will work is to look at the history of Gateway after it gave up on the business market and tried to sell exclusively to consumers. In about three years it went from major brand to non-player to being bought out and its manufacturing shut down.
HP has decided to head down the same path. This is not as crazy as it might sound. If there is no profit potential left in the PC business and printing too is on its way out, the logical thing to do is to liquidate the HP brand reputation before it is too late to matter. And if the business customers have already lost interest, then you would turn to whatever customers are left. This is what economic theory suggests, but in the practical world, there are at least two catches. First, this must be done without tipping off the suckers, the consumers who are the new intended customers. If people start tweeting “HP is the new Gateway,” you’re done. Second, this enterprise might end up with no profit at all if it cannot be pulled off smoothly and gently with a minimum of expensive upheaval. The $2 billion in expected startup expenses for the new company are already enough to give one pause.
The bottom line: Gateway Inc. never completely went away, but still sells laptops to its loyal customers. This is where HP as a computer and printer brand is heading. If one of the market leaders is this convinced that PCs and printers are legacy technology, not just saying so but putting its future on the line, you might want to think twice before investing in new equipment in this category. What do you really need a new computer or printer for?
