An H-P PC Unit Spin-Off, Oh Boy! (HPQ, AAPL, DELL, IBM, SNE)

It was only recently that Hewlett-Packard Co. (NYSE: HPQ) dropped the news that it was evaluating strategic alternatives for its PC group, called the Personal Systems Group.  At the time the company noted that this would be a separation of its PC business into a separate company “through a spin-off or other transaction.” Our own take was that there might not be a buyer of the unit, so a spin-off is the only hope today.

CNBC reported on Monday after the close that the company is now set on a spin-off to shareholders as its favored transaction.  HP previously noted that the Personal Systems unit had annual revenues of approximately $41 billion in fiscal year 2010.  At the time, HP noted, “A post-transaction HP would continue to help its customers manage the information explosion and address their most critical needs through a portfolio that spans printing, software, services, servers, storage and networking.”  It simultaneously announced with the first review that it was acquiring Autonomy.  So, it looks like the prized printing unit will not be a part of HP’s split-up and that makes the systems group less valuable.  In some quarters before the EDS deal, HP’s quarters were enhanced greatly due to that printing operation.

The other issue is that the company said that the separation would likely be completed within approximately 12 to 18 months.  The news today noted that a decision would be made by the end of the year if not sooner.

This transformation is a win for Apple Inc. (NASDAQ: AAPL) and gives a great opportunity for Dell Inc. (NASDAQ: DELL) to recapture much of its losses in the PC market. We recently noted that there was deep value underlying H-P, if they can avoid that Autonomy buyout, but that won’t likely be the case for the underlying PC unit.

Today’s news is not really news, but a confirmation of more of what everyone likely expected anyway.  International Business Machines (NYSE: IBM) was able to sell its PC unit to Lenovo and Gateway took a low-priced buyout after a really poor decade of execution.  Sony Corp. (NYSE: SNE) has sort of been left behind to many observers watching the US PC market.

The PC business is a competitive one, and its “cool factor” compared to Apple is being lost.  In some cases there is the “making toasters analogy” that comes to mind.  Without the printing business there just seems to be no natural acquirer.  With the printing business it may just take too much money to acquire the thing for any buyer out there.

JON C. OGG