HP punts on WebOS, discontinues TouchPad, cuts outlook

HP punts on WebOS, discontinues TouchPad, cuts outlook

Summary: HP drops a bombshell---as well as the TouchPad and WebOS.


HP said Thursday that it will discontinue its WebOS operations as the company cut its outlook for the next two quarters. The company will also acquire Autonomy, an enterprise information retrieval outfit.

The company said it  "will discontinue operations for webOS devices", specifically the TouchPad and WebOS phones. In April 2010, HP talked about doubling down on Palm and the WebOS. And that WebOS unit will cost HP some dough to discontinue. HP will also spin off its PC unit---almost 10 years after the company bought Compaq.

HP said that it will take a hit to fiscal 2011 earnings of $1.16 a share to $1.23 a share as it restructures and shuts down WebOS devices and related operations. There were signs that TouchPad sales were bleak, but a complete shutdown of WebOS operations was unexpected.

HP's statement held a bevy of items for customers and shareholders to ponder. First, HP's customers---and anyone that bought a TouchPad---wonder what the potential sale or discontinuation of the unit will mean. Shareholders have to consider the spin-off of the PC unit as well as a lower-than-expected outlook for the rest of the year. On a conference call with analysts, HP CEO Leo Apotheker said:

Transformation can involve difficult decisions, but we take these steps to better position for the future. These challenges and the transformation we are undertaking will take several quarters to fully resolve. I don't take this action lightly. I know our investors don't like being in this position and neither do I. I feel that as CEO I believe in transparency about what we are facing and be clear under the size of things we are doing now about it. To conclude, I'm taking ownership for these decisions and investments with a focus on driving actions that deliver value for shareholders as we shape the new HP.

Also: HP's Apotheker recounts TouchPad disaster in post mortem

HP said that its third quarter revenue will be $31.2 billion with earnings of 93 cents a share. Non-GAAP earnings will be $1.10 a share. Wall Street was looking for earnings of $1.09 a share on revenue of $31.17 billion.

Overall, the third quarter results were the least of HP's worries. The company said its fourth quarter revenue will be $32.1 billion to $32.5 billion. Non-GAAP earnings will be $1.12 a share to $1.16 a share. Wall Street was looking for $1.31 a share on revenue of $33.99 billion.

The guidance indicates that HP is seeing material weakness and having a tougher time navigating economic uncertainty relative to rivals like Dell. HP also confirmed that it is in talks to buy Autonomy.

Remaking HP

HP's move to shed the PC business as well as discontinue the TouchPad has its risks. For starters, HP will take a reputation hit for launching a TouchPad and then killing it.

In a statement, HP said it will seek "strategic alternatives for its Personal Systems Group (PSG), including a full or partial spinoff.

The real kicker is that HP is going to discontinue its WebOS phones. It will "continue to explore options to optimize the value of webOS software going forward."

There are two ways to look at HP's moves today. On one hand, HP is making bold moves before the PC and WebOS operations become an anchor for the company. On the other side, HP's business is struggling and it has disappointed Wall Street since the end of Mark Hurd's tenure.

Meanwhile, a bevy of IT insiders have questioned HP's Autonomy acquisition. HP said that it will acquire Autonomy for $42 a share in cash, or $10 billion.

Apotheker said that the acquisition of Autonomy represents a shift int higher margin businesses. HP is now positioning itself as an information management company. Apotheker took heat from analysts over the Autonomy price tag. Apotheker said:

Autonomy represents an opportunity for HP for us to accelerate our vision to decisively and profitably lead a larger win space which is the enterprise information management space.

Add it up and HP is aiming to exit the consumer business---or at least quarantine those operations---to focus on the more lucrative software, systems and services business. If HP is successful, it will look more like IBM when finished. The problem for HP is that IBM is firing on all cylinders. The consumer unit---whether it's shed, sold or spun off---will be left to battle Apple.

HP shares took a hit through regular and extended hours trading.

