A Contrarian Strategy for HP

With a new CEO at HP, there is much discussion over the strategy of whether or not to spin out or sell the personal computer division of HP.

My thought is that the focus of the question is wrong. HP essentially has three businesses: enterprise products and services, the PC business and printing.

For years, printing and the resulting ink business has been a major profit center for HP. Its brand is strong and the business is a classic razor and razor blade business - an annuity.

If HP were to sell a business, most people would tend to focus on which of the three businesses has higher margins and growth rates. But the other way of looking at the business is to ask the question, where can the business provide opportunities for growth and innovation.

Rating the businesses on room for innovation, it becomes pretty clear that the PC business is far more interesting than the printer business. Name a major innovation in printing that is likely to affect the overall revenue and profit growth -- it's pretty hard. In fact, the trend towards web sites, tablets, smart phones and other devices probably reduces the importance of printing for most users.

In contrast, the emergence of the phone business, tablets, game devices, home automation products all show how the notion of digital intelligent devices continues to provide opportunities for profitable innovation in adjacent and emerging markets.

Apple, sitting on $70B or so of cash, is living proof of the opportunities. In contrast, printer businesses are not taking the world by storm.

So, if HP is constrained by absence of capital, selling the printer business is likely to be a far better strategic move that selling the personal computer division.

High tech companies need to continually refresh their product and service offerings. A reliable printer business, a sense, reduces the pressure on HP managers to innovate. Having more capital and smart engineers might well unleash a series of exciting new businesses.