HP's Exit from PC Business

While I was away on vacation, HP announced that it was exploring the sale of its PC business.  Naturally, the news surprised many journalists and investors, given how much attention the company has focused in recent years on the unit.  I don't find it shocking though.  As my students learn in their strategic management course, the Wintel portion of the PC industry is incredibly unattractive.  If you conduct a five forces analysis, you come to the conclusion that the industry is characterized by low product differentiation, massive supplier power (Microsoft, Intel), and substantial price rivalry.   More recently, substitutes have become problematic (smartphones, slates, etc.).  

As a result, the margins in the PC business prove incredibly thin for many players.  HP generated a large portion of its revenues from the PC business, but only a small slice of its profits.  Over the years, the incredible profitability of HP's printer business has masked many sins, including the thin margins on PCs and ill-fated new product introductions such as HP's TouchPad.  

The unattractive industry structure has led many firms to exit thePC business over the years, most famously IBM with its divestiture to Lenovo.  Even Dell has struggled on the consumer side of the PC business, though it has been very profitable with its core business focused on the corporate customer.  Of course, Dell has had a tremendous low cost position for many years.  

What's the lesson of this story?  As Warren Buffet once said, "When an industry with a reputation for tough economics meets a manager with a reputation for excellent performance, it’s usually the industry that keeps its reputation intact."