How HP Spinning Off Its PC Business Would Affect Microsoft

Steve Ballmer Microsoft CEO

[credit provider=”Dan Frommer, Business Insider”]

On the occasion of the 30th anniversary of the PC last week, one of its original inventors at IBM said the PC was no longer relevant. Microsoft disagreed.

Now it looks like HP is coming down on IBM’s side, spinning off its PC business like IBM did in 2005.

This could be a big deal for Microsoft. Here’s why:

  • HP is the biggest seller of PCs in the world. In recent quarters, though, HP’s PC business has been a drag, shrinking while other businesses like enterprise servers and printers are growing. It’s hard to know if a spinoff company would be able to keep investing into the PC business at the same level to maintain HP’s market share without the backstop of these other businesses.
  • HP has been Microsoft’s flagship hardware partner. HP was the first to ship a Media centre PC and Windows Home Server, and stuck with other products like Windows XP Tablet Edition long after the rest of the market had moved on. The relationship came under some strain when HP bought Palm and built its own tablet — that was a big no confidence vote in Microsoft’s tablet plans as of 2008, and probably cost Microsoft’s mobile (and Xbox) leader Robbie Bach his job. But the TouchPad seems to be a bomb, and HP hinted that it was working closely with Microsoft on Windows 8 tablets. Without HP, Microsoft would have to find a new preferred hardware partner willing to take these go-to-market risks.
  • The relationship carried over into HP’s enterprise business. HP’s relationship with Microsoft on the PC side helped build a strong connection in the enterprise as well — the two have allied in areas like unified communications (email and voice-over-IP) and cloud computing.  But if HP no longer needs the Windows client for its PCs, it could strike a much more platform-neutral stance when selling to enterprises as well. More like IBM.

There is an outside possibility that HP and Microsoft are working more closely on this than anybody suspects.

Steve Ballmer and other execs have long resisted calls to dive into the PC business because of its much lower margins.

But Apple’s iPad now has unit sales equal to 11% of the PC market, and some of those sales are certainly replacing low-end PCs (especially netbooks). Google just bought Motorola to build its own integrated hardware-software stack.

So Microsoft may feel like it needs more weight in the hardware business to make sure Windows 8 tablets can compete.

An outright acquisition would be a stretch. But a Nokia-style partnership, where Microsoft offers payments and special treatment to the new PC company, is a possibility.