HP Exploring PC Spinoff, Buying Software Company

Aug. 19, 2011
'The transformation starts today.'

Hewlett-Packard, the world's top personal-computer maker, announced Thursday it is exploring a spinoff of its PC unit in a historic shift away from the consumer market.

In line with a strategic realignment towards software and solutions for businesses, Palo Alto, Calif.-based HP also announced it is buying British enterprise-software company Autonomy for $10.24 billion.

HP said it will purchase all of the outstanding shares of Autonomy for $42.11 (£25.50) per share in cash, a premium of 64% over Autonomy's closing price on the London Stock Exchange on Wednesday.

It said the deal has been unanimously approved by the boards of directors of both companies and should be completed by the end of the year.

In a further move away from the consumer space, HP said that it is stopping production of its TouchPad tablet computer, its rival to Apple's iPad, which was introduced just seven weeks ago, and phones based on the webOS mobile operating system acquired from Palm last year for $1.2 billion.

HP shares lost 5.99% on Wall Street on Thursday to close at $29.51 and shed another 9% in after-hours electronic trading following the series of blockbuster announcements.

HP's low-margin PC business has been the subject of separation rumors for months and HP shares have slumped this year amid investor concerns that the company is being overtaken by younger, nimbler Asian rivals.

Leo Apotheker, a former top executive of German business software giant SAP who took over as HP's chief executive in November, said the moves are part of a "transformation to position HP for a new future."

"The transformation starts today," Apotheker told financial analysts.

Explaining the decision to sell or spin off the PC business within the next 12 to 18 months, the HP CEO said the weak economy is having an impact on PC sales but there is also a "clear secular movement in the consumer PC space."

"Consumers are changing their use of the PC," Apotheker said.

"The tablet effect is real and sales of the TouchPad are not meeting our expectations."

"For our PC business to remain the world's largest personal computing business it needs the flexibility and agility to make decisions best for its future direction," he said.

PC Market Has Been Flat

The PC market has been flat amid an explosion of powerful smartphones and the arrival of hot-selling tablets such as the iPad.

Apotheker said HP is mulling various options for the webOS software acquired from Palm, including licensing the platform for use by third-party manufacturers.

HP said revenue declined 3% at its personal-computer division last quarter with a 5.9% operating margin. It said commercial client revenue grew 9% and consumer client revenue fell 17%.

While separating from its PC unit, Apotheker said HP intends to retain its profitable printing business, which has significant commercial applications.

Shortly after taking over, Apotheker said he planned to refocus the company on software and technology solutions and make a major push into cloud services -- offering applications and storing data over the Internet.

The purchase of Autonomy, which was founded in 1996 and makes software for companies to search and manage huge databases, fits the strategy of "building a successful software business," he said.

"Autonomy brings to HP higher value business solutions that will help customers manage the explosion of information," he 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."

Decision Reminiscent of IBM

Technology analysts said HP's decision to abandon its PC unit recalls that of U.S. computer giant IBM, which sold its PC business to China's Lenovo in 2004 for $1.25 billion.

Gartner analyst Mark Margevicius cautioned, however, that "we're not in an era when the PC is dead.

"The PC market is flat but it's still a huge business," Margevicius said.

It remains HP's largest single revenue generator, but it "just doesn't produce all that much profit," he said. "The PC market has transformed into a tactical, commoditized business.

"HP, as a vendor, has many, many things within its coffers to sell to its customers. It sells services, it sells online stuff, it's got networking stuff, it's got software," he said.

"It's got all kinds of other things that from a business point of view make far better margins and profit than does the PC business," Margevicius said.

"If the PC business was a business that generated 20% margins, HP's not dumping their PC business," the Gartner analyst said.

Copyright Agence France-Presse, 2011

Popular Sponsored Recommendations

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!