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HP to spin-off PCs, buy Autonomy, do an IBM

by Scott Bicheno on 19 August 2011, 10:05

Tags: Hewlett Packard (NYSE:HPQ)

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Consumer market too much like hard work

Well, so much for August being a quiet month for news. Computing giant HP decided to spice-up its quarterly earnings announcement with not one, but three bombshells.

Firstly, HP intends to acquire UK data management company Autonomy for $10.25 billion, which represents a premium of 64 percent on its closing share price.

Secondly HP is exploring ‘strategic alternatives' for its Personal Systems Group (PSG). The only alternative suggested is making the PSG a separate company through ‘spin-off or other transaction'.

Lastly HP said it plans to discontinue operations for webOS devices, as we thought it might, and ‘will continue to explore options to optimize the value of webOS software going forward.'

Oh, and HP more or less met expectations for the previous quarter, but its outlook for the next was well below expectations. That alone might be enough to explain the ten percent fall in its share price in after-hours trading (having fallen by six percent during the day), but there's also little sign that the acquisition and general rethink have been well-received by investors.

We'll look into the webOS situation on mobile-device.biz shortly, and restrict ourselves to the broader proposed corporate transformation here. HP has been acquiring enterprise-focused companies, such as ArcSight, 3PAR, 3Com, and EDS for some time, and new CEO Léo Apotheker, a veteran of enterprise software giant SAP, clearly thinks this is where HP's strengths lie.

This puts HP less in the category of Acer, Lenovo, etc - who specialize in consumer and client computing - and more in the IBM/Oracle/Cisco space. EDS strengthened HP in enterprise IT services - an IBM strength - which 3Com helped it in networking - where Cisco dominates. Subsequent acquisitions have focused on enterprise software - Oracle's strength - and Autonomy is no exception.

Put simply, Autonomy's software facilitates the interaction between structured and unstructured data, one use for which would be to enable databases to extract data from, say, web pages. This is called the Intelligent Data Operating Layer (IDOL) platform. HP expects to keep Autonomy, erm, autonomous.

"Autonomy presents an opportunity to accelerate our strategic vision to decisively and profitably lead a large and growing space," said Apotheker. "Autonomy brings to HP higher value business solutions that will help customers manage the explosion of information. Together with Autonomy, we plan to reinvent how both unstructured and structured data is processed, analyzed, optimized, automated and protected.

"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. We believe this bold action will squarely position HP in software and information to create the next-generation Information Platform, and thereby, create significant value for our shareholders."

The stated desire to jettison its PC business is the biggest surprise of the three bombshells, and is highly reminiscent of the corporate transformation IBM went through at the end of 2004, when it sold its PC business to Lenovo.

HP is the world's biggest PC-maker by volume, a status cemented by Acer's recent implosion. But Acer's troubles echo the challenges face by all PC-makers: margin. The PC market is now so mature and commoditised that it's difficult to make more than a few percentage points of margin on the sale of PCs. This situation has been made worse by Apple's success.

The mainstream consumer PC market has been damaged by the mobile device revolution, with people increasingly looking to spend their money on smartphones and/or tablets instead. At the high end Apple is selling more than ever - especially the MacBook Air - which means there are few opportunities to make decent money on PC sales, no matter how many you manage.

"In March we outlined a strategy for HP, built on cloud, solutions and software to address the changing requirements of our customers, shaped heavily by secular market trends that are redefining how technology is consumed and deployed," said Apotheker.

"Since then, we have observed the acceleration of these market trends, which has led us to evaluate additional steps to transform HP to meet emerging opportunities. We believe the acquisition of Autonomy, combined with the exploration of alternatives for PSG, would allow HP to more effectively compete and better execute its focused strategy."

"PSG is a world-class scale business with a leading market share position and a highly effective supply chain and broad reach and go-to-market capabilities. We believe there are alternatives that could afford PSG more autonomy [he couldn't resist! - ed] and flexibility to make strategic investment decisions to better position the business for its customers, partners and employees."

This, together with throwing in the towel in mobile, is an acknowledgement that the balance of power in consumer technology has shifted towards Apple and Google. The sums are just not adding up for HP in the consumer market, and it appears to have come to the same realisation IBM did seven years earlier.

 



HEXUS Forums :: 9 Comments

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shaped heavily by secular market trends

Does that mean that the sacred market is trending in a different direction? :O_o1:

Or is this some strange new use of the word “secular” of which I was not previously aware? :geek:
scaryjim
Does that mean that the sacred market is trending in a different direction? :O_o1:

Or is this some strange new use of the word “secular” of which I was not previously aware? :geek:

Not sure if this helps: http://www.merriam-webster.com/dictionary/secular

Looking forward to crossy's take on this.
They are going to be still making servers and WebOS maybe used on devices other than smartphones and tablets:

http://www.forbes.com/feeds/ap/2011/08/18/technology-broadcasting-amp-entertainment-us-tec-hewlett-packard-mobile-shutdown_8630956.html

However,it would be nice if they would clarify if they are continuing to make and support monitors,printers and scanners for consumers. AFAIK,they have said nothing about these sides of their business. This could mean they hopefully will be fine for the time being.
CAT-THE-FIFTH
They are going to be still making servers and WebOS maybe used on devices other than smartphones and tablets:

http://www.forbes.com/feeds/ap/2011/08/18/technology-broadcasting-amp-entertainment-us-tec-hewlett-packard-mobile-shutdown_8630956.html

However,it would be nice if they would clarify if they are continuing to make and support monitors,printers and scanners for consumers. AFAIK,they have said nothing about these sides of their business. This could mean they hopefully will be fine for the time being.

I've seen nothing in the HP statements about servers or printers, but given its stated aim to focus on the enterprise and SMB markets, it would be counter-intuitive for them to drop either. The PSG announcement seems to be an acknowledgement that you can't just pull out of consumers and keep business, so consumer printers look safe.
Scott B;2113059
I've seen nothing in the HP statements about servers or printers, but given its stated aim to focus on the enterprise and SMB markets, it would be counter-intuitive for them to drop either. The PSG announcement seems to be an acknowledgement that you can't just pull out of consumers and keep business, so consumer printers look safe.

As much as I despise HP and their poor offshore CS and other support, I would hate for them to leave the digital imaging market. Unfortunately, it is a very niche market and as such, the equipment is hard to find and expensive for what it is. I just bought a documate and it was faulty from the get go. I've seen negative reviews of scanners that cost £500. If someone needs a scanner they just buy the cheap AIOs which devalues a very useful technology.

Anyway, I'm sure their scanner division is closely related to their MFP division. Digital printing is big these days and HP would do better if they lowered the price of their MFPs and be more competitive in that market (Indigo is doing fine by the looks of it).