Spinning Off HP’s PC Business Could Have Worked … Couldn’t It?

Newly appointed Hewlett-Packard CEO Meg Whitman says that spinning off the company’s PC division — as her predecessor, Léo Apotheker, had planned — was a nonsensical proposition, and that keeping it “is right for customers and partners, right for shareholders, and right for employees.”

And that may someday prove to be true. Which is not to say that there wasn’t a compelling rationale for dumping it. IBM jettisoned its PC business and never looked back. HP might have done the same.

While profitable, revenues at HP’s PC unit had been declining recently. Spinning it out might have improved the company’s overall profit margins, even if it did reduce its revenue by roughly a third.

As Bernstein Research analyst Toni Sacconaghi observes, by hiving off its PC arm, HP might actually have created some value.

If it had gotten its act together first.

“While we do believe that retaining the PC business was the right financial decision, we also understand why some investors may have wanted a spinout, as a re-rating of HP’s multiple on its remaining enterprise business could have been potentially highly value creating,” Sacconaghi said. “That said, we ultimately believe that HP should have looked to fix its prevailing operational issues first, and only afterwards potentially considered a spinout of PCs (or printers) if the company felt that it was not receiving an appropriate multiple.”

And fixing those “prevailing operational issues” — and overcoming the ataxia from which it has suffered during the past few months — is exactly what the company must do now.

Only then can it begin growing its PC business and figure out what to do with webOS, whether that means giving it another chance or squeezing some value out of it by selling it to a leading mobile-device maker — assuming it can find one that’s interested.