Intel isn’t interested in buying HP’s PC business

This week, Paul Otellini told journalists he isn’t interested in buying HP’s PC business, elaborating by saying he doesn’t want to compete with his customers.

It makes sense.

Intel built an empire by making CPUs, and later, chipsets, and later, entire motherboards, and offering them to companies that wanted to make PCs. They could buy as little or as much of it from Intel as they wanted. Intel just kept on finding ways to make those chips faster and smaller and cheaper.

Intel got into the chipset business in 1992–they’d licensed a chipsets in the 286/386 days–and into the motherboard business in 1993. And they’ve been a major supplier of both ever since. It meant that anyone who wanted to make a PC of reasonable quality could do so without thinking. Just buy an Intel motherboard and CPU, pair it with memory and a power supply from reputable manufacturers, and one could safely assume the resulting PC would work pretty well, while leaving all the engineering to Intel.

And Intel, for its part, got to make the profitable bits of the computer, leaving the less profitable bits like memory and hard drives to others. And they didn’t have to deal with retailers much, either.

Intel could buy HP’s PC line, discontinue all the AMD-based PCs, put its own motherboards in the cases–HP buys motherboards from a lot of different companies, including Intel, but seems to buy more from Asus than from anyone else–and own a good 20% of the PC market. They could even put their own SSDs in them, and build PCs whose only non-Intel parts were the memory, power supply, and optical drive.

But the margins on an HP PC are 5.7 percent. They’d be a bit higher with Intel making it, because it would cut out a middleman.

But Intel has 80% of the CPU market for PCs, and, by extension, nearly 80% of the chipset market. HP has around 20% of the PC market. Intel would risk losing some of that–perhaps a lot of it–if it took control of HP’s PC division, and the increased revenue from selling the whole PC wouldn’t cover the loss of customers.

Intel stands to make more money by just selling components to PC makers. Buying HP’s PC division doesn’t solve any problems for Intel, but would be a good way to create some new ones.

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