HP said its fiscal 2011 revenue will be in the $127.2 billion to $127.6 billion range. That's down from previous sales range of $129 billion to $130 billion. Non-GAAP earnings will be $4.82 a share to $4.86 a share. That range is down from at least $5 a share. GAAP earnings for fiscal 2011 will be $3.59 to $3.70 a share.

Wall Street was looking for fiscal 2011 earnings of $5.01 a share on revenue of $129.1 billion.

Those non-GAAP earnings exclude charges related to exiting the WebOS operations.

Business unit results

HP's business group results highlight the strain of the consumer business. HP's services revenue was up 4 percent and enterprise server, storage and networking unit saw sales gains of 7 percent for the quarter. Meanwhile, software revenue jumped 20 percent from a year ago.

However, HP's personal systems group had a revenue decline of 1 percent and imaging and printing also fell at the same clip.

Based on the business unit results, HP's PC unit held up well and delivered $567 million in operating income.

FUD time

As HP goes through this transition, it will face a fear, uncertainty and doubt war with its rivals. HP is fighting a multifront war. On the enterprise side, Cisco, IBM, Dell and Oracle are chief rivals. On the consumer side, HP faces Apple and Google's Android army.

Michael Dell, CEO of Dell, kicked off the festivities quickly.

Here's his tweet:

Competitors are likely to take aim at HP on multiple fronts and portray the company as distracted. Look for IBM and Dell to target HP's server position. Cisco will look for retribution after quarters of HP targeting the networking giant's core switch products. On the corporate PC side of the equation, Lenovo and Dell will aim for a bigger chunk of the upgrade cycle.

Separately, HP named a new head for its enterprise services unit. John Visentin will lead the HP Enterprise Services unit.

On the consumer side, the reputation hit to HP can't be underestimated. HP will have to smooth over relationships with retail partners, resellers and consumers who may have taken the TouchPad plunge. On the software side, HP's hasty retreat on WebOS will be remembered by developers. These developers are likely to be skeptical about HP's commitment to other efforts such as the public cloud.

Bottom line: Consumers and corporations will have doubts about HP and its intentions amid a potential spin off of the PC business.

Questions abound

Going forward, HP will have to face multiple questions. Among the larger questions:

  • How much time will CEO Leo Apotheker really have to pull off his Lou Gerstner imitation? Gerstner ditched IBM's low margin businesses and remade the company, but that process took nearly a decade.
  • What market share hit will HP see in PCs?
  • Will concerns about distractions bleed over into HP's core enterprise business?
  • What will happen to HP's plans revolving around cloud computing?
  • Will buyers emerge for the PC unit?
  • And what's the future of the WebOS going forward? Can a company buy it and make something of the operating system?

See also on ZDNet:

Elsewhere on CBSi:

Topics: Mobile OS, Hewlett-Packard, Operating Systems

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  • RE: HP punts on WebOS, discontinues TouchPad, cuts outlook

    What a huge waste of money.
    • Microsoft should buy HP's PC unit

      @rwalrond <br>and be the sole provider of Windows based PC's.
      My Guess is that Google will try to buy it.
      William Farrell
      • RE: HP punts on WebOS, discontinues TouchPad, cuts outlook

        @William Farrell Good idea about MS buying HP's PC business. Then, they might be like Apple: unfortunately, they'd mess it up
      • DOJ would have a cow...

        @William Farrell
        Microsoft would never get past antitrust review.
      • Google?

        @William Farrell
        Why would they buy it?
    • RE: HP punts on WebOS, discontinues TouchPad, cuts outlook

      @rwalrond -- What a waste indeed...
      • RE: HP punts on WebOS, discontinues TouchPad, cuts outlook


        The Palm/Touchpad thing had disaster written all over it when they came out in June instead of last Christmas.

        But the real sign of failure is the exit from the PC business. As Apple is increasing their market share and profits, HP decides to jump off the top of the mountain. Why? Because management crippled innovation so much that HP, even as the largest and most powerful PC vendor, could not figure out a way to invigorate PCs and give them new appeal. They relied on cut-rate outsourcing and Microsoft to do all the "inventing."

