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Credit: Reuters/Stephen Lam By Lee Chyen Yee and Clare Jim HONG KONG/TAIPEI | Fri Aug 19, 2011 6:09am EDT HONG KONG/TAIPEI (Reuters) - Hewlett-Packard Co's personal computer business may be too big for Asia's technology companies to swallow whole, but potential suitors are out there should HP decide to break the group into parts, industry sources said on Friday. HP, the world's largest PC brand, said on Thursday it is exploring the possibility of spinning off its Personal Systems Group, a business valued by some analysts at $10-$12 billion. "The sheer size of the Personal Systems Group means that it is unlikely the entire unit will be purchased by one company," said Carter Lusher, an analyst with research firm Ovum. While a full takeover is seen as a stretch, some companies that may cast an eye over the unit include HP's rivals in Asia such as China's Lenovo Group Ltd and Taiwan's Acer Inc, banking sources said. Other contract manufacturers, including Taiwan's Hon Hai Precision Industry Co Ltd are also seen as possible candidates, industry sources said. SUNSET BUSINESS The PC business has been on a downtrend, especially in the consumer sector where the booming smartphone and tablet market has hammered demand for traditional plug-in PCs. "In the PC business, it's all about scale. It has become such a commodity that anybody interested in taking on HP's PC business will come from a point of grabbing more market share," said a banking source who declined to be identified. HP's PC business is the lowest operating margin business segment at the company with a 5.7 percent operating margin and annualized revenue of nearly $38 billion, according to Ticonderoga Securities. Lenovo, now the No. 3 PC vendor ranking behind HP and Dell Computer, has $3.8 billion cash at hand and has been on an aggressive acquisition trail over the past year buying Germany's Medion AG and setting up a venture with NEC Corp to sell laptops in Japan. "Strategically it does make sense for Lenovo to purchase HP's PC business. It did buy IBM's PC unit but IBM was more focused on corporations. HP's products are geared more toward consumers," said another banking source. However, he added that Lenovo's top priority for now might be to focus on integrating Medion and NEC's operations into its own. Lenovo was unavailable for comment. Top contract manufacturer and HP's major supplier, Quanta Computer Inc, was seen an unlikely suitor given the potential conflict of interest with other PC customers. Quanta declined to comment. Another name that floated around the market is cash-rich company is Korea's Samsung Electronics Co Ltd, , with 19 trillion won ($17.7 billion) worth of cash at hand as of the end of second quarter. "Only Samsung and Lenovo has the money to buy HP's business, but they have to consider the compatibility of their business models," said Vincent Chan, an analyst at Yuanta Securities in Taipei. However, a Samsung spokesman said the company was not interested in HP's PC business. Other Chinese players such as Huawei Technologies might emerge as potential buyers if HP decided to bundle its server business for sale, Chan said. As for Taiwan's Acer and Asustek, they would not have enough cash to fund the acquisition of HP's PC business unless it is being sold in portions, bankers and analysts said. Asustek also played down the possibility. "We have no interest to buy HP's PC business. We'll focus on our own business," Asustek's chief financial officer David Chang told Reuters. Rival Acer has also been shifting away from hardware and refocusing on mobile devices to drive future growth after a troubled first half that saw the acrimonious departure of its chief executive after a row over the company's strategy and a series of cuts to its shipment forecasts. Acer executives could not be reached for comment. HP's Indian software and business services rivals such as Tata Consultancy were unlikely to make a move into PCs, but HP's bid of up to $11.7 billion for London-listed Autonomy could spark interest in other software buys. "It's highly improbable that any of the top Indian software companies will look at the HP PC business. Hardware is a completely different business and the companies in India get very good margins in the services business," said Rishi Sahai, director at Indian consultancy firm Cogence Advisors. "If you get used to more than 30 percent EBITDA margin, it is very difficult to get into a new business that gives you single digit margins," Sahai said. "I think HP's acquisition of Autonomy will turn the heat on Indian services firms to look for large takeover candidates in the developed markets to tap big clients." HP's supply chain in Taiwan will also be affected if it sells the PC business because new management usually prefer using new suppliers, according to analysts. Quanta, the world's top contract laptop maker, would be exposed because around 30 percent of its sales are to HP. Inventec, which makes notebooks for HP, could also suffer. (Additional reporting by Argin Chang in TAIPEI, Kim Miyoung in SEOUL and Sumeet Chatterjee in MUMBAI; Editing by Lincoln Feast) Technology Deals Global Deals Review: 2011 Q2 Global Deals Review Inflows Outflows Related Quotes and News Company Price Related News Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (4) sophiewonderful wrote: I find it too big for me to stomach every time I place a call to a tech center and get someone from India. All they seem to be trained to do is say, “I understand” when they haven’t the foggiest idea what someone is talking about. Put our businesses back in the United States where we can understand the speech patterns of our own people and the person on the other line is fully conversant with the English language. If it isn’t India, it is Mexico. This has to stop. Aug 19, 2011 7:44am EDT -- Report as abuse thinkbeforetalk wrote: I also find it too hard for me to call a Spaniard in my own country to tell me that my HP is very slow and that’s why I shoud reinstall the OS. The same thing is happening all over the world. HP (i7, 8GB of RAM, top of tthe line) cost a lot and is slower than a 400€ Acer Notebook. The problem with HP is the fact that they fired a great CEO for unrealted business issues and got a really bad one. We all seem to have such short meories that this VERY RECENT event is not mentioned anywhere. The HP PC BU willl be bought by China at 10% of the real price. Aug 19, 2011 8:15am EDT -- Report as abuse calexanderbrown wrote: The sensible and logical thing for HP to do, is spin off the PC operations, while maintaining a 9% interest. Why 9%? Because that keeps them for being an insider, which 10% plus would mean. There are a lot of creative minds in the PC operation, and while it could be a gamble, the possibility that this freed up entity could prosper, creating new products, opening new markets. Keeping the entity in America. Granted patriotism does not count for much with American high technology companies; they destroy jobs in America and send them to Asia, and see nothing wrong with this. Hello Mr. Steve Apple Corp?. But for some of us, it counts for something, especially watching the frightening developments the rapidly de-industrializing Britain. On that note, I urge all readers to get hold of Paul Clemens powerful and dramatic book “Punching Out,” which recounts the dismantling of the BUDD Corporation Detroit 105 year old giant stamping plant. What will Leo Apotecker do? Well, he is no Bill Hewlett nor is he a Dave Packard ((pity)), so my expectation is that he will try to sell off the PC business to its Asian suppliers. The easy way out. C. ALEXANDER BROWN Aug 19, 2011 10:01am EDT -- Report as abuse See All Comments » Add Your Comment Social Stream (What's this?) 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