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When Hewlett-Packard's earnings arrived today, they included big surprises. The company is cutting its full-year sales and earnings forecasts. But the real bombshell involves CEO Leo Apotheker's attempt to reshape HP by acquiring Autonomy Corp.
Dave Courbanou
August 18, 2011
2 Min Read
leo-apotheker3
When Hewlett-Packard’s earnings arrived today, they included big surprises. The company is cutting its full-year sales and earnings forecasts. But the real bombshell involves CEO Leo Apotheker’s attempt to reshape HP by acquiring Autonomy Corp. for $10 billion; potentially selling off HP’s $41 billion PC business; and killing WebOS tablet development. Now, Apotheker claims he has a three-point plan to get HP growing in higher-margin areas.The plan, according to an HP press release, will:
Move HP into higher value, higher margin growth categories
Sharpen HP’s focus on its strategic priorities of cloud, solutions and software with an emphasis on enterprise, commercial and government markets
Increase investment in innovation to drive differentiation
First, the numbers: HP’s revenue for Q3 2011 was $31.2 billion, up just slightly from $30.7 billion this time last year. HP is also taking a step back and dropping overall estimates for FY2011.
In the channel, we know HP for a plethora of things: Storage, networking, servers and much more. But the average consumer knows HP from their lineup desktop and laptop computers, and printers.
The PC portion of HP — all $41 billion of it — could ultimately get acquired. HP is considering “a full or partial separation” from the PC business, known as the Personal Systems Group (PSG). Plus, HP will “discontinue operations for webOS devices,” and look into “optmiz[ing] the value of webOS software going forward.”
Translation? HP’s PC business has a big For Sale sign on the front lawn. The HP webOS TouchPad and new webOS phones are dead (and unwanted). I suspect HP will seek to sell of or license its webOS software — but the webOS on every computer vision that Leo Apotheker once espoused is dead.
Why is HP trying to exit the PC business? The Wall Street Journal offered a succinct answer, stating that HP’s PC business last year generated…
“$40.7 billion in revenue for the fiscal year ended Oct. 31, representing nearly a third of the company’s overall revenue; however, the group’s earnings from operations, $2 billion, was just 13% of H-P’s profits
Those lean PC profits are small potatoes for such a huge company, especially when HP could profit much more handsomely from software and services. And if HP stuck around in the PC and mobile markets, it faced a growing uphill battle against Apple’s momentum.
It’s the end of an era, but not the end of HP. Once the dust settles, HP could be dramatically more profitable — though HP’s channel partners will surely face some turbulence through HP’s transition.
Additional insights from Joe Panettieri.
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