After only nine months on the job, HP CEO Leo Apotheker dropped a bombshell—two, actually—during the company's third-quarter earnings call for 2011.
The first was the announcement that its WebOS devices, particularly the Touchpad, did not meet sales expectations, and that it would shut down operations for it in the last quarter of this year. The Touchpad has barely been in the market for a month, hardly enough time for it to make an impact on the tablet market. But based on early sales, HP conceded that it would take too long for the short-lived tablet to ramp up its market share. This announcement also affects its WebOS smartphones, which will be discontinued as well. Yikes.
The other bombshell is that HP could spin off its Personal Systems Group (PSG), comprising its desktop and laptop computers, into a separate entity. Now, the only time companies break off into parts is when one part is bleeding money from the other, and unloading the weaker half to another suitor becomes a serious possibility. That weaker half is HP's PSG. Motorola made a similar move by breaking up the company into a Mobility and Solutions Group, the first of which was recently acquired by Google.
You may wonder how it's possible that the number one computer retailer, with over 18 percent of the world's market share, is struggling so badly. It also makes you wonder what measures Dell is taking to address its struggling PC business. Fact is, the PC industry isn't what it used to be. Margins are thin, and even thinner when you realize how much money is lost to R&D, supply chains, manufacturing, and resellers.
The PSG breakup mirrors the one that IBM made back in 2004, when its ThinkPad PC division was separated from the services group and wound up in the hands of Lenovo. Back then, IBM realized that hardware was a failing business and selling computing rather than computers would be a more profitable business. Look how well that worked out for IBM—it's thriving as a service provider. Software and services have grown up to be, both in terms of revenue and industry footprint, what IBM is about, and HP is following in its footsteps.
The acquisition of Autonomy Corp., a developer of database search applications and the U.K.'s second-largest software maker, is just the first step in building its software business. Autonomy is a huge player in analytics, backup solutions, data and security sales, and other cloud services. It further beefs up HP's Enterprise Services division, renamed as such after HP acquired Electronics Data Systems for $13.9 billion in 2008. And it sounds like HP's spending spree won't stop at Autonomy, as it plans on future acquisitions to strengthen its cloud presence.
As for PSG, HP is exploring the possibility of a partial or full separation, along with a range of other options, so it's not a done deal yet. It would take 12 to 18 months to complete this process, according to Apotheker. Regardless, the implications of a split and the demise of WebOS signal one of the saddest days in HP's history and possibly the harbinger of worse things to come in the PC space.
For more, see HP is Too Big to Build Stuff and Should HP Sell Its PC Group? as well as 6 Ways to Get Rid of Your HP TouchPad and the slideshow of HP's Greatest Hits above.