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HP decides to keep PC division

By Poornima Gupta, Reuters

SAN FRANCISCO — Hewlett-Packard Co ditched a plan to spin off its personal computers unit, a month after the ouster of CEO Leo Apotheker whose idea would have cost billions of dollars in expenses and lost business.

New Chief Executive Meg Whitman, who replaced Apotheker immediately, had vowed a quick decision on an issue that was beginning to alienate its PC partners, investors and customers.

Separating the PC unit would have cost the company $1.5 billion in one-time expenses and another $1 billion annually, it said.

The retention of the PC business marks the latest flip-flop in strategy as the company had said earlier that its preferred option was to spin out the business.

"This is the most pragmatic decision and allows them to continue to leverage the end-to-end supply chain benefits," said Gartner analyst Mark Fabi, adding that it also showed Whitman's decisiveness as CEO.

"Clearly this was missing over the past year," he added.

The world's largest technology company by revenue stunned investors when it announced in August that it is considering strategic alternatives for its Personal Systems Group (PSG) — which includes PCs — and would kill its new tablet computer as part of a major revamping away from the consumer market.

The Palo Alto, California company has been struggling in the PC market — a low-margin but high revenue business — as niftier gadgets such as Apple Inc's iPad have lured consumers away.

Citing deep integration of the PC group in HP's supply chain and procurement, Whitman said the company was "stronger" with the unit.

The decision to review the PC business was part of Apotheker's sweeping strategy that was not welcomed by investors.

The former SAP CEO was fired last month after he angered investors with his over $10 billion purchase of British software company Autonomy and struggled to halt a 50 percent plunge in HP's share price and undermined investor.

The decision to announce HP's review of its PC business was questioned by many shareholders. The events also undermined investor confidence in HP's board, which was criticized for hiring Apotheker and for going along with his strategy.

"Hopefully this is a beginning of a set of events over the next year that demonstrates the board has a better grip on things," Forrester analyst Frank Gillett said. "It didn't feel well thought out or well executed in August."

Separating the PC business would have meant about $1.5 billion in one-time expenses including establishing the infrastructure such as new systems for IT, support, sales and channel operations, a company spokesman said.

The elimination of joint opportunities — such as branding and procurement — would have cost HP over $1 billion annually, he said.

Some of the alternatives that HP was previously considering included hiving off the business into a separate company through a spin-off or sale.