Hewlett-Packard to Sell Its South Africa Unit to Siltek

Hewlett-Packard, one of a handful of large U.S. companies still operating in South Africa, said Tuesday that it would sell its subsidiary there to a South African holding company.

The sale to Siltek Ltd. is only a partial withdrawal from the country; Hewlett-Packard products, largely computer systems and electronic instrumentation, will continue to be sold and serviced by Siltek.

However, the move is a marked turnabout from Hewlett-Packard’s posture on South Africa throughout the past half-decade. The company, known in California’s Silicon Valley for its humanistic approach to business, remained a holdout in South Africa even as scores of U.S. companies bowed to shareholder and public pressure and pulled out.

Hewlett-Packard officials said the sale of its subsidiary was based on financial, not moral considerations. Because of its operations in South Africa, it has become increasingly difficult for the company to do business in the United States, where many cities, counties, school districts and even some states have passed laws prohibiting or severely limiting business with companies that still have South African ties.

Its inability to bid on major municipal contracts has caused a “severe financial impact” amounting to “tens of millions of dollars on an annual basis,” according to a company spokesman. Because its products will still be sold in South Africa, HP will continue to be barred from doing business with those governmental entities that have the most restrictive laws concerning firms with ties to South Africa.

Even so, the estimated lost income stemming from its previous South African policy was beginning to outstrip the revenue generated by its subsidiary there, while its policy to work for change from within the South African system was losing its effectiveness, company officials conceded.

“We’re not taking this action because we feel it will have a beneficial impact on bringing about the end of apartheid,” the spokesman said. In fact, HP officials believe it will “be more difficult to engage in social programs without a presence there,” despite the company’s pledge to continue to fund social responsibility programs in South Africa.

The fact that so many other U.S. corporations have left the country has diluted the influence of the companies that chose to remain, the spokesman said. “We have had a modest impact, but we felt the collective efforts (of U.S. companies) could have an impact on apartheid. Now so many others have left . . . and the effectiveness of our own programs has been weakened, our ability to play a role (in changing the system) has been diminished.”

It was a “difficult” decision to leave, John A. Young, HP president and chief executive, said in a statement.

“We consistently have said that HP would remain in South Africa as long as we could sustain an economically sound business, maintain our long-term commitments to South African customers and contribute, even in a limited way, to peaceful change and the creation of a more just and equitable society for all South Africans,” Young said.

However, he added, “increasing political and economic uncertainties have made it difficult for us to achieve these objectives. We are especially disappointed that there appears to be no significant progress in bringing about an end to apartheid.”

Throughout its 20 years in South Africa, sales there have generated less than 1% of HP’s total revenue. Last year, the company said, its South African subsidiary accounted for about $62 million in revenue. Total worldwide revenue last year was $9.8 billion.

Siltek, an operating unit of Johannesburg-based conglomerate Anglovaal, will offer continued employment to HP’s 245 South African employees, the company said. Other terms of the sale were not disclosed.

Its social programs, aimed at fostering change in the racially divided country, will continue to be supported through the Hewlett-Packard Foundation. Last year, through the HP Foundation and South African sales, HP distributed about $750,000 to the programs.

HP’s move comes less than a month after the latest of several successive attempts by shareholders to force the company’s withdrawal from South Africa. At its Feb. 28 annual meeting, 77% of the company’s shareholders voted against a resolution calling for a complete withdrawal from South Africa, including a halt to selling any merchandise in the country.

Hewlett-Packard is the second U.S. corporation to pull out of South Africa this year after the departure of insurance company St. Paul Cos., according to the Investor Responsibility Research Center, a nonprofit group that tracks U.S. investment in South Africa. In the past five years, more than 130 U.S. companies have withdrawn.