Why would a company give up its market-leading position in a major hardware segment -- especially if that business is still profitable? That was one question a number of customers were asking after Hewlett-Packard (HP) said it's looking to sell its Personal Systems Group and get out of the PC business -- despite being the top vendor of personal computers worldwide.
One answer? Profitability. The hardware business is by far HP's least profitable segment, with an operating margin of 5.9%. Excluding financial services (at 9.4%), every other HP business segment's margin was in double digits last quarter.
Its software division rang in at 19.4% profits from operations, more than triple Personal Systems. Given those numbers, is it surprising that HP's management finds the software business more appealing?
Another reason: slower growth. Tablets, netbooks and other mobile devices are expected to eat into PC sales . And, unlike in the personal-computer space, HP doesn't have much penetration in tablets and smartphones (or didn't until the $99 TouchPad fire sale ignited a wave of buying. But those are highly unprofitable sales.)
HP's desktop and notebook sales each dropped 4% last quarter compared with a year ago. In contrast, software sales soared 20%.