HP Puts PC Business Up for Sale, Abruptly Zaps TouchPad Tablet

Vendor also halts webOS-based mobile phones, offers $10+ billion for U.K.-based business software maker Autonomy Corp.

August 19, 2011

D.H. Kass

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Hewlett-Packard Co. said Thursday that it will put its PC business up for sale, scrub its TouchPad tablet less than two months after its debut and stop production of smartphones based on webOS, in a series of startling moves to refashion the company as a supplier of business services, software and solutions.

The company also said that it will pay some $10.3 billion for Autonomy Corp. plc, a U.K.-based maker of infrastructure software for large businesses.

“Today is all about rise in shareholder value and addressing the challenges we face in our business,” said Leo Apotheker, HP chief executive, in an analyst call.

“But most of all today is about transforming HP for the future,” he said. Apotheker said that in his nine-month tenure he has examined all of HP’s businesses and that “these are tough decisions.”

With the overhaul, Apotheker conceded that HP no longer could effectively sell PCs and devices to consumers while trying to up its focus on enterprise services and solutions, in so doing mirroring IBM Corp.’s strategy to transform its business six years earlier when it sold its PC business to Lenovo Group Ltd.

Apotheker said that sales of HP’s TouchPad have not met expectations and that its webOS devices have not gained traction or share in the market. In defending the viability of the webOS operating system, Apotheker said that the vendor is “exploring options for how best to optimize the value of the software.”

He said that HP will shut down its webOS hardware operations by the close of Q4 2011.

Should HP divest itself from the Personal Systems Group (PSG), the company would be shedding a unit that has consistently commanded both market share and revenue leadership positions in the past two years for consumer and commercial machines. In 2010, the unit generated some $41 billion in worldwide sales.

HP has contended for some time that its notebook, desktop and workstations gave it leverage with businesses also desiring bigger hardware such as servers and storage.

However, not only has growth in the vendor’s margin-thin PC business stalled in recent quarters, it now appears to run counter to Apotheker’s long-range plan to “sharpen HP’s focus on cloud, solutions and software.”

According to HP documents, in the vendor’s just concluded fiscal third quarter, its PSG unit recorded $9.6 billion in sales, sliding about 3 percent from the similar period last year, while posting operating profit of $567 million on flat unit sales. Notebook and desktop unit sales each fell about four percent during the period.

Sales of PCs to consumers tumbled 17 percent year-over-year while commercial revenue rose some 9 percent, HP said.

“In March we outlined a strategy for HP, built on cloud, solutions and software to address the changing requirements of our customers, shaped heavily by secular market trends that are redefining how technology is consumed and deployed,” Apotheker said in a statement.

“Since then, we have observed the acceleration of these market trends, which has led us to evaluate additional steps to transform HP to meet emerging opportunities,” he said.

HP said that it will not disclose its progress to move its PC business until it either finds a buyer or pursues another strategic direction. The vendor said that it expects to complete the process within the next 18 months.

By dumping its tablet and smartphone business, HP admitted that it cannot beat Apple Computer Inc.’s dominant position in both growth markets.

“We take these steps to better position for the future,” Apotheker said.

Autonomy purchase will bolster HP’s cloud offerings

HP’s $10.2 billion offer for Autonomy, which commands a customer base of 25,000 businesses, law firms and public sector agencies, and is staffed with some 2,700 employees, provides it an anchor in the $20 billion enterprise information management segment, the company said.

Moreover, the acquisition will gain HP a toehold in the business analytics software and services market, estimated at about $55 billion worldwide in sales opportunities, an avenue that IBM has vigorously pursued in the past two years.

Perhaps most telling, HP said that Autonomy will improve its business mix by focusing on enterprise software and solutions.

“Autonomy brings to HP higher value business solutions that will help customers manage the explosion of information,” Apotheker said.

“Autonomy has an attractive business model, including a strong cloud based solution set, which is aligned with HP’s efforts to improve our portfolio mix,” he said.

HP said that its and Autonomy’s board have approved the $42.11 per share offer, which represents a 64 percent premium to Autonomy’s shareholders. The deal, which HP said will be financed with offshore cash and debt financing, is expected to conclude before the end of this calendar year, officials said.

Following the acquisition, Mike Lynch, Autonomy chief executive officer and founder, will stay on to lead Autonomy and will report to Apotheker. The company will operate separately, officials said.

TAGS: HP,Autonomy,Apotheker,TouchPad,PSG

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