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“I don’t even want to look at the stock price today.”
That was the reaction I heard from a longtime Hewlett-Packard employee today, after HP announced yesterday it planned to shut down its webOS tablet business and then spin off its personal computer business.
It was as if HP chief executive Leo Apotheker decided to give up on some of HP’s most strategic battles and assets in order to focus on software and services.
Investors appeared to question the wisdom of Apotheker’s new strategy, which included paying $10 billion for software firm Autonomy. HP shares fell 20 percent on Friday to $23.60 a share. Most other stocks fell as well, but the tech-heavy Nasdaq only fell 1.62 percent, which means HP was getting punished a lot more than your typical tech stock.
The drop erased about $12 billion in market value for HP, leaving it worth $48.9 billion, near a six-year low. This means that HP is spending 20 percent of its market value on Autonomy, a company which may generate 1 percent of HP’s revenues. HP paid an 80 percent premium to Autonomy’s market price.
By comparison, Apple’s market value is $330 billion, while IBM is valued at $188 billion and Microsoft is worth $201.5 billion. HP has decided to de-emphasize consumer PCs in part because, as Apotheker said, the “tablet effect is real.” That is, margins are under pressure because consumers want to buy tablets.
So what does Apotheker do with HP’s No. 1 position in the PC business? He decides to explore options for selling or spinning it off over the next 12 to 18 months. That’s as good as saying, “Don’t buy any more HP computers.”
And while tablets are causing this damage to the (still profitable) PC business, HP is exiting the tablet business. As jokers said last night, it was as if HP was surrendering to Apple and Steve Jobs, CEO of Apple, was saying to himself, “Excellent, excellent.” In an attempt to answer questions about its strategy, HP posted a statement for WebOS developers, saying “it will strengthen our ability to focus on further innovating with webOS.”
“Why wouldn’t you just quietly find a buyer for the PC business, because now it’s really going to go downhill,” said Nathan Brookwood, an analyst at market analyst firm Insight 64. Now the PC business is a lame duck.
For sure, something is changing in the tech landscape. Google bought Motorola for $12.5 billion on Monday. That was a 63 percent premium on the stock, presumably because Google needed patents to fend off the likes of Microsoft and Oracle.
HP told its own employeees that it was not walking away from webOS. But who would want to license such a blood-stained operating system, which neither Palm nor HP could make into a success? Meanwhile, HP is clinging to the Itanium business that it has been committed to alongside Intel since 1994, even though Itanium hasn’t lived up to its highest hopes.
Perhaps HP will prosper in battle with IBM. But the decision unravels a decade-old $25 billion merger with Compaq Computer, another time when investors nearly revolted at the decision by Carly Fiorina. Only Mark Hurd, who led HP to execute profitably on its business plans under the strategic direction set by Fiorina, was able to escape the wrath of investors.
All of these memories, contradictions and changes in the competitive landscapes have probably shaped the investor anger that was expressed today.