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Should you buy an HP PC after the plan to split?

Should you buy an HP PC after the plan to split?

The plans to split PC/printing and hardware operations could have long-term implications

Should you buy a Hewlett-Packard PC (or tablet, or printer)? That question that certainly is on some customers' minds after the company's announcement Monday that it will split its PC and printer operation from its enterprise, software and services business.

HP's customers had a similar concern when HP first floated the idea of breaking up the company in 2011. At that time, HP had no plan in place, but the company this time knows what it is doing, said Patrick Moorhead, president at Moor Insights and Strategy.

When former HP CEO Leo Apotheker proposed the breakup three years ago, "it was just the PC business he was going to separate, not PC plus printer, and he didn't actually have a plan, but a communication that he was looking into a spin-off," Moorhead said.

Apotheker was booted out of the company, partly for voicing the idea of a split-up without having a firm idea of how to do it. When Meg Whitman took the helm as CEO and chairman, she initially quashed the idea of a split, saying PCs were key to long-term relationships with customers.

Whitman has reversed course, and under the breakup plan she has overseen, the PC and printer organization will be known as HP Inc., and the enterprise business will be known as Hewlett-Packard Enterprise. Here's what the PC customers have to watch out for:

--For now, buy an HP PC or tablet without fear:

HP's PC operations won't change even after the breakup, and customer service is not likely to deteriorate. Operationally, the new HP Inc. will look the same as the PC operation under the old entity, and customer service will be closely watched in the transition so no customers are lost, said Roger Kay, principal analyst at Endpoint Technologies Associates. HP Inc. may actually have to hire more people to serve and retain customers, which is typical in de-mergers, Kay said.

--But, HP's PC prices may ultimately rise:

HP will aggressively chase low-cost tablets and PCs in the short term, but may switch strategy to high-margin products in the long run. HP as a combined entity was able to acquire components at cheap rates, and also provided strong distribution and logistics capabilities. That helped HP sell tablets and laptops at low prices, but HP Inc. won't be able to leverage its old size advantage in the future, said Stephen Baker, vice president of industry analysis at NPD.

Moreover, tablet sales seem to be peaking, and HP's breakup could trigger consolidation in the highly saturated PC market, which could drive up tablet and laptop pricing, Baker said. On high-end PCs, HP will have to compete with Apple, which has its challenges.

--Buying computers just got a lot harder for enterprises:

HP's enterprise customers won't have a one-stop shop for server, software and PC purchases after the breakup. The ability to buy hardware and software from a single entity was one reason HP decided to retain PC operations in 2011. Enterprise customers will have to look at different sales organizations for PC and server requirements, and negotiate different customer-service contracts and service-level agreements. But the enterprise and PC/printer organizations will still continue to work hand-in-hand to meet customer needs, said Charles King, principal analyst at Pund-IT

--Expect other PC makers to take advantage of the situation:

Dell and Lenovo will lure HP PC buyers -- particularly in the enterprise -- into their camps by raising doubt about HP's future as the transition takes place. That's a win for the customer, who can take advantage of discounts or other promotions offered to switch over. HP will try to diffuse the situation and retain customers with counteroffers of its own. A similar practice exists in servers, where HP and Dell went after customers of IBM's x86 server business, which was ultimately acquired by Lenovo in a transaction completed last week.

Dell -- which went private last year -- has already fired the first salvo, with a statement saying: "HP's decision to break apart its business is complex, distracting and appears to benefit HP and its shareholders more than its customers, which is ultimately the wrong priority."

--Uncertainty around printers

Analysts said HP's printer business is losing the financial clout it had, and faces an uncertain future. HP Inc. will continue to offer printers and ink to consumers, but enterprise customers with managed printing services may be stuck in the middle with hardware belonging to the PC organization and some management and security software to the enterprise organization.

Technalysis analyst Bob O'Donnell said it will be interesting to see how enterprise customers respond to the proposed split, and how HP will manage that operation. But for HP, printer sales were largely tied to the services and software it sold, so the breakup is perhaps not a good idea, O'Donnell said.

"It's a lot more for the shareholders than for the customers. After seeing these businesses evolve, there's an increasing need for hardware and services together," O'Donnell said.

HP's printing business faces an uncertain future, NPD's Baker said.

"There's more challenges on the printing side than on the PC side. Usage has gone down, volume has slowed. There's more risk," Baker said.

Agam Shah covers PCs, tablets, servers, chips and semiconductors for IDG News Service. Follow Agam on Twitter at @agamsh. Agam's e-mail address is agam_shah@idg.com

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