What Is Going On At HP?

Today, HP announced that they are killing the WebOS device business, keeping the WebOS software businessacquiring Autonomy for some silly amount of money and putting the PC business up for sale. I’m still not clear on what Autonomy actually does (what the heck is “meaning-based computing?), let alone unsure if they’re worth the $10 billion they are reportedly offering. So, let’s dissect this a bit. I’m not even going to touch the Autonomy deal, except to say that there are some people about to be very rich, and I don’t see them currently carrying HP identification badges.

However, let’s start with an easy one: selling off the PC business. HP is, depending on whose numbers you use, the largest PC manufacturer in the world. Now, what portion of that is enterprise sales (including desktops and servers) and what portion are retail/consumer customers, I haven’t seen any data on. Even if you leave out the PC server business, they are still pretty big, and apparently still profitable. Granted, the profit is supposedly only around 4%, but that’s still higher than zero and better than negative. But, this may be the time that HP can get the most value for their PC business. Who are likely buyers? While I can’t comment on their financial ability to do so, either Dell or Acer would probably like to grab a big piece of the PC pie, given they are typically the other two that round out the top-3 in PC’s. Someone like Asus might be interested, since it would leapfrog them up the marketshare charts.

Moving away from the desktop isn’t the worst idea in the world, and it would allow HP to focus on their strengths. IBM moved away from desktop PC’s a few years ago, selling the division off to Lenovo. IBM also moved away from printers long before that (spinning off Lexmark), but HP has been mum on whether the printer/scanner business will be next. I suspect not, given that there is still plenty of profit in printer ink. But, dropping the PC business would put the focus on servers, software and services, again mirroring what IBM has been doing recently. These are typically higher-margin businesses, and they don’t swing as widely due to economic stress. And HP, with their EDS division, does quite well and is supposedly one of the bigger vendors in the services space. Focusing on the enterprise is still a good idea.

The WebOS decision strikes me as bizarre, though. HP paid about $1.2 billion to buy Palm, primarily to get the WebOS technology. They just recently released the TouchPad, and had started to update the Pre line of phones. But, apparently that ends as of today. But what do they expect to do with WebOS? I suppose that it could become a fallback for those handset makers that are concerned about Android but don’t want to put all their eggs into the Microsoft basket. But, given the rather poor performance of WebOS in the market so far, I’m not sure I would bother. I would put more faith in Microsoft staying the course with Windows Phone than HP hanging on the WebOS, and frankly, I can foresee HP either dropping or selling WebOS in another round of “let’s go crazy” in the near future. The problem for HP is that, unless they’ve lined someone up already, they are at least a year, possibly more, from 3rd party smartphones or tablets running WebOS. That’s a year for iOS and Android to continue their respective climbs up the charts, and a year for customers to completely forget about the technology. What slim hope WebOS had of surviving in the mobile computing space has, I think, been eliminated with the disappearance of products actually using the software. Basically, HP has flushed $1.2 billion down the drain with their Palm purchase, eliminating any hope  they had (slim as it was) for making that money back.

So, in the end, HP will probably find that their bank accounts are only lighter the $1.2 billion they paid for Palm. I would expect their PC division, being one of the largest in the world, will fetch enough to offset the Autonomy deal. But abandoning WebOS devices, possibly in the hopes of 3rd party adoption of the software, is to effectively abandon WebOS itself. It simply can’t wander the wilderness for a year or more and hope to compete against whatever is out there when, or if, it resurfaces.