No sooner had Supply Chain Matters provided commentary on the supply chain implications of Kraft’s intent to split into two companies, the business newswires lit-up yesterday with HP’s blockbuster announcement that it intends to spin off its PC business and is halting the sale of tablets and smartphone products based on the webOS operating system it previously acquired from Palm.  HP explicitly states it is exploring strategic alternatives, including transactions, regarding its PC division.

No doubt there will be lots of commentary in the blogosphere regarding the implications of the announcement to HP and to the industry. For our part, we will provide some initial summary thoughts from a global supply chain lens.

HP’s PC business represented $41 billion in revenues in 2010 and a significant amount of HP’s physical, operational and procurement related supply chain capabilities. In its press release HP states: “PSG is a world-class scale business with a leading market share position and a highly effective supply chain and broad reach and go-to-market capabilities. We believe there are alternatives that could afford PSG more autonomy and flexibility to make strategic investment decisions to better position the business for its customers, partners and employees.

The obvious question lies with the strategic decisions, and how did PSG get to this point. It is no secret that PC sales have been impacted by the explosive popularity of mobile devices as an alternative form of computing for consumers.  In 2010, HP ponied-up $1.8 billion to acquire Palm and its WebOS operating system with the stated intent to “deliver customers a unique and compelling experience across smartphone and other mobility products.” Many will opine whether Apple’s lead in tablets and smartphones was too great to overtake or whether HP’s decision to integrate the Palm team within PSG was a wise one. Then again, HP management got very distracted with the events surrounding the sudden departure of its CEO and the recruitment of its new CEO, Leo Apotheker.  At the time of the announcement of the Palm acquisition, a ComputerWorld article noted that many analysts were skeptical as to whether HP could overcome existing market momentum in mobility products as well as significant time-to-market obstacles. The intent was noble but the innovation cycle came too late. We will provide some follow-on commentary regarding what impacts outsourcing has had to timely production innovation.

Now the picture is dramatically different, and the high tech landscape equilibrium is about to change.  Will PSG remain as a separate HP spin-off?  Will it be acquired by another high tech manufacturer, contract manufacturer or software provider? (dare we whisper Microsoft) ?  Will HP lose some of its component buying leverage? Lots of business and a whole lot of supplier purchased volume will be at stake.

When IBM sold off its PC hardware division several years ago, Lenovo, the new company, struggled for many years to achieve profitability, even though it was a company with a lower-cost manufacturing base in China. Because of its former roots as a contract manufacturer solely dependent on IBM, it had to overcome needs to assume product branding and global marketing capabilities from its former parent, build independent distribution and fulfillment within supply chain along with developing its own enterprise and supply chain management applications.  PSG comes with a self-contained marketing and supply chain capability but there are reliance’s to HP corporate and shared services.

A posting by San Jose Mercury News columnist Brandon Bailey on SiliconValley.com reminded readers that back in March, a Taiwanese newspaper speculated that HP might sell its PC business to Samsung. That would be a whole different kettle of fish since Samsung provides existing world-class marketing and supply chain fulfillment capabilities.  Samsung’s supply chain is very vertically integrated, extending to the semiconductor, LCD and component levels.  Samsung is also embroiled in a patent battle with rival Apple and another hardware and software option may be strategic.

What about Lenovo, would it jump at this opportunity to seize market share by buying the competition? Would market regulators allow that to happen?

As world financial markets continue to suffer extreme volatility, many commentators point to high uncertainty from governments and politicians as a potential cause.  Business does not like uncertainty. As I pen this commentary on Friday morning, six Wall Street analysts have lowered their ratings and HP stock has already taken a 20 percent dive.

Here at the office of Supply Chain Matters, we were impressed by HP’s technology and recently acquired both a new HP desktop and laptop in the past six months.  Now, we join other customers under the umbrella of uncertainty for long-term support.

In the high tech word of PC and mobile device supply chains, HP just dropped a huge uncertainty bomb. The only player currently in the catbird seat is Apple.

Needless to say, we should all be watching for what comes next.

Bob Ferrari

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