HP PSG UK head: what's all this talk about us 'quitting' the PC business?

HP Hewlet Packard UK website. The UK head of its personal systems group says it isn't quitting the PC business. Yet. Photograph: Daniel Law/PA

HP's UK head of the Personal Systems Group – that's the part of HP that Leo Apotheker put on the block last week – has sent around a message for clients and customers, which we'll reproduce here, with our own comments.

A message from Paul Hunter, head of HP PSG UK and Ireland.

There's no denying that it's been a strange week at HP. I've spent 16 years with HP in the UK and I certainly can't remember a time like it. But change happens, and I fundamentally believe that HP and PSG are stronger following the announcements surrounding webOS and PSG.

I'd like to firstly clear up any misunderstanding that has arisen from the earnings announcement around the future of the Personal Systems Group. There have been a number of incorrect stories saying that HP is quitting the PC business.

Let me be absolutely clear in saying that at no stage has HP said it is quitting the PC business. Three options are being investigated, and whether the company is spun off, sold or kept in the HP portfolio, the team in the UK remains committed to creating and supporting great products and services.

Two out of the three options offered there involve HP quitting the PC business (because it wouldn't have a PC business in-house any more). And HP's overall profit margins would improve by about 2%, from 10% to 12%, if it got rid of PSG. Overall, PSG is the least profitable division, in percentage terms (ie profits/revenues) of HP by a substantial margin: its average profitability is about half that of the next-worst division, HP Financial (which does leasing, and is tiny).

Getting rid of PSG would raise the margin, which would raise profitability, which would raise the earnings per share, which would raise HP's share price. "Adding value for stockholders" is how companies are meant to work. Absent a long-term plan for transforming the PSG business (perhaps with tablets? Oh, perhaps not) it's hard to see the justification for keeping it in purely fiscal terms. There could be other justifications - that the experience in designing software or hardware feeds back into other parts of the company, or that winning PC business leads to more profitable services contracts - but the numbers themselves don't speak well.

Hunter continues:

I'd also like to reaffirm our commitment to our UK customers regarding both PC products and those that bought webOS devices. HP is the world's largest PC manufacturer. We are the number one PC manufacturer in UK and Ireland. HP PSG UK is only going in one direction, forwards and that means customers can have confidence that existing HP products will be supported under the terms of their warranties as will any future purchases. Likewise, all webOS products will be supported and HP fully intends to support the future development of the webOS platform, though again how that will be managed is still under discussion.

Clear as mud on WebOS. You can see that HP would be very worried that customers and potential customers might be deserting. I'd be astonished if Dell's sales force weren't on the phones all this week

Obviously the announcement has raised a number of questions outside those mentioned above. We are still working through some of these, but I wanted to try and address as many as I could.

Regarding PSG activity in the UK, it's very much business as usual. Actually, it's more than business as usual. PSG is a $40B annual business. We operate in 170 countries and have more than 180,000 channel partners. Whatever the future strategy, we have a mission and responsibility to all of our employees, customers and partners to continue to deliver fantastic products. To that end, you will see a ramping up of marketing and advertising activity in the UK as we look to raise awareness of our great products ranges like ENVY and TouchSmart for consumer and Elite and ProBooks for business users.

That's PCs, which have an uncertain future.

Another obvious question is why has HP decided to stop supporting webOS hardware devices. Due to market dynamics, significant competition and a rapidly changing environment, continuing to execute our former device approach was not in the best interest of HP and HP shareholders. HP is fully committed to the ongoing support and service of customers who purchased webOS devices.

We hear: for some reason the iPad didn't roll over at the approach of the TouchPad, even though ours was the same price, just slower and with fewer apps. Quite what the "rapidly changing environment" was, we don't know, and HP hasn't elucidated.

I know that questions will remain, and I will do my very best to answer these as and when they arise. I apologize that we have been slow to answer some of the questions around webOS. The sheer scale of interest in the discounted products took us a little by surprise. We are now working on ensuring everyone that owns a webOS device has a positive experience.

Translation: we're waiting for the rest of the stock, which was meant to last until Christmas but sell at a profit, to arrive so we can sell it at a loss. HP management wants this to happen.

And that is my focus now; to ensure each and every interaction with the PSG UK business, be that from a customer, reseller, partner or journalist is a positive one. These are changing but exciting times. My UK team and I are fully committed to leading this world class business to a new and prosperous future.

