In U-Turn, H-P Will Hold On to PCs

Meg Whitman wants Hewlett-Packard Co. to sell personal computers after all, a dramatic about-face by the H-P chief executive only five weeks into the latest chapter of her sweeping career.

Whitman said Thursday that H-P will keep its $40.7 billion PC division, backing away from its prior plan -- endorsed 69 days ago by Whitman and other H-P directors -- to explore splitting the . H-P said a new evaluation had found the move was simply too costly. "H-P objectively evaluated the strategic, financial and operational impact of spinning off" the PC business, said Whitman, who assumed the CEO post after she and other directors dumped her predecessor, Leo Apotheker, last month. Keeping the business "is right for customers and partners, right for shareholders and right for employees," she said. The turnabout marks something of a fresh start for H-P and Whitman herself, who made a failed bid to become California governor, after a lucrative and at times controversial 10-year tenure as CEO of online retailer eBay Inc.

Ultimately, H-P decided the cost of dumping the business was just too high. For starters, H-P saves money procuring server parts, thanks to its scale in the PC business. Also, it would have proved very expensive to build a new brand and new corporate structure for the spun-out unit, not to mention the lost opportunity to increase sales by bundling lots of hardware together for customers. Yet if H-P ever was going to escape the low-margin PC business, now would seem to have been an opportune moment. H-P's market share is still tops, with 18% of global PC shipments by volume in the third quarter, according to IDC. Yet its share is actually down a bit from two years ago, as Asian rivals Lenovo and ASUS have grown quickly. At about 6%, H-P may have achieved peak operating-profit margins for the business. And growth for PCs has been sluggish, thanks in part to the popularity of mobile devices like Apple's iPad.