HP halts webOS business, possible PC unit spin off, moreBy Julio Franco 27 comments
The web exploded earlier today following a Bloomberg report that claimed HP planned to dump its PC business and make a massive $10 billion acquisition. Those rumors have been confirmed by the company's earnings report this evening that claims that HP's board has approved the "exploration of strategic alternatives" for its Personal Systems Group, including the possibility of a full or partial separation through a spinoff or some other transaction.
The announcement immediately brings to memory when IBM decided to sell its consumer PC division to Lenovo a few years ago. At the time it seemed like a contradictory move, but looking at the present it'd seem the shift in strategy fully paid off for Big Blue. PC sales remain at large a low profit margin business, nevertheless HP is and has been for a few years the largest PC maker in the world.
In addition to talks of shedding its PC business, HP will reportedly cease all webOS operations, including its TouchPad tablets, existing Pre smartphones and upcoming webOS-based devices. Although it's no secret that HP's tablet sales have been weak, nobody is doing as well as Apple in that department. Few expected the company to entirely scrap its webOS projects considering they're a relatively fresh endeavor. HP acquired Palm for $1.2 billion on April 2010, and the TouchPad went on sale just three months ago.
"Our WebOS devices have not gained enough traction in the marketplace with consumers," said Leo Apotheker, HP president and chief executive officer. "Continuing to execute our current device approach in this space is no longer in the interest of HP or its shareholders."
The company is leaving the door open to the possibility of licensing webOS to third party manufacturers, a scenario that could suddenly find willing adopters after Google's acquisition of Motorola and the potential conflict of interest with outside parties supporting the Android platform. If anything, HP's previous plans of putting the mobile OS at work in all of its devices including PCs is certainly canned.
Today's announcement likely spells the end to original laptop designs like HP's Envy.
Along with those two big announcements, HP reported fiscal third-quarter earnings and confirmed they're in advanced talks to buy British software firm Autonomy Corp for $10.2 billion – several times what they paid for Palm last year. Autonomy is dedicated to the development of enterprise search, content management and knowledge management applications. This is certainly a hint of the strategy the company is setting forth for the long term, less hardware that doesn't represent large margins and more enterprise products and services.
Needless to say, HP is not touching its highly profitable Imaging and Printing Group, where webOS may eventually find a home in one shape or another.
Until things settle down and a final decision is taken about HP's PC business, you can expect several interesting shake ups in the industry. Inevitably HP will lose consumer confidence on buying their hardware and that will result in strengthening positions for other manufacturers such as Acer, Dell, Asus, Lenovo, and undoubtedly Apple, who is widely viewed as the only manufacturer capable of driving healthy profit margin on high-end computer sales.
Update (8/19): HP's stock price went down 20% the day after the announcement as investors reacted to the unexpected news.
Update #2 (8/20): HP will offer a fire sale of all remaining TouchPad stock at $99 for the 16GB version and $149 for the 32GB version. Watch out for Amazon and HP's own listings for the closeout price to become effective.