We're sure he is, and we wish him the best. It's just going to be tricky, that's all.

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Tech Weekly podcast: Steve Jobs steps down as Apple CEO

In a special programme we discuss the career of Apple guru Steve Jobs as he steps down from his role as chief executive. Jemima Kiss, Charles Arthur and Dan Crow of UK startup Songkick share their thoughts on the effect Jobs has on computing and the company that just two weeks ago became the world's biggest (by market capitalisation).

Dan, who worked with Jobs on his return to the company in the mid-90s suggests that Steve may be the greatest marketer of our time, because of his ability to understand products and what people find exciting in them.

Apple co-founder Steve Wozniak also shares a story from a turning point during the early years of the company – the launch of the Mac – and how Jobs's tyrannical reputation was evident even then.

We also discuss Apple's new chief executive Tim Cook, and ask what the future now holds for Apple.

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Boot up: HP's WebOS conundrum, Autonomy sale, and more

A quick burst of 8 links for you to chew over, as picked by the Technology team

Rory CJ: "...while there's a promise that Autonomy will be run as a separate business, with Mike Lynch still in charge, this still looks like a sad day for British technology - and for Cambridge in particular."

"Those options could range from a sale to licensing. What to do with WebOS is just one issue facing HP as it attempts to reinvent itself. Here's a look at the options."

"An insider has given us details from an all-hands meeting HP just held with employees in the webOS Global Business Unit in light of today's announcement that HP will no longer make webOS devices. In the meeting, webOS GBU VP Stephen DeWitt made it clear that HP intends to continue to work on webOS and likely intends to license it. DeWitt was adamant, saying several times "We are not walking away from webOS." He detailed a plan to try to determine what the platform's future will look like within the next two weeks, although he admitted that "Clearly, we don't have all the answers today.""

Quite a lot. Though of course this shows revenue, not profit. The profit graph would be more interesting.

All you need to know about many Anonymous members in a single tweet: age, attitude, achievement.

Handy tips indeed.

Free phone charging? Think again. "Brian Markus, president of Aires Security, said he and fellow researchers Joseph Mlodzianowski and Robert Rowley built the charging kiosk to educate attendees about the potential perils of juicing up at random power stations. Markus explains the motivation behind the experiment:
"'We'd been talking about how dangerous these charging stations could be. Most smartphones are configured to just connect and dump off data,' Markus said. 'Anyone who had an inclination to could put a system inside of one of these kiosks that when someone connects their phone can suck down all of the photos and data, or write malware to the device.'"

Intriguing: "At a news conference following release of its first-half earnings, China Mobile (CHL) revealed Thursday that it has met several times with Steve Jobs to talk about Apple (AAPL) making an iPhone that would support its proprietary 3G standard, Reuters reports"

You can follow Guardian Technology's linkbucket on delicious

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Boot up: Steve Jobs steps down, reaction and more

A quick burst of 11 links for you to chew over, as picked by the Technology team

Nice collection.

"Steve Jobs's resignation as chief executive officer of Apple is the end of an extraordinary era, not just for Apple, but for the global technology industry in general. Jobs is a historic business figure whose impact was deeply felt far beyond the company's Cupertino, Calif., headquarters, and who was widely emulated at other companies."

John Gruber: "Apple's products are replete with Apple-like features and details, embedded in Apple-like apps, running on Apple-like devices, which come packaged in Apple-like boxes, are promoted in Apple-like ads, and sold in Apple-like stores. The company is a fractal design. ... The same thought, care, and painstaking attention to detail that Steve Jobs brought to questions like "How should a computer work?", "How should a phone work?", "How should we buy music and apps in the digital age?" he also brought to the most important question: "How should a company that creates such things function?"
"Jobs's greatest creation isn't any Apple product. It is Apple itself."

"The public release of the source code for the infamous ZeuS Trojan earlier this year is spawning novel attack tools. And just as hybrid cars hold the promise of greater fuel efficiency, these nascent threats show the potential of the ZeuS source code leak for morphing ordinary, run-of-the-mill malware into far more efficient data-stealing machines."

"The US Securities and Exchange Commission (SEC) receives thousands of financial documents every day detailing the ins and outs of various publicly traded companies and publishes them on its website. Financial reporters who trawl through these SEC filings can often land a scoop, but it's a tedious and time-consuming task. Now, MarketBrief, a new start-up based in Mountain View, California, promises to publish over 1000 stories per day thanks to its software journalists.
"It's easier than it sounds."

