HP ditches costly PC unit spin-off

SAN FRANCISCO (Reuters) - 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, had vowed a quick decision on an issue that was beginning to alienate its PC partners, investors and customers.

Whitman still has one unresolved item before her -- the future of WebOS software. Apotheker put the WebOS division in jeopardy after he killed the WebOS-based TouchPad tablet following poor sales.

HP is still mulling the software's future, including if it should build a new WebOS-based tablet, Whitman said in an interview.

"The question now before us is what do we do with WebOS software and do we come back to market with WebOS devices," Whitman said. "It obviously will not be the same device but it will be version 2.0."

The former California gubernatorial candidate said that she decided to retain the PC group as the "numbers were incredibly compelling."

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 was 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.

EXPENSIVE OPTION

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.

The decision to announce HP's review of its PC business was questioned by many shareholders.

The series of 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 previously considered included hiving off the business into a separate company through a spin-off or sale.

Shares of HP closed up 4.86 percent at $26.99 on the New York Stock Exchange on the back of a broad market rally.

(Reporting by Poornima Gupta; Editing by Gunna Dickson, Richard Chang and Phil Berlowitz)

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