The Death of the PC Business

on October 6, 2014

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Hewlett-Packard’s decision to split the company into two businesses, one selling PCs and printers, the other offering services and high end business network equipment, marks the end of their run in the 35-year computer industry. In a sense, it’s an overdue shift of the business to companies designed to function as low margin and mostly Chinese. But it is worth considering the history. (Apple, of course, is another business that flourishes on computers for its own reasons)

In many ways, IBM shapes the story. The personal computer moved from being a consumer system, such as the Apple ][, into a business dominated market. The key was the introduction of the Model 5150, better known as the IBM Personal Computer, in 1981. But IBM broke its own way of controlling hardware. The PC was based on freely available systems, most importantly the Intel 8086 processor, and IBM freed Microsoft to make its operating system available to all comers. The market swelled from big tech companies, such as Digital Equipment and Texas Instruments, to arguably the most important start up, Compaq, in 1982.

IBM tried to strike back at the surging market share of “IBM PC clones”. In 1987, it came out with a redesign called the Personal System/2, which would require the  use of IBM-designed computer cards such as graphics controllers in place of an industry common design. The only successful component of the PS/2 design was an improved round plug to connect keyboards and mice. At about the same time, IBM issued the OS/2 operating system to compete with MS-DOS and Windows. It was another dismal slump, although IBM wouldn’t give up, issuing a version called Warp aimed at business and consumers in 1994.

In the end, IBM’s last real hit was the first truly successful laptop, the ThinkPad, introduced in 1990. But even it could not hold off the competition from Compaq, HP, and a plethora of other laptop makers.

By the end of the 1990s, IBM was in serious trouble in just about all its businesses (more trouble, in fact, than HP has ever been in). As the last stage of a long effort to reconstruct the company, it sold its PC business to Lenovo, which managed to become a very successful computer company as a global, low margin leader. Earlier this year, IBM finished off the last bit of its low end hardware business by selling its X-series servers to Lenovo.

Needless to say, HP didn’t study IBM as an example. In 1999, it sold off its original instrument business (now Agilent Technology) to favor the printer and technology business and in 2002 bought Compaq, a dominant if not very profitable player in the computer industry. It also generated internal management and shareholder struggles that have never completely gone away, though CEO Meg Whitman seems to have calmed the chaos.

In a sense, the decision to get out of the PC and printer business has looked obvious. The company’s last dramatic computer move was the 2010 catastrophic purchase of Palm. HP’s big acquisitions have been EDS consulting, 3Com, with network equipment and services, and Autonomy, a controversial big data software maker.

In the new world, Hewlett-Packard Enterprise, with a focus on corporate technology needs and competition with companies such as IBM and Accenture, will be run by Whitman and many of her top executives. Dion J. Weisler, executive vice president in charge of the PC and printer division, will be CEO of HP, Inc. The deal should close some time late next year.

The future of HP, Inc. is unclear. It could be like Dell, a U.S. seller of Chinese computers pursuing a low end market. Or it could end up being bought by a Chinese manufacturer — speculation having even included Lenovo. Either way, the HP we know is gone.