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HP: It's Just A Flesh Wound!

Hewlett-Packard says that it has decided to stay in the PC business, and, like a bad knockoff of "Monty Python and the Holy Grail," the company insists it is business as usual, despite copious amounts of leaking blood. Meanwhile, the sharks, like Dell, are gathering.

On Oct. 27, HP announced it had completed its evaluation of strategic alternatives for its Personal Systems Group (PSG) and decided the unit will remain part of the company. "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, HP president and chief executive.

Whitman, the former eBay CEO, replaced Leo Apotheker as president and CEO in September. Apotheker, who was ousted based on his failure to execute on the company's new strategy, came to HP after heading up SAP. He announced in mid-August that the company was considering spinning off PSG, which had revenues of $40.7 billion for fiscal year 2010, almost a third of its total revenues of $128 billion.

According to a Dell-sponsored study from IDG Research Services, 64% of current or potential HP customers with more than 500 employees are concerned by HP’s changes in business strategy and leadership. Almost half, 49%, are considering new or additional PC vendors, while 41% are reconsidering alternative vendors for servers. The 302 respondents were evenly split among companies with 5,000-plus, 1,000 to 4,999 and 500 to 999 employees.

Another recent survey of 130 HP customers in the United States with at least 500 employees, by Technology Business Research, found that respondents were concerned with the direction the company was taking. Customers were asked if, based on the announcements, they felt HP was well-managed with a clear vision of the future or if they felt HP was struggling and unsure of what to do next. Sixty-three percent selected the latter. This response rate is a very clear indicator that customers do not agree with the current track HP has set, and that could impact future business, says TBR.

Charles King, principal analyst, Pund-IT, thinks HP’s reversal on PSG demonstrates two things: First, an intelligent reading of/reaction to shareholder and customer dismay and second, the danger of what might be called the Netflix Effect. "Both HP and Netflix announced decisions which could be strongly argued from a business-strategy point of view. But making what came to be considered too radical a decision rocked both companies and created notable opening for competitors."

Due to the PC-focus, Dell has gained the most from HP’s situation, he says, an analysis supported in both the IDG and TBR studies. "I don’t expect that advantage to last forever, but a large vendor reversing course is a bit like an ocean liner: Turning 'on a dime' might take 10 miles and a great deal of effort."

While it has attracted less attention, HP’s enterprise solutions strategy is also in transition, says King. "The acquisition of Autonomy is evidence of that. During that process, I expect business IT-focused competitors like IBM, EMC, Oracle and Dell will work hard to bring HP customers into their own folds."