HP dumps WebOS, looks to split off PC business

HP is to spin off or sell its market-leading PC business and kill off all its WebOS devices, including the TouchPad tablet and Pre range of smartphones, so it can focus on higher-value enterprise products.

HP's Jon Rubenstein shows off the TouchPad at its launch in February. Credit: James Martin/CNET News

On Thursday, the Silicon Valley-based company said it is considering a wide range of options for a full or partial separation of its Personal Systems Group (PSG), such as through a spin-off or other transaction.

"HP is implementing a plan to fundamentally transform the company," the firm said in a statement. "An important component of the plan is focusing its investments, resources and management attention to drive higher value solutions to enterprise, small and midsize business and public-sector customers."

"HP believes that the exploration of alternatives for PSG will help the company accomplish its strategic goals and pursue profitable growth and enhanced shareholder value," it added.

The news came amid a wide range of announcements from HP, which also revealed that it will purchase Cambridge-based data analysis software provider Autonomy for £7.1bn in cash.

HP sells more PCs than any other manufacturer, although like its competitors it is selling decreasing numbers due to a slump in consumer demand. This is partly because a new PC cannot do much more than a two-year-old PC can do, but also because demand has shifted to tablets.

The TouchPad, HP's WebOS-based entry into the tablet market, has been a resounding failure. The Wall Street Journal reported on Tuesday that Best Buy has only managed to sell 25,000 of the 270,000 units took from HP, and the retail giant is demanding that the manufacturer take back the remainder.

Similarly, the Pre range of smartphones failed to make a noticeable dent in a mobile market dominated by Android and iOS. The Pre3 was supposed to launch in the UK before the end of August, but the product has now been canned.

Continuing to execute our current device approach in this market space is no longer in the best interest of HP and HP's shareholders.

– Leo Apotheker, HP

"The impact of the economy has [hit] consumer sales, and the tablet effect is real," HP chief executive Leo Apotheker said in an earnings call on Thursday. "Our WebOS devices have not gained enough traction in the marketplace with consumers, and we see too long a ramp up in the market share.

"Continuing to execute our current device approach in this market space is no longer in the best interest of HP and HP's shareholders," he said.

Ovum analyst Nick Dillon noted that HP failed to work up any interest in the TouchPad and the Pre3 among operators, as well as among consumers.

"Its products lacked a unique selling point and failed to stand out in an increasingly crowded market," he said in a statement. "However, it does seem somewhat premature to abandon the platform, given that HP only acquired Palm a little over a year ago for $1.2bn."

Future of WebOS

However, the German HP chief suggested there is some kind of future for WebOS. Apotheker's predecessor Mark Hurd picked up the Linux-based operating system when HP bought Palm in 2010, shortly before Hurd quit due to various financial and sexual scandals.

HP is considering "how best to optimise the value" of the mobile operating system, Apotheker said.

Dillon suggested the most likely outcome for the mobile operating system is for it to be bought by a device maker as an alternative to Android or Windows Phone.

"It is unlikely that HP will find any licensees for WebOS, as it offers little benefit over existing platforms in terms of functionality or governance," he said. "However, it might make a tempting purchase for a handset maker looking to end its reliance on Google and/or Microsoft, or an adjacent player wanting to expand into mobile. Such companies could include HTC, Facebook or Amazon."

As for the company's PC business, Apotheker said PSG needed to show more "flexibility and agility" for it to remain the global market leader.

"That is why the board of directors has authorised our management team to explore strategic alternatives for PSG," he said. "We intend to evaluate a range of options that may include, among others, a separation of PSG from HP through a spinoff or other transaction. We anticipate that we will take 12 to 18 months to complete this process."

At the same time, Apotheker named the successor to Ann Livermore as head of HP's enterprise services business. John Visentin, who has headed the integrated technology services unit in North America, takes over the enterprise services role immediately.

Third-quarter results

HP's third-quarter results, the reason for the earnings call and the timing of Thursday's announcements, were tepid. Revenue was up 1.5 percent year-on-year to $31.2bn (£19bn), but down two percentage points, once currency fluctuations are taken into account.

Revenues in the EMEA region were down five percent after currency adjustments. PSG revenues were generally slightly down, but commercial client PC revenues were up nine percent. Consumer client PC revenues were down 17 percent year-on-year.

Enterprise server, storage and networking saw a seven-percent revenue boost, taking that unit to $5.4bn for the quarter, but operating profit and margins were down.

HP's share price on the New York Stock Exchange ended Thursday just over six percent lower than its value at the start of the day, although it was generally a bad day for financial markets around the globe.