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News Alert: HP drops WebOS and plans to sell its PC business

Posted By TelecomTV One , 18 August 2011 | 2 Comments | (3)
Tags: HP webOS Software Devices OS palm business acquisitions PC business

All change at HP after disappointing performance from its WebOS products, as the company focuses on software and services and buys Autonomy for $10bn. Guy Daniels reports on the problems that precipitated the move.

“What the heck is HP doing with its WebOS devices?” That was the headline of a Friday comment piece that I had prepared… it continued as follows: “Shh! Here’s comes the Pre3; and there goes the TouchPad. If you’re very quiet, no-one will see them and this whole venture will be remembered as just a dream. Bad news for HP, this isn’t Dallas and there will be no ‘Bobby Ewing shower moment’. When the HP executives wake up tomorrow, the Palm-based products will still be there to haunt them.”

 

A day later and HP tells us why – they have just announced that they are dropping all WebOS development and are looking to spin-off the PSG division (which makes its PCs and mobile products). Here’s the HP press releases, bizarrely written in the third person:

 

“HP reported that it plans to announce that it will discontinue operations for webOS devices, specifically the TouchPad and webOS phones. HP will continue to explore options to optimize the value of webOS software going forward.”

 

As for its PC business, it had this to say:

 

“HP also reported that it plans to announce that its board of directors has authorized the exploration of strategic alternatives for its Personal Systems Group (PSG). HP will consider a broad range of options that may include, among others, a full or partial separation of PSG from HP through a spin-off or other transaction.”

 

And in answer to the rumours about a massive $10.3 billion purchase of UK software company Autonomy, which specialises in unstructured search algorithms, it first said:

 

“HP confirms that it is in discussions with Autonomy regarding a possible offer for the company.”

 

However, the rumour was quickly confirmed.  The BBC reported that the offer was 74 per cent above the firm's market value. It quoted Automomy founder Mike Lynch as saying:

 

“HP understands the special culture we have. This is about building Autonomy. It will be a positive thing for Cambridge and the UK.”

 

All three announcements were made in a press release detailing the company’s preliminary results for the third fiscal quarter 2011, which showed revenue of $31.2 billion compared with $30.7 billion one year ago. But who cares about that? What we care about is has new CEO Leo Apotheker lost the plot, or has he just saved HP from an ignominious slide into obscurity with a masterful change in strategy?

 

So what exactly happened to trigger this announcement?

 

'All Things Digital' reported this week that HP’s TouchPad tablet computer was not exactly proving a hit at Best Buy stores. The largest electrical retailer in the US is apparently struggling to sell its stock and wants HP to take them back. According to an alleged internal HP report seen by the website’s source, Best Buy has taken delivery of 270,000 TouchPads and has so far managed to sell only 25,000. In fact, the 25,000 figure is seen as too high by a second source, and could also include customer returns.

 

This bad news comes after a rapid series of price drops for the TouchPad. The 16GB WebOS model originally went on sale at $499, then was reduced by $50, then retailers like Costco dropped the price by $100, and now this extra discount is permanent. Even online discount site Woot couldn’t shift its stocks – managing only 612 sales of a $120-discounted TouchPad in one of its one-day sales.

 

All Things Digital reports Rich Doherty, head of the Envisioneering Group, as saying that his spot interviews at various retail stores indicate that consumers are wise to the price drops and expect more:

 

“After the initial surge of interest after the July release, all those price promotions have caused consumers interested in buying a TouchPad to pause, because they think the price is going to fall further.”

 

As if the TouchPad woes weren’t enough, HP was also struggling with its latest mobile phone. The Pre3 is a tiny handset and, as its name suggests, is the third in the series of phones first developed by Palm.

 

After much speculation about the Pre3 on the mobile blogs, it was finally released this week. Or rather, it was spotted – ‘release’ suggests more of an effort was made to promote and market the device. The blog PreCentral was the first to find it – on sale in Europe from HP’s online EuroStore for £299 SIM-free.

 

But where was all the PR and advertising support? This is, after all, HP’s flagship phone. It was conspicuous by its absence. There was also no indication that the Pre3 had picked up any operator bulk sales, which was a major problem that affected the launch of its Pre2 predecessor.

 

By all accounts the Pre3 is feature-packed device, with a 5-megapixel camera with LED flash and up to 16GB of storage.

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Of course, it too runs WebOS, the operating system that HP bet big on, and which has also garnered a lot of favourable reports from applications developers.

