Why HP Is Better Off to Sell Their PC Business Than a Spin Off

In my opinion, spinning off HP's PC business as a separate company is bad for 3 reasons:

1. Brand Equity Loss. "HP" means technology and innovation to many people. This iconic company has been contributing to American' technology growth since it was founded in the silicon valley. Consumers and business "dig" HP's PC because the brand means quality and performance. Should HP spins off their PC business, the new company will no longer be recognized as the same as "HP". If brand equity is lost, so does business. Good luck for hoping a Best Buy customer associate explaining to the customers that this X-brand PC is just the same as a HP product.

2. Reduced Cost Efficiency. "HP" as a whole has very high efficiency of leveraging their supply and manufacturing in cost control. When HP negotiates with their suppliers, from component vendors to system integrators (a.k.a. ODM), their suppliers see their business potential in the entire "HP pie". Not only HP has PC business, they also make printers, servers and other system infrastructure equipment. For a lot of their vendors, many of them apply the business strategies of losing money or breaking even at the PC division, and hope for making money from HP's other divisions after "getting their foot in the door". Similar situation exists for HP's manufacturing facilities. However, if HP spins off their PC business, I think HP would keep their high end Server business associated with their software IT solutions (think of Oracle, they bought Sun for their hardware). The result is that the new spin-off company no longer has the same bargaining power in front the vendors and ODMs. They can no longer enjoy extremely low manufacturing costs because the ODMs, like Inventec, Pegatron, Quanta, etc., will now have to deal with HP separately for the high-margin business. Without world-class cost control and manufacturing efficiency, the new spin-off company is deemed for failure competing against Dell.

3. Ever Shrinking Business Potentials. PC is at its middle age. Sad to say, but its market size is shrinking. The once glory days of personal computer are long gone. Spinning off a business with the intention of winning in the PC market is boring and risky at the best. Knowing that the business's future is shrinking, no investor will even dream for the new company to grow, let along fast. The PC industry is highly consolidated due to severe price erosion, and most OEM players are in Asia - Lenovo, Fang Zheng, Tong Fang, Asus, Acer, Toshiba, Sony, Pansonic, NEC, Fujitsu, etc. The last two standing American companies are Dell and HP, while HP has one of its knee on the ground.

HP successfully made the spin-off Agilent. Agilent successfully made the spin-off Avago. But I highly doubt HP will be successful spinning of their PC business. Or if they're successful (i.e. cashing out), the new company may not be successful.

Here is my proposal, should HP's board finally decides to spin-off their PC business, please rename the company Compaq.