Trouble Ahead – Good Opportunities for Enterprises?

Hewlett-Packard, Co. (HP) announced that it will spinoff rather than sell its PC operations. Elsewhere, AT&T Mobility LLC is now under increased scrutiny from the U.S. Justice Department because of its T-Mobile USA, Inc. acquisition and trouble times are ahead for solar manufacturers.

Focal Points:

• HP clarified its position this week regarding its announcement that it intended to spin off or sell its Personal Systems Group (PSG) into a separate business so that the company could focus on higher margin enterprise sales. Todd Bradley, executive vice president of HP PSG, says that a spinoff would help the PC manufacturer react to market conditions more rapidly and allow the company to think and act like a startup. To support this move and to quell the fears of business partners and customers, HP has launched a Web portal citing the HP's many PC-related achievements. As a standalone entity, the "$40 billion startup" would be the 60^th largest Fortune 500 company, and it intends to "build on our legacy" by leveraging "the same great folks who make HP PCs today to make them tomorrow."  HP's tone makes it sound as if the 12 to 18 month completion process necessary for the spinoff was its intention all along, though several PC manufacturers rumored to be targets for the PC business sale have issued statements of disinterest in an acquisition.
• The U.S. DOJ believes that AT&T's proposed acquisition of T-Mobile is a bad deal for consumers, and has thus filed a complaint to block the formation of what would be the country's largest wireless carrier. Filed last Wednesday in the United States District Court for the District of Columbia, the DOJ stated that T-Mobile’s continuance as an independent carrier is necessary as it "places important competitive pressure on its three larger rivals, particularly in terms of pricing." The complaint went on to claim that the removal of the low-priced rival would likely result in "higher prices, less product variety and innovation, and poorer quality services." Given the companies' similar networking technologies and expansion strategies, AT&T is the most compatible suitor for T-Mobile, which stands to make $39 billion on the sale and deliver AT&T with a total subscriber base around 160 million.
• Solar cell development and manufacturing has been a large area of investment for companies globally and the U.S. Energy Department committed $18 billion in loan guarantees with the intention to invest even more by the end of the year. One of the first companies guaranteed money, Solandra LLC, has declared bankruptcy and will lay off 1,100 employees due changing market requirements including slowing demand and the increasingly competitive landscape. According to the Energy Department, the cost-per-watt capacity for solar panels has fallen a reported 42 percent since December 2010, and Chinese vendor pricing is taking a toll on firms based elsewhere. Evergreen Solar, Inc. and SpectraWatt, Inc. also filed for bankruptcy protection earlier in August, while German companies Solon SE and Solar Millenium AG have both announced that they are in the midst of layoffs and additional investments.

Experton Group believes evolving global markets are forcing enterprises to think and react to changing business requirements and decreasing operating margins. It is hard to say whether HP has selected to spinoff instead of sell their PC business due to lack of suitor interest; however, the amount of industry consolidation that has already transpired is definitely a contributing factor.

Moreover, HP's position atop the sales charts, large engineering base, and significant enterprise presence would require a nearly impossible leap of faith and investment level. IT executives should expect for operations at HP to remain largely unchanged for the next 24 to 36 months, but should use the general uncertainty surrounding HP's future to negotiate better sales and support terms on new systems.

The DOJ has a good case to make in preventing the T-Mobile acquisition, and prior efforts by the government to block similarly large and seemingly anti-competitive mergers have met with varied results. The proposed AT&T/T-Mobile combination is arguably questionable as to whether customers will sufficiently benefit from the combination and AT&T could certainly spend the same investment in its own network to improve its network reach and speed.

As a variety of new entrants to the wireless carrier space – Google, Inc. and Comcast Corp. are two potential examples – could be interest in expanding their customer reach to include a wireless network, AT&T may have its work cut out in demonstrating how its moves are not anti-competitive. IT executives would be far better served by having T-Mobile sold to anyone other than AT&T as the company forces the big two carriers from exploiting their market presence any faster than they already do.

Competition in the solar market means that technology and pricing are improving at dramatic rates that make purchasing increasingly attractive. Improvements in energy capabilities and pricing make solar attractive for enterprise looking to green and cost-efficient power sources for IT and facilities. IT executives should expect dramatic future technological gains to occur over the next five years as well as continual price improvements. In addition, IT executives should consider this an excellent time for solar acquisitions, given tax incentives and payback periods.