HP Gets Inspired by IBM

It is now more or less certain that 2005 will be the watershed year as far as
PC business goes. A whole lot of realignments, sell-offs, closures, write-offs
etc will be witnessed during the course of this year.

This whole process was initiated by IBM at the fag end of 2004 when it
announced that it had sold-off its PC business to Lenovo Group of China. This
was possibly the most stunning news to have come from IBM in a long time.

The New Year started with another bang as HP announced the merger of its PC
business group-PSG-with the printing business group-IPG. It also announced
that the highly-regarded Vyomesh Joshi would head the merged business group.

Although it can be dismissed as a mere coincidence-both IBM's and HP's
announcements came within a month of each other-the fact remains that HP would
have certainly got inspired by IBM's bold act. HP may have been already
discussing the merger issue internally for sometime, the IBM announcement would
certainly have quickened the decision.

HP is a rather late entrant in the PC business. Till the mid-nineties, it was
still debating whether to get into this business or not. That was the time when
Compaq was numero uno in the PC business with IBM, Dell, Gateway and AST being
followers. But then, seeing the double-digit growth in the PC business
worldwide, HP decided to take the plunge.

However, the company realized that to make its mark, it had to do something
different. So, pricing was decided as the important peg on which HP based its
strategy. Lew Platt, the then Chairman and CEO of HP made a classic comment of
going into the PC business with "Compaq minus five percent".

Despite playing the pricing game, HP had to remain content with the status of
a follower rather than the leader-something that it was not accustomed to in
the printing business. So, it made its most important gambit of acquiring
Compaq, which had by then fallen on bad times. After the merger, the new HP
became the number one in the PC business, but only for a short period as Dell
streaked past.

Over and above that, PC business has never made any significant money for HP.
This left it with just two options. Either sell it off or merge it with IPG. For
the time being, it has chosen to exercise the second option.

The question is how long will the company hold on. Without doubt, if this
step does not give rich dividends, HP is certain to go back to option one. One
year from now the scene will be clear.

Asim Raina