Ms. 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 Ms. Whitman and other H-P directors—to explore splitting the company. 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 Ms. 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 HP and hp Pavilion dv7 Battery Ms. 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.
Her first step may be to get past the uncomfortable back story. When she was named CEO in September, Ms. Whitman said that she supported the proposed spinout and other recent decisions at H-P, which included the $10.3 billion acquisition of Autonomy Corp., although she said then that she wanted to conduct her own analysis. Both decisions triggered a 20% decline in H-P's stock price and howls of protest from some corporate customers. The stock is still down 36% for the year, compared with a 3% gain for the Nasdaq Composite stock index. H-P shares rose 4.8% to $26.99 in 4 p.m. trading on the New York Stock Exchange, and were little changed in after-hours trading following the company's announcement.
In announcing the decision Thursday, H-P executives went to lengths to stress the deeper analysis that led to the reversal, and Ms. Whitman's personal involvement this time around.
"The decision was actually very straightforward," Ms. Whitman said on a conference call.
Separating the PC business would have required one-time expenses of about $1.5 billion, said Cathie Lesjak, H-P's finance chief.
In contrast, the review done for
the earlier decision pegged the total cost at around $300 to $400 million, according to people briefed on the matter. Ms. Lesjak declined to comment on the number.
The latest study found that other changes, such as reduced purchasing power and the elimination of joint branding opportunities would have cost H-P about $1 billion a year. "It slowly but surely became very clear that the math just wasn't going to work on this one," Ms. Lesjak said.
An internal review before the Aug. 18 announcement was performed by a small group, led by Shane Robison, H-P's chief strategy officer. Even Todd Bradley, the head of H-P's PC group, didn't learn about the decision until shortly before it was announced, he said previously.
"We confused the market pretty dramatically on Aug. 18," Ms. Whitman said Thursday, noting that "it's hard to know what the hangover effect of Aug. 18 is."
Ms. Whitman's analysis took a more comprehensive approach, said Ms. Lesjak, evaluating 18 different factors and consulting about 100 people.
The new analysis showed the "initial range was too low," Ms. Lesjak said. It also found that some of the mitigation strategies initially considered, such as joint purchasing agreements and letting the PC company keep the H-P brand weren't viable, she said.
A joint-purchasing agreement, which would have allowed H-P and the PC company to buy components together, presumably at a big discount, would have expired eventually. And it soon became clear that the PC company wouldn't be able to use the H-P name, as it eventually would have developed products that competed with those made by H-P, Ms. Lesjak said.
"Boards try to make the best decisions they can with the information they have," Ms. Whitman said, noting that it was not feasible for H-P to have conducted a detailed analysis without it becoming public. "Nothing gets done in secret here," she said.
Ms. Whitman showed she is pressing for still deeper change. She said she is now reexamining options for a mobile operating system, known as webOS, acquired as part of H-P's $1.2 billion acquisition of Palm Inc.
Some shareholders have lobbied the company to keep the PC division, according to people familiar with their efforts. Intel Corp. CEO Paul Otellini and rivals like Dell Inc. chief Michael Dell said they thought H-P should keep the business.
Roger Kay, an analyst with the market-research firm Endpoint Technologies Associates, praised Ms. Whitman's decision--and her timing. He said H-P rival's were playing up the uncertainty as they courted customers. The longer she waited, the more her rivals would make hay," he said.
"This is the right decision," said Frank Gillett, an analyst at Forrester Research. The market for personal devices such as PCs, tablets and smartphones is exploding right now. "To me it's not clear why they thought this was the wrong decision two months ago."
As for Mr. Robison, who ran the strategic review for Mr. Apotheker, he announced his retirement from H-P last week. He spent much of the period of Ms. Whitman's review on safari in Africa.
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