The first problem Hewlett-Packard (NYSE: HPQ) faces as it tries to sell its PC business is what an acquirer would have to pay. The second is that the PC industry is slowly dying.
Dell (NASDAQ: DELL) has a market cap of $27 billion. Its PC division is worth less than that. In the last quarter, Dell had revenue of $15 billion. Just over $12 billion of that came from products. There is some server revenue in the products division, but the majority is PC sales. The gross margins for the products division were only $2.6 billion or 22%. Dell’s entire corporate profits were $945 million for the quarter. The best case, based on gross margins, is that 50% of corporate net was from products, or $400 million. On an annual basis, this part of Dell has revenue of nearly $35 billion and net income $1.2 billion. Put against Dell’s market cap, the products operation is worth about $18 billion.
HP’s PC business is slightly larger than Dell’s. Its revenue is a little over $40 billion. Like Dell, it does not offer investors segment operating income. The figure should be $$1.5 billion per year, if it has a ratio similar to Dell’s. HP’s PC division is worth about $22 billion.
HP’ trouble is that the number of buyers for its PC business is all small and HP has little to offer. It has no presence in the tablet PC market. It has no smartphone. Sales of desktops and laptops have slowed to nearly a halt worldwide.
IDC reported that 84.4 million PCs were sold worldwide in the second quarter. That is only a 2.6% improvement from the same quarter in 2010. In contrast, sales of the Apple iPad sales grew 183% in the last quarter to 9.25 million. There is no evidence that any other PC or electronics company has any chance of taking much share from Apple. HP recently killed its tablet business.
Samsung today said it has no interest in HP PC. That leaves very few buyers. Asian manufacturers Lenovo and Acer probably don’t have the balance sheets to buy HP PC. They also may not have the inclination. Their lack of tablet models has also begun to erode sales and net income. Sony (NYSE: SNE) has a small PC division, but the parent company is in such trouble, that it is not likely buyer
HP may shop its PC business, but there may not be any buyers.
Douglas A. McIntyre
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