 

Here’s the statement PreCentral managed to get from them, which, at the time, was the only official word from HP on the device:

 

“HP is excited to begin its regional rollout of Pre3, the only phone today that offers users a slide-out keyboard coupled with a large touchscreen and the fastest speed (1.4GHz processor – the fastest on the market). We expect to share additional information for US customers soon.”

 

Right. That’ll teach us to believe public relations departments…

 

HP announced the Palm acquisition in April 2010, and paid $1.2 billion for the former mobile device leader. Palm arguably invented mobile computing with its Palm Pilot PDA range. When Palm went to IPO in 2000, it was valued at US$53 billion – more at that time than General Motors. Compare this with Google’s valuation of $23 billion after its later IPO and you realise just how powerful Palm was at the time. However, it lost out when it came to integrating these functionalities with mobile phones, resulting in the smartphones that we have today.

 

Former HP CEO Mark Hurd had this to say about the acquisition:

 

“It really has more to do with the intellectual property and the fact that when you look across the HP ecosystem of interconnected devices, it is a large family of devices and, we think, of printers. You’ve now got a whole series of web-connected printers and as they connect to the web you need an OS. We prefer to have that OS, in our case, be our IP where we can control the customer experience. It is for us strategically broader in the context of the number of HP interconnected devices where we can leverage the IP and that’s what we plan to do.”

 

HP paid a premium of 23 per cent to acquire Palm, soon after it emerged that the iPhone was set to revolutionise mobile phones and computing. It had already launched the first Pre phone (January 2009), upon which HP has since built and developed. As TelecomTV’s Martyn Warwick said at the time:

 

“A technologically excellent touch-screen smartphone that signally failed to attract much public interest and missed its sales targets by several country miles.”

 

We reviewed the PalmPre2 here and asked if it was worth the money. TelecomTV’s Leila Makki then wrote a 7-day blog about her experience of the phone back in November 2010, and this was her verdict:

 

“The software is fine, but the hardware is outdated and not worth the £399 SIM-free price tag. Also, it's failed to get picked up by any of the UK carriers... so you got to ask yourself how come?”

 

You can start to see a trend developing here…

 

Incidentally, remember Access, the company that bought PalmSource in 2005 when Palm split its handset and software activities? Neither did we, but it’s still going strong, and used the Palm software to create a mobile Linux platform. Here’s one of TelecomTV’s archive interviews, when we were all a lot younger.

 

So, the TouchPad is gathering dust on shelves and the Pre3 is too embarrassed to be seen in public. What happened to HP’s WebOS strategy? As the dust settles on today’s announcement, we will no doubt learn more about the problems within HP’s PSG division.

 

UPDATE:

 

Commenting on the Autonomy deal, HP President and CEO Leo Apotheker said:

 

“Autonomy presents an opportunity to accelerate our strategic vision to decisively and profitably lead a large and growing space. Autonomy brings to HP higher value business solutions that will help customers manage the explosion of information. Together with Autonomy, we plan to reinvent how both unstructured and structured data is processed, analyzed, optimized, automated and protected. We believe this bold action will squarely position HP in software and information to create the next-generation Information Platform, and thereby, create significant value for our shareholders.”

 

Mike Lynch will continue to head up the Autonomy business, and as an 8 per cent shareholder was understandably delighted with the news:

 

“This is a momentous day in Autonomy’s history. From our foundation in 1996, we have been driven by one shared vision: to fundamentally change the IT industry by revolutionizing the way people interact with information. HP shares this vision and provides Autonomy with the platform to bring our world-leading technology and innovation to a truly global stage, making the shift to a future age of the information economy a reality.”

 

 

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2 comments (Add Yours) - click here to sign in

(1) 19 August 2011 09:07:58 by TelecomTV One

Guy, your comment about taking the utterances of PR departments as unalloyed truth is well made. Remember it's only six months ago when HP's PR department responded to well-grounded speculation that the company was considering some major changes by calling it "irresponsible reporting" - which it wasn't.

Basically, these moves take HP out of the consumer market once and for all.Its PC arm generates lots of revenues but is the huge company's least profitable division.

Martyn Warwick


(2) 19 August 2011 14:31:29 by Christine

Martyn, your organizations accessments over time, about HP's activities and PR behaviour is spott on. Well done!

Knowing a bit about the company since it was one of my main competitors in the Unix market (1985), it is a pitty to see this company going downwards so quickly.

Furthermore to see them to pay another 10 B$ for software tools, which can be acquired and/or developed for a fraction of this. This must be a hoax to put this mildly!!

It's a shame that this all can happen to our technology society in which HP has played a majored role.