HP came to its senses this week and decided that ex-CEO Leo Apotheker’s decision to pull out of the PC market he didn’t understand was a bad decision. They’re staying in.
IBM stayed in the PC business much longer than was profitable because it helped them sell other things, like software, services, and servers. Eventually IBM decided that didn’t make any sense anymore, and sold the business to Lenovo.
But HP wasn’t losing money on PCs. They just aren’t immensely profitable. But here’s the thing: Selling PCs allows HP to sell a lot of other things. And HP sells a larger number of those other things than IBM.
HP should know this better than anyone. HP sells printers at a loss, for one and only one reason: to sell ink at a tremendous profit. So wouldn’t it make sense to sell PCs at a 5% profit in order to sell more printers at a loss in order to sell still more ink cartridges at a 5,000% profit?
And their suppliers like it too. Buying more PC components than anyone else gives them better prices on the components that go into printers and servers and other products. That lessens the loss HP takes on its printers and makes its servers more profitable.
On the consumer side, retailers love it because they can bundle printers and PCs from a single vendor. They’d rather deal with one vendor and negotiate for a discount, which HP should oblige thanks to the opportunity to sell ink in the future.
On the business side, “one neck to choke” is HP nemesis Oracle’s mantra, and HP can meet it. They can’t sell operating systems and they don’t have a lot of software to sell, but they have everything else you need: desktop PCs, printers, network equipment, servers, and service contracts.
IBM sold PCs at a loss in order to support those other businesses, and that was without having a printer business to speak of. If it made sense for IBM to lose money to support those businesses, it makes sense for HP to sell PCs at a small profit in order to do so.
If the PC business is an albatross for HP, the simple answer is they’re doing it wrong. Every single buyer for HP PCs is a likely buyer for something else HP does, especially on the business side. HP already sells more PCs and printers than anybody else. They need to be offering the rest of the package to those customers.
Getting into software is fine–it would complement the other things HP is doing. But it should complement those businesses, not replace them.
It did for IBM, but that was a process that grew over the course of nearly 20 years. It didn’t happen overnight there either. And HP still has profitable PC and printer businesses. IBM had neither. Why emulate IBM when the potential is there to do better?
David Farquhar is a computer security professional, entrepreneur, and author. He started his career as a part-time computer technician in 1994, worked his way up to system administrator by 1997, and has specialized in vulnerability management since 2013. He invests in real estate on the side and his hobbies include O gauge trains, baseball cards, and retro computers and video games. A University of Missouri graduate, he holds CISSP and Security+ certifications. He lives in St. Louis with his family.