A MARINE geologist would have no problem grasping one of the main mechanisms of the information technology (IT) industry: after new technology is introduced, it sinks, often quite quickly, to the bottom of the IT ocean and becomes part of its sediment—commodities that are well understood, easily copied and hence not very profitable. This is why IT firms are always trying to move “up the stack”, reducing their dependence on hardware and pushing up into software and services, where margins are higher.
These opposing movements help to understand why Hewlett-Packard, the world’s biggest computer-maker, announced on Thursday, August 18th, that it plans to sell its personal computer business, stop making smartphones and computing tablets based on the firm’s webOS operating system and buy Autonomy, Britain’s biggest software firm, for $10.3 billion.
PCs are still HP’s biggest business, with $9.6 billion in revenues in the past quarter. No other firm sells more desktop and laptop computers—about 64m last year, 18.5% of the global market. But with an operating margn of 5.9% it is only half as profitable as HP’s other businesses. And this is unlikely to change. “The tablet effect is real”, Léo Apotheker, the firm’s boss, said in a conference call, referring to the fact that consumers are increasingly buying tablets instead of PCs. HP’s board has thus asked him to “examine all possible options” for what to do with the “personal systems group”, which sells mainly PCs. This essentially means that HP has put up a “for sale” sign over it.
