HP Moves Part of Trend Where Businesses Bank on Services, Solutions

Largest PC Maker Eschews Low-Margin, Commodity Categories

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Consider this: The world's largest PC maker may soon no longer sell PCs, or almost any other personal-computing product that consumers can pluck off the shelf.

HP's announcement last week that it would discontinue its TouchPad and Palm phone products just six weeks after the tablet launched and look to spin off its PC division sent a clear signal that its business is moving from low-margin product-based sales to higher margin business-solution ones. It also announced it was spending $10 billion on business software maker Autonomy Corp.

"This shows that the way people compute has nothing to do with the value of hardware and everything to do with apps, software and websites. No one wants a low-margin, difficult business," said NPD Group analyst Steve Baker. "It's hard to find anybody really focused on the consumer, other than Apple, who is beating the success metrics that the financial community expects them to beat. I fear there will be more of this, [that is ] companies spinning off or selling their consumer [electronics] businesses."

HP, of course, isn't the first tech giant to recognize that as the margin-squeezed business of consumer electronics reaches parity, the way to make money is to be a business solutions-based company, focusing on software, data management and analytics.

IBM shed its PC business to Lenovo, and Dell, while still major computer maker, has been focusing more on providing business services and solutions. Cisco also got out of the consumer game this year, shutting down its only consumer product, the Flip camcorder, in April.

But the focus on growing better-margin services isn't limited to the PC world. Agencies, whose bread-and-butter has long been the work they produce, are diversifying up the food chain into higher-value consulting services and software development. And even Procter & Gamble, the world's-largest maker of household products, has expanded into service-based business such as concierge physicians.

So what happens to HP's $40 billion Personal Systems Group, which sells PCs, tablets, smartphones and personal storage and internet services -- and to the raft of agencies that support it, helping catapult it from perennial No. 2 through much of the early 2000s to the No. 1 PC maker today?

The two most possible scenarios are either a full sale to a buyer such as said-to-be-interested companies Lenovo and Google, or an investor-backed buyout of the division led by PSG current chief Todd Bradley.

As for HP marketing, which has been quite aggressive over the past decade and become well known for mass-media hits like its celebrity "Hands" campaign, a spinoff could mean business as usual, depending on whether a buyout owner opts to either keep the brand or merge it with its own.

Its ad agencies, including longtime partner Goodby, Silverstein & Partners, San Francisco, and TwoFifteen, San Francisco, as well as marketing personnel, including recent hire Eric Keshin, formerly of McCann as head of all PSG marketing, are left guessing at what happens next.

TwoFifteen referred calls to the client, while Goodby and Mr. Keshin did not respond in time to calls for comment before press.

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