HP kills tablets, confirms PC spin-off plans

HP also confirmed it is in acquisition talks with software maker Autonomy (see video, below)

Hewlett-Packard (HP) on Thursday said it will discontinue operations for webOS devices, specifically the TouchPad tablets and smartphones. It also confirmed that it is exploring the possible spin-off or sale of its Personal Systems Group (PSG), which dominates the global PC market.

The company's board of directors has authorized HP to explore options for the PSG unit. "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," the company said in a statement.

HP also confirmed it was in talks to acquire analytics software vendor Autonomy, though it did not provide further details. Reports from Bloomberg and the Wall Street Journal earlier on Thursday put a $10 billion price tag on such a deal.

HP's Personal Systems Group, which sells PCs, tablets and smartphones, has the company's lowest profit margin although it accounted for nearly a third of HP's overall revenues in 2010. PC sales -- particularly consumer products -- tend to fluctuate more than business solutions and services as they are more sensitive to seasonal buying trends and economic trends, said Charles King, principal analyst at Pund-IT.

"By spinning off PCs, HP could effectively isolate potentially volatile financial numbers and their effect on its more stable, higher-margin businesses," King said.

HP is following in the footsteps of IBM, which spun off its PC business to Lenovo in 2005 to focus on the higher-margin software and services business. HP may also feel pressure from Apple, which has released highly profitable consumer products such as smartphones and tablets. Apple's tablets have hurt PC shipments, a market that HP dominates as the world's largest PC vendor.

HP is cutting its losses in the smartphone and tablet market quite speedily: it unveiled its TouchPad tablet and new smartphones with much fanfare only in February.

HP's PC business has been marginally profitable, but the margins have shrunk over the years, said Roger Kay, president of Endpoint Technologies Associates.

"It certainly goes against Carly Fiorina's theory of 'all's well together,'" Kay said. HP bought PC maker Compaq for $25 billion in 2002 when Fiorina was CEO.

Meanwhile, the possible purchase of Autonomy would be "completely in keeping with the increased focus on software and business solutions that HP's board had in mind when they hired [CEO] Leo Apotheker," said King.

Based in San Francisco and Cambridge, Massachusetts, Autonomy provides a variety of portal, enterprise search, content management and analysis tools to organizations.

Q2 worldwide PC shipments

Company 2Q11 Shipments 2Q11 Market Share (%) 2Q10 Shipments 2Q10 Market Share (%) 2Q10-2Q11 Growth (%)
HP 14,888,086  17.5 14,454,971  17.4  3.0
Dell 10,621,436  12.5 10,283,074  12.3  3.3
Lenovo 10,225,358  12.0 8,349,272  10.0 22.5
Acer  9,298,989  10.9 11,689,255  14.0 -20.4 
Asus  4,467,611   5.2  4,306,241   5.2  3.7
Toshiba  4,411,400   5.2  4,497,576   5.4 -1.9  
Others 31,306,987  36.7 29,732,493  35.7  5.3
Total 85,219,865 100.0 83,312,882 100.0  2.3
Source: Gartner (July 2011). Data includes desk-based PCs, mobile PCs, including mini-notebooks but not media tablets such as the iPad.

The major changes at the company will help it focus on its enterprise business.

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