Philip K Dick must be laughing somewhere; he coined the "homeopapes", self-driven journalist robots, which would do the interviews by doorstepping people too.

"Apple's iPad will retain its dominance of the tablet market through at least 2013, research firm IHS iSuppli said today.
"El Segundo, Calif.-based iSuppli upped its iPad sales forecast for 2011 from an earlier estimate of 43.7m to 44.2m, citing Apple's ability to solve its supply issues and the blunders by rivals, including Hewlett-Packard.
"'Apple has resolved the iPad supply issues,' said Rhoda Alexander, senior manager of tablet and monitor research in an interview today. 'It was never a demand problem.'"

In the first two quarters of 2011 Apple sold about 12m iPads, so this would indicate a huge ramp in sales.

There's the feeling of an idealistic thread of thinking running up against Google's deep need to be able to mine personal data in this debate.

Nice animation by @codepo8. HTML5 is coming along.

Interesting take from the DefCon conference about how hacking has been forced to grow up - sort of - and the troubles around Anonymous.

Some so-called infographics actually obscure more than they inform.

Adi Kingsley-Hughes isn't enjoying. (We haven't upgraded from Snow Leopard yet, so can't comment.)

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Boot up: Skype acquires GroupMe, HP's 'long-decade departure', and more

Microsoft CEO Steve Ballmer and Skype CEO Tony Bates (right) discuss the future following the purchase of Skype by Microsoft. Photograph: Kimihiro Hoshino/AFP/Getty Images

A quick burst of 6 links for you to chew over, as picked by the Technology team

"Skype will acquire group messaging service GroupMe, a service that was born at a hackathon at TechCrunch Disrupt in New York in 2010. GroupMe was founded by Jared Hecht and Steve Martocci."

What the Guardian thinks of software patents.

Horace Dediu: "But that's the nature of unforeseeable growth: you cannot foresee what will happen and plans never work out. Data and planning don't help. The lesson is that you need to plan for that which cannot be planned. When you are at your peak you must assume failure is imminent and when you are at the trough you must assume success is inevitable.
"All failures of strategy are rooted in the assumption that outcomes are predictable."

Robert Scoble: "If you want to be a leading platform today you MUST get third-party developers on your side. To rub that in a bit, today I was hanging out with Photobucket's CEO, Tom Munro. I asked him what he thought about the HP news. You can listen in on that conversation here.
"Don't know why Photobucket is relevant? They have nine billion photos. Flickr only has five billion. They just made a deal with Twitter to become the photo sharing system underneath Twitter. Twitter made a deal with Apple to become the official social network for iOS. IE, he's now the official photo sharing guy for Apple's iPhone and iPad.
"Developers like him keep telling me 'Apple is first in my mind, Google is second, and I don't have time for #3, but if I do, looks like Microsoft has the best future.'"

Google has been looking at malware attacks, with a big report: "The report looks at a number of evasion and defensive techniques employed by attackers and malware distributors and concluded that not only are the bad guys quite skilled at adapting to new behaviors by users and browsers, they're also doing some of their own innovation. One of the more interesting findings in the report is that socially engineered malware--the kind that uses various tricks to goad users into visiting a site or downloading a file--make up barely 2% of all malware observed by Google. The volume of socially engineered malware has been rising steadily during the course of the last few years, but Google's engineers said it's still a tiny piece of the overall picture."

From March; worth reading again in the light of HP's withdrawal from the tablet market.

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Boot up: Youth cybercrime linked to peer pressure, SQL injections uncovered, and more

Youth cybercrime ... all about friends' influence?

A quick burst of 9 links for you to chew over, as picked by the Technology team

Showing you how SQL injection is spotted and what tools are used to get it done. The lack of response from the fashion site is concerning, though: this is someone who tried to do all the right things (no customer data leak, advising the site privately).

"Mr Jobs has been described in the past as Apple's best marketing tool. Today's announcement shows that he hasn't lost his ability to steal the headlines.
"Here are some of the stories which would have been interesting news today, if Stevey J hadn't sent that letter to the Apple board."

Your catchup-on-the-catchup service.

Linked by Oxblood Ruffin (see link lower): "Peer influence and low self-control appear to be the major factors fueling juvenile cybercrime such as computer hacking and online bullying, according to a new study led by a Michigan State University criminologist.
"Thomas Holt, assistant professor of criminal justice, said the findings reinforce the need for parents to be more aware of their children's friends and Internet activities."

