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HP surrenders in PC, phone, tablet war

A series of announcements from HP yesterday represented the company’s surrender in the war for the most hotly contested segments of the market, writes ARTHUR GOLDSTUCK.

An oblique statement that HP’s board has “authorized the evaluation of strategic alternatives for its Personal Systems Group”” was the camouflage under which the company yesterday began its retreat from the most hotly contested segments of the hi-tech economy.

It also announced it would explore “”the separation of its PC business into a separate company through a spin-off or other transaction””.

In a separate announcement, it stated: “”HP reported that it plans to announce that it will discontinue operations for webOS devices, specifically the TouchPad and webOS phones. HP will continue to explore options to optimize the value of webOS software going forward.””

In short, HP is selling off its PC business, and dumping its expensive investments in tablets and mobile phone technology. It has halted development of the TouchPad tablet and WebOS operating system that powered it, along with the HP Pre, the rebranded Palm Pre phones that came its way via last year’s acquisition of Palm.

The reason for dumping such recent investments? It can’t figure out how to make more money from these segments. Or, as it put it more formally, “”The exploration of alternatives for PSG demonstrates our commitment to enhancing shareholder value and sharpening our strategic and financial focus””.

The puzzling aspect of the announcement is the fact that HP, through its Personal Systems Group (PSG), is currently the world’s biggest PC manufacturer. As HP stated yesterday, “”PSG is the leading manufacturer of personal computers in the world and had annual revenues of approximately $41 billion in fiscal year 2010. PSG enjoys leading global market positions in consumer and commercial PCs.””

The decision to sell off this massive and market-leading division seems to indicate that HP has bet the future of the PC market on the tablet format, where it has failed dismally to make an impact with the TouchPad. Rather than go back to the drawing board, it seems, they’d rather flee the battlefield while their assets are still intact and can be sold at a premium.

Should tablets become the dominant format, and HP not have a major share of it, revenues at PSG would plummet, and the value of the unit would follow suit. By selling now, HP is in effect pre-empting what it sees as the inevitable end of its market domination.

Or, as HP coded it yesterday, “”HP is implementing a plan to fundamentally transform the company. 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. A post-transaction HP would continue to help its customers manage the information explosion and address their most critical needs through a portfolio that spans printing, software, services, servers, storage and networking.””

To make up for the revenue loss from dumping PSG, HP also yesterday announced the acquisition of UK database and search software company Autonomy Corporation for $10.3 billion. This positions HP as an enterprise-focused company, much as IBM did when it sold off its computer division, which became what we know today as Lenovo. IBM itself, meanwhile, has enjoyed an almost unchecked upward trajectory in revenues, profits and share price. HP would like some of what they’re having.

In his own comments, HP president and CEO Leo Apotheker focused entirely on the investor rather than consumer implications ‚ which he curiously characterises as “”secular””:

“”The exploration of alternatives for PSG demonstrates our commitment to enhancing shareholder value and sharpening our strategic and financial focus. 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.

“”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.””

The HP statement gave an interesting spin on the unstated realisation that HP was about to lose its market leadership:

“”The personal computing market is quickly evolving with new form factors and application ecosystems. Given these realities, HP believes it is in the best interests of the company and its shareholders to explore ways for PSG to position itself to address these rapid changes and maintain its technological and market leadership positions.””

HP expects the process of selling PSG to be completed within 12-18 months, but warns: “”There can be no assurance that any transaction regarding PSG will be pursued or completed. The company does not intend to disclose developments with respect to the progress of its strategic alternatives review process until such time as the HP board of directors approves or completes a transaction or otherwise determines that further disclosure is appropriate.””

Apotheker added: “”As we explore alternatives for PSG, we will be focused on a path that not only enhances value for HP shareholders but also provides greater opportunities for our people, businesses, partners and customers. While this process is underway, we will remain focused on operating our businesses. The strength of PSG is a testament to our world-class team of employees and reflects their commitment to innovation and customers and partners.””

Ultimately, the HP business model began changing the day IBM sold off Lenovo. However, there is little doubt that the iPad and the subsequent tablet war delivered the shot across the bows that sent HP scuttling for cover.

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