Hewlett-Packard, the world's largest IT company, announced moderate financial results tonight -- quarterly turnover up by 2% to $31.2 billion -- then dropped a couple of bombshells. As well as announcing the possible $10bn purchase of Autonomy, a British software company, HP said it "will discontinue operations for webOS devices" such as the TouchPad, and that it was exploring "strategic alternatives" for its $41bn Personal Systems Group (PSG), which is the world's largest PC manufacturer by units sold.
HP has had a traumatic time under a series of management teams since the good old days when it was one of the world's most admired companies. The rot really set in under Carly Fiorina, whose strategy appeared to be to make HP a clone of Apple. (She succeeded in halving the share price.) It now looks as though the latest incumbent -- Léo Apotheker, hired in from SAP AG -- wants to make HP a clone of IBM.
The idea of making hot products and selling them to people looks hopelessly old fashioned nowadays, doesn't it? Software and services seems to be the new direction, though the regular income from high-priced printer ink will no doubt keep HP afloat for years.
Unfortunately for HP, its attempt to make money from hot smartphones and touch-screen media tablets may have been one of the shortest on record. A year ago it bought Palm for $1.2 billion, with the idea of using its WebOS operating system in most of if not all of its devices including smartphones, tablets, PCs and printers. A few gullible journalists may have thought this was a good idea, but it barely survived contact with the real world.
According to Ars Technica yesterday -- Report: Best Buy tells HP to take back its TouchPads -- the giant US retailer "took 270,000 TouchPads into inventory" and only managed to sell about 25,000, even after cutting the price by $50 then $100. The unconfirmed story says: "The biggest sale yet from flash sale site Woot, which sold the tablet for $120 off, got HP a meager 612 customers."
Also unfortunately for HP, the PC business is not what it was. Even though PSG's sales have reached almost $41 billion -- a third of HP's turnover -- it is only earning about $2 billion a year, or just 13 percent of HP’s profits. Getting shot of the PC business would improve HPs operating margin and make it more attractive to the stock market investors for whose benefit companies are now run.
HP said in its press statement that "its board of directors has authorized the exploration of strategic alternatives for its Personal Systems Group (PSG). HP will consider a broad range of options that may include, among others, a full or partial separation of PSG from HP through a spin-off or other transaction."
This gave me, Michael Dell (of Dell) and several million pundits the opportunity to make the same quip: maybe they could call it Compaq.
It was, of course, Carly Fiorina's purchase of the pioneering PC manufacturer in 2002 that made HP top dog in PCs in the first place, vaulting it over Dell. To be fair, the merger did work better than some people expected, and HP indirectly acquired the former Digital Equipment Corp (DEC) business that Compaq had swallowed up a few years earlier.
HP's success in the PC business may also have helped IBM get out of it. In 2005, Big Blue sold off its PC division to Legend, the leading Chinese PC maker, to create Lenovo. Finding someone to take on HP's much larger operation might be tricky, though its manufacturing is done by exactly the same Taiwanese contractors as Apple, Dell, Acer and most other major PC suppliers.
HP can sell 50 million PCs a year, but it has no real advantages of scale when its PCs are actually made by Quanta, Foxconn, Compal, Wistron and Inventec, just like Dell's.
HP will look for buyers or partners to try to salvage something from the WebOS debacle, but again, who would want it? Palm was briefly successful with PDAs (personal digital assistants) but went downhill from there. HP's TouchPad and phones have no chance of beating the twin juggernauts of Apple's iOS and Google's Android, and the evidence to date is that even with the backing of the world's largest IT company they can't compete with RIM's BlackBerry or Microsoft's Windows Phone.
It's no doubt sad because HP was the original two-guys-and-a-garage startup in Palo Alto in 1939, and was the "founding father" of Silicon Valley. However, at least the garage will survive.