Share this article

print logo

HP's overhaul to involve exiting most of its consumer businesses

Hewlett-Packard's decision to surrender in smartphones and tablet computers and possibly get rid of its personal computer business underscores how Apple has transformed consumer electronics in just four years.

HP's new CEO Leo Apotheker is now trying to turn the Silicon Valley stalwart into a twin of East Coast archrival IBM Corp. In doing so, he is acknowledging that his company has failed to balance the demands of both the consumer and corporate markets. As a result, it needs to exit most of its consumer businesses, just as IBM did six years ago.

Apple is the hottest consumer electronics company on the planet. The iPhone's debut in 2007 brought ease of use and an intuitive design unmatched by predecessors, including smartphone pioneer Palm, which HP bought last year in hopes of getting a foothold in mobile devices. Apple followed in 2010 with the iPad tablet computer and managed to persuade people to buy a product they never knew they needed.

Rather than remain locked in a futile fight with a company that seems to have found the magic touch on making hit consumer products, HP is whittling its competition to the other business technology specialists -- namely, IBM, Oracle Corp. and Cisco Systems Inc.

"Apple singlehandedly knocked HP out of the PC, smartphone and tablet business," Gleacher & Co. analyst Brian Marshall said in an interview.

HP's overhaul, announced Thursday, has three parts:

HP will stop making tablet computers and smartphones by October.

*It will try to spin off or sell its PC business, the world's largest. By the end of next year, HP computers could be sold under another company's name.

*The company plans to buy business software maker Autonomy Corp. for about $10 billion in one of the biggest takeovers in HP's 72-year history. That would expand HP's software and services offerings, where IBM is strong.

HP, the largest technology company in the world by revenue, will continue to sell servers and other equipment to business customers, just as IBM now does. Those businesses currently don't generate as much revenue for HP as PCs, but they have higher profit margins.

Apotheker would not say whether any jobs will be cut. HP plans to take a charge of about $1 billion for restructuring and related costs, some of which could go for severance payments. HP employs more than 300,000 people worldwide.

HP's move toward an IBM-style business model, which is focused on selling to corporations and governments, makes sense considering that Apotheker spent most of his career at German business software maker SAP AG, another company that catered to the technology needs of companies and government agencies.

"This is his bread and butter," Marshall said. "Now he has to deliver."

Investors appeared underwhelmed. Hewlett-Packard Co.'s shares sank to a 6-year low Friday, dropping $5.91, or 20 percent, to $23.60 after falling as low as $22.75 earlier in the day, its lowest point since June 2005. It has traded as high as $49.39 in the past year.

Apotheker is seeking radical changes to help erase the stain of scandal and leave his imprint on a massive company he inherited last year. His predecessor, Mark Hurd, resigned under pressure a year ago, after an investigation found expense reports that were allegedly falsified to conceal a relationship with an HP marketing contractor.

In trying to ditch most of HP's consumer businesses, Apotheker is reversing a decade-long binge on computer hardware.

In PCs, HP is acknowledging that it needs to reverse course on a path begun two CEOs ago, under Carly Fiorina. She pushed through the controversial decision to spend $19 billion for Compaq Computer. That set the stage for HP's ascent to become the world's top PC maker.

PCs are HP's biggest revenue generator, but the business is also HP's least profitable, a result of falling prices for computers and brutal competition.

There are no comments - be the first to comment