HP kills TouchPad and signals end of its PC era

19 Aug 2011
HP TouchPad

HP shifts towards the IBM model, axing the TouchPad while potentially spinning off its PC business

HP is set to spin off the world's largest PC business, part of a wrenching series of moves away from the consumer market.

That includes killing off its new tablet and buying British software company Autonomy for as much as $11.7 billion.

The moves underscore the problems plaguing PCs and devices, HP's core business, and a decade-long search for direction by the original Silicon Valley garage startup, whose "HP Way" was once a model for businesses.

HP is at a critical point in its existence and these changes are fundamental to the success we all want

HP also plans to kill WebOS-based phones and the TouchPad tablet, which was launched in June but has failed to excite consumers.

HP's third-largest acquisition ever and its potential departure from the PC arena sets in motion a transformation that recalls IBM's overhaul of the last decade.

The barrage of news masked a sharp reduction in HP's estimates for full-year revenue and earnings that sent its shares down 6.1% to a 52-week low.

HP chief executive Leo Apotheker is responding to mounting pressure to fire up growth just as global economic and tech-spending outlooks darken. Like other PC makers, it is struggling to come up with an answer to Apple's iPhones and iPads, which are gobbling up PC market share.

"HP is at a critical point in its existence and these changes are fundamental to the success we all want," Apotheker told analysts on a conference call.

Be like IBM

HP "is saying 'I want to be more like IBM.' They divested their PC business and they got more involved in software," said FBN Securities analyst Shelby Seyrafi.

"The PC industry is a very challenged one because of the slow growth in that sector. For those companies like HP which don't have a strong tablet offering, they are victims of the encroachment of Apple's iPads and tablets on their notebook business. So they're vulnerable to losing share."

The acquisition of cloud search-software specialist Autonomy, which analysts say may draw rival bids, marks its boldest foray into the software and technology services after Apotheker came on board with a mandate to drive innovation.

"HP is recognising what the world has recognised, which is hardware in terms of consumers is not a huge growth business anymore," said Michael Yoshikami, chief executive of YCMNET Advisors, a minor shareholder in HP. "It's not where the money is. It's in keeping with the new CEO's perspective that they want to be more in services and more business oriented."

Bold move

Speculation has swirled for months that HP was no longer keen on keeping a PC business struggling with low growth and single-digit margins.

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