HP pulls the plug on webOS hardware, puts PC business on notice

Hewlett-Packard Co. (HPQ) came out with news on rapid fire today. The company killed its webOS device business, leaving the webOS software destined for an anticlimactic end, and announced that its PC business might be separated into another company or spun off in another transaction as well.
That news alone would be enough to indicate that yesterday’s HP will be vastly different from the HP of tomorrow. But when you string it all together with mixed results from the recently closed quarter and plans to acquire Autonomy Corp. for $10.3 billion, it’s clear that HP wants to change — and fast.
Taken as a whole and based on executive comments during the earnings call, HP is looking to more closely align its business with enterprise, software, cloud-based services and “drive a higher-margin business mix,” as president and CEO Leo Apotheker put it.
“We are focusing on what needs to be fixed, what needs to be shutdown and what needs to be considered for separation,” he said during the call.
Shutting down the webOS hardware business came as a difficult decision, he said, but scant market share and poor sell through of the product drove the board’s decision to abandon the business. Apotheker also noted that sales of the TouchPad were not meeting company expectations, though the first webOS-based tablet hasn’t been on the market for even two full months yet. CFO Catherine Lesjak said the webOS hardware business was looking at prolonged “risks without clear returns” that could last well into the next two years.
After the device business is shuttered, the ongoing capital expense for webOS software will come down dramatically, she added.
“We are looking at all of our strategic options regarding the software,” Apotheker said, calling webOS “elegantly designed” and held in good regard by developers and users. While reviews of the webOS platform have been mostly positive, developers and users have not been flocking to the platform en masse.
The company said it is looking at licensing deals and other possible transactions to extract value out of webOS, but the company’s decision to abandon webOS as a hardware business drastically reduces any inherent value in the platform. Mobile operating systems are only as valuable as the ecosystem it thrives on, which requires support from developers, manufacturers and other players. Considering the $1.2 billion HP paid for Palm, it’s hard to understand why the company would abandon the platform before finding a suitor. Why did HP unilaterally kill off the webOS platform? A barely breathing (but living) webOS has to be worth more than a dead webOS.
The company’s peculiar move left the entire future of webOS up in the air. And the future of its PC business appears to be equally unknown. The company would only said that it is evaluating “strategic alternatives” including “the exploration of the separation of its PC business into a separate company through a spin-off or other transaction.”
HP reported $1.9 billion in earnings on $31.2 billion in revenue for the quarter. Revenue was basically flat year over year at 1% and non-diluted net earnings were up 9% for the same period. While HP’s PC business remains the market leader in terms of units, revenue and profit share, revenue at the unit declined 3% year over year and the company is looking to rid itself of the entire division by some form or another.