George Frey
Many Hewlett-Packard investors are asking why the company decided to completely upend its business strategy by putting its personal computer segment up for sale and spending $10-billion (U.S.) to acquire a business software-maker. For an answer, look to the company's CEO.
Léo Apotheker announced sweeping changes to HP last week, intended to help the company recover from a series of disappointing quarters and return to high-margin profitability. Over the next 12 to 18 months, the firm will look at ways to spin off its personal computing business.
The stunning change of direction for the world's largest personal computer maker highlights just how turbulent the industry has become, as consumers increasingly choose tablets such as Apple's iPad instead of the traditional home computer.
"The velocity of change in the personal device market continues to increase and the competitive landscape has grown increasingly more complex, especially around the personal computing arena," Mr. Apotheker said. "The tablet effect is real."
HP's retreat from the consumer hardware market - it is also killing off the TouchPad, a tablet that was supposed to compete with the iPad but suffered from poor sales - is likely in no small part due to Mr. Apotheker himself.
Prior to joining HP last September, Mr. Apotheker spent decades working on the software service side of the industry at SAP. But his migration to HP brought him to a company defined by its $25-billion purchase of PC maker Compaq 10 years ago, and its $1.2-billion purchase of smart phone maker Palm last year.
"Apotheker didn't have a whole lot of choice but to stay the course, at least initially, that was laid by his predecessors," said independent technology analyst Carmi Levy. "But unless your name is Apple, hardware margins are low and getting lower across the PC industry."
Now, Mr. Apotheker appears determined to once again refocus HP, this time on software rather than hardware. The company will spend $10-billion to acquire Autonomy, a business software maker. The purchase is aimed at positioning HP to take advantage of business migration to so-called cloud services, as more and more companies pay for software that can be accessed through the Internet from anywhere in the world. Some of the biggest tech companies on the planet, including Google and Microsoft, have bet billions on the growth of cloud-based services. Now, HP is staking much of its future on the technology.
Whether that bet pays off is far from certain. The company already has a well-established base in the enterprise sector on multiple fronts, notably with its printing division. However many cloud customers are likely to wait and see how successful HP's latest overhaul is before entrusting the company with their data and software storage needs.
At best, investors appear mixed on Mr. Apotheker's battle plan. HP shares initially plummeted more than 20 per cent after news of the company's Autonomy purchase and plan for a personal computer division spinoff. HP regained some of those losses Monday, as shares climbed about 3.5 per cent.
Still, as Mr. Apotheker tries to turn one of the world's biggest computer hardware makers into a software-focused powerhouse, investors know a lot more today about the business areas HP is retreating from than the ones it hopes to succeed in.
"If we're being realistic, HP has a larger dark cloud hanging over this week than last week," said Mr. Levy. "They killed the first horse before mounting the second."