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HP Shuts WebOS Business, Acquires Autonomy for $10B

Hewlett Packard has announced it is halting its WebOS business supporting computing devices including smartphones and the TouchPad, and revising its sales outlook downward. In a flurry of news, HP also announced it is acquiring U.K.-based software vendor Autonomy for approximately $10.2 billion and exploring options to spin off its personal computer business.

CEO Leo Apotheker said sales of HP's WebOS devices, specifically the TouchPad tablet, were not meeting expectations and that the company now plans to refocus on cloud computing, software, industry solutions and analytics.

"Today is all about raising shareholder value," and addressing near-term challenges, Apotheker said during an early third quarter earnings call with reporters and analysts. The company reported an increase in third-quarter earnings, but guided full revenues lower for the second time this year to $127.2 billion.

CFO Cathy Lesjack said HP's TouchPad suffered from "a young OS and poorly-received hardware," that wasn't resuscitated with a rapid price cut, and that the company was no longer confident of meeting financial milestones without unacceptable risk. Lesjak says the company is "exploring opportunities" for the software but did not immediately discuss options for early customers who bought the TouchPad.

Apotheker also announced HP is evaluating a "range of options" up to and including a spinoff of the PC division, which had been rumored.

With the destiny of WebOS and PC investments unclear, Constellation Research Principal Analyst Ray Wang says observers were left wondering what HP might have left unsaid in an announcement of this magnitude. "It's one thing to get out of mobility or PCs where there is only so much room, but how do you do that without announcing a buyer? It makes you wonder who is going to want to purchase an HP PC in the next 12 months."

The story has echoes of IBM's shift from an emphasis on hardware to software and services. In a shakeup, Apotheker said IBM veteran John Vistenin, who joined HP months ago will take over the Enterprise Services division. He replaces Ann Livermore, who will transfer out of day-to-day operations but remain on the board of directors.

Looking to the future, Apotheker said Autonomy brings a leader in the enterprise information management space to HP with vertical capabilities, software and services for global and public sector enterprises and professional service firms. The price paid, he added, was justified by the value of Autonomy combined with HP's "value added IP" of hardware, printing, analytics and services.

In February, HP acquired database software and analytics provider Vertica, which brought structured (database) technology to HP. Autonomy's unstructured (document, email) management capabilities, Apotheker said, give HP the opportunity to build a "next generation information platform" spanning all types of data and information.

Tony Byrne, a software analyst and founder of Real Story Group, which follows the unstructured information software market, said HP's jump into the information management space is "good news for the industry," but less so for HP.

"With Autonomy, HP is acquiring an aging technology base from a company that is little-loved by most of its customers," Byrne said. "If HP wants this to be more than just an asset sale, it has a lot of repair work to do here."
Autonomy will operate as a separate business for now though HP expects near-term synergies. The deal is expected to close by the end of the year.

Lesjak called the earnings landscape "a tough outlook," but added that the company's balance sheet and cash reserves remain "strong."

HP attributed parts of the shortfall to economic conditions and cautious customer behavior that hurt sales generally. Lesjack also pointed to the earthquake and Tsunami in Japan as events that affected copier and toner supplies.

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