        If there is one person who should be shown the door for this decline, it is Shane Robison. He was supposed to be the innovation and strategy guy, but instead he has left HP bereft of any differentiation.
        terry flores
      • Agreed

        @ASBzone I can only agree with you and ASBzone. HP had innovative slates and tablets 7 years ago. I still have a TC1100 slate running Xubuntu beautifully - great little device. They could have been in Apple's position but never showed any innovation in this space.
    • So much for HTML5 as a platform

      A platform for crash test dummies maybe. WebOS? What a joke.
    • Yeah, hp management are total clods

      @rwalrond Ha Ha Ha! Well at least the WebOS guys cashed in and the stupidity of HP. How pathetic.
    • The sharholders have spoken


      The PC division is HP's biggest revenue generator, but least profitable unit.

      That's a lot of money to no longer have.
      William Farrell
    • RE: HP punts on WebOS, discontinues TouchPad, cuts outlook

      @rwalrond - First they clipped me with the miserable 500 Slate - no good at any price and now they take a device that I really like and drop support. Terrific. I will not support HP's products again and I own several others.
      • RE: HP punts on WebOS, discontinues TouchPad, cuts outlook

        @jedwinkoontz Unless you represent an 'enterprise', HP cares even less about you than before.
      • RE: HP punts on WebOS, discontinues TouchPad, cuts outlook

        @jedwinkoontz I actually have an old HP laptop with XP that I upgraded to Vista, an then Win 7. gave it to my niece and she loves it. Its too bad. They make some great laptops....
    • RE: HP punts on WebOS, discontinues TouchPad, cuts outlook

      I agree. In difficult times, specially when there is too many competition, it's not a good idea release a 100% new idea as WebOS, specially because there are already two horses running for a long time, and capturing most of users, they should have done like automobile industry is doing, before as gas. cars, then came those flex (in some countries gas. and ethanol) and now hybrid (gas. and electric) to then further get on only electric car. They thought for some unknown reason (like other company is trying too), that just a good idea was enough, though it's not, for a good idea flourish it's need it and landscape to it, what it's not the today's scenario. I hope that HP soon get on rails again. Extreme decisions ,brings extreme problems more often than extreme success.
      • RE: HP punts on WebOS, discontinues TouchPad, cuts outlook


        Ummm, WebOS was definitely NOT "100% new"; when HP bought Palm, they claimed that Palm's WebOS was one of the biggest assets they were getting out of the deal.

        The Palm phones were well-regarded, and the TouchPad looked like a real threat. HP certainly spent some bucks on a decent ad campaign; they can't be accused of under-marketing the thing.

        HP has managed to drift off into the margins, at least in the consumer arena. The PC is dying, their printers are underwhelming, and in tablets they went to market with a decent, but late, product.

        I'm honestly stunned. This is considerably bigger than, say, Microsoft's Kin debacle a few years ago.
      • RE: HP punts on WebOS, discontinues TouchPad, cuts outlook

        good product, bad execution perhaps...
      • RE: HP punts on WebOS, discontinues TouchPad, cuts outlook

        This is the greatest post in the history of the internet.
      • RE: HP punts on WebOS, discontinues TouchPad, cuts outlook


        Car Industry is really not an example to give...
    • RE: HP punts on WebOS, discontinues TouchPad, cuts outlook

      fiorina was demonized by hp for acquiring compaq while hurd was hailed as hp's saviour. guess what, hp expanded its service business because of compaq acquisition (thanks to fiorina), and everybody hailed hurd the hero that gave them the windfall. now nobody even dared to connect hurd to this nonsense because hp lost tons of money, and members of the board that hired hurd in the first place wanted to wash hands. what a mess..... hope oracle will realize that they got no hero. bad business decision normally do not result in lost revenue right away, and good decision/good result just the same. yet investors love fleeting business reports, instead of long term prospects. perhaps, you can not blame them investors for protecting their money, and maybe just that's the way business is.