Quad-core! Great. We think there may be more unreleased Windows slates than ones actually on the market.

"After 14 years and over 15,000 stories posted, it's finally time for me to say Good-Bye to Slashdot. I created this place with my best friends in a run down house while still in college. Since then it has grown to be read by more than a million people, and has served Billions and Billions of Pages (yes, in my head I hear the voice). During my tenure I have done my best to keep Slashdot firmly grounded in its origins, but now it's time for someone else to come aboard and find the 'future'."

Crap. Steve Jobs, OK, but CmrdTaco? (Still, outlasted Digg in usefulness, huh, Rob?)

Note source. But - sharp as a knife.

"Data theft is arguably the game changer.
"DDoSing or web defacements are one thing. Breaking into government and commercial networks is another. Already the clouds are forming. The Danish police wish to ban all anonymous use of the internet. The Indian Government wants real-time monitoring of Twitter, Facebook, and Skype. The OECD is seeking tighter regulatory control of the internet. And the United Kingdom is seeking stricter laws to deal with cybercrime.
"While it would be unfair to say that Anonymous is completely responsible for these reactions, it's certainly part of the problem. And when the whip comes down - and come down it will - Anonymous will have to accept part of the blame when online privacy rights are scaled back even further.
"Hacktivism, real hacktivism, has always managed to get things done without upsetting the apple cart. And even though Anonymous is more decentralised than traditional hacktivist models there's no reason why it can't muster more discipline."

In 1972, Jobs offered the first Apple prototype PC to HP. In a rainy August 39 years later...

Beatiful, timeless interactive of Steve Jobs' technical legacy at one of the world's most valuable companies by market cap.

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HP's problem with PCs, explained in three graphs

The announcement by Leo Apotheker that HP is "exploring options" around its Personal Systems Group (PSG) - might keep it, might spin it off, might sell it - has naturally got people wondering why the world's biggest seller of Windows PCs would want to get out of a market when it's leading it.

The answer's simple, once you delve into HP's financials, which I've examined going back to the November 2004-January 2005 period (officlally, the first quarter of its 2005 financial year). PSG is the worst-performing division in terms of profit margin. It's dragging the rest of the business down.

You can see it here with three graphs. First, here's HP's revenues by division:

HP revenue by division, Q105-Q311: PSG is the green chunk. Amounts in millions.

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PSG looks pretty good - in fact, by revenue, it's the biggest, with only Services (the blue chunk) coming close.

But now we turn to profits. Here are the profits, in monetary terms (ie millions of dollars):

HP profits by division in monetary terms. Services in blue, Imaging in purple, PSG in green. Amounts in millions.

.

Suddenly it's clear that while PSG generates lots of revenue, it doesn't do the same when it comes to profits. (My calculation is that it sells about 48m PCs per year for an average of $800, on which it makes $40 profit each.) By contrast Services and Imaging & Printing (blue and purple respectively) generate much more profit per dollar of revenue. Perhaps not surprising, because both rely a lot on HP's own in-house expertise - unlike the Windows PCs, which use someone else's software (mostly) and hardware that is commoditised.

The picture becomes even clearer once you look at the percentage profitability of each division - its profit as a percentage of revenue. Now, PSG is not the biggest, but the smallest; an average, over the period, of just 4.6%, compared to 12% for Services and over 15% for Imaging & Printing.

HP divisional profits as percentage of revenue. Services blue, Imaging & Printing purple, PSG green.

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The upshot of all this is that if HP were to ditch PSG without having any effect on its other divisions (a big proviso, since arguably PCs are sometimes useful to win Services contracts) then its profit margin would improve overall from an average over those 27 quarters of 10.1% to 12.7%.

Doesn't sound much - but when you're a company doing $30bn per quarter, these things add up. True, HP would only be a $21bn per quarter company if it dumped PSG – but it would have better earnings per share, which would mean better dividends, and the stock price would rise. Which is what chief executives are meant to make happen, aren't they? (Ignoring for a moment whether it makes sense.)

No doubt people inside HP know these graphs just as well - and they know how much benefit the PSG brings, or doesn't bring, to other divisions. The motive for sticking with PSG may be there. Perhaps there's a brilliant plan internally to boost the margins from PSG. (Run WebOS instead of Windows?)

But for now, those graphs tell the tale. Even for the biggest PC seller in the world, personal computers aren't a great business.

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