HP says RIP to its TouchPad tablet

SAN FRANCISCO, USA: PC major Hewlett-Packard Co dropped a bombshell on Thursday with the announcement that it may exit the hardware business and kill its new tablet and WebOs. The company also said it is buying British software company Autonomy Corp for as much as $11.7 billion.

After announcing the April-June quarter financial results,  HP said it is exploring strategic alternatives for Personal Systems Group; shutting down operations for webOS devices and exploring strategic alternatives for webOS software. Hewlett-Packard said its third-quarter net earnings were $1.926 billion or $0.93 per share. Net revenues for the quarter stood at $31.19 billion.

HP said these are the details of a plan to accelerate the strategy introduced in March, which aims to move HP into higher value, higher margin growth categories and sharpen HP's focus on its strategic priorities of cloud, solutions and software with an emphasis on enterprise, commercial and government markets.

In a statement HP said it will discontinue operations for webOS devices, specifically the TouchPad and webOS phones.

“The devices have not met internal milestones and financial targets. HP will continue to explore options to optimize the value of webOS software going forward,” said the statement.

Killing the TouchPad?

HP's Personal Systems Group also includes smartphones, tablets and the WebOS operating system, pulling in about $41 billion in revenue but only about 13 per cent of profit.

HP's decision to discontinue the TouchPad - which hit the store shelves in July with much costly fanfare -- follows poor demand. It was discounted by $100 a month after it was launched in a market dominated by the iPad. WebOS came with the $1.2 billion acquisition of Palm last year.

"There were also a lot of missteps, such as launching it a month before it was ready and pricing it the same as the iPad 2," said Current Analysis' Avi Greengart. "It was a great operating system. Everybody was pulling for it but a lot of people weren't buying it."

Carter Lusher, Research Fellow at research firm Ovum said HP’s plan to spin off the Personal Systems Group could, in short term, impact HP’s credibility as a predictable strategic IT supplier.

"While the divestiture of the Personal Systems Group (PSG) might make strategic sense — after all IBM sold its PC Division in late 2004 with minimal negative impact — in the short run this move could impact HP’s credibility as a predictable strategic IT supplier," he said.

Going forward, HP expects further pressure on its revenue and cut its full-year forecast for the third straight quarter.

HP now expects full-year revenue of $127.2 billion to $127.6 billion, down from a previous estimate of $129 billion to $130 billion. It also cut its earnings per share estimate to a range of $3.59 to $3.70, down from its previous estimate of at least $4.27 per share.

Barclays Capital and Perella Weinberg are advising HP, while Qatalyst Partners, Goldman Sachs, Citigroup, Merrill Lynch, UBS and JPMorgan Chase are advising Autonomy.

HP also named John Visentin as executive vice president of its services group. Ann Livermore, former HP Enterprise unit chief who was managing the services unit on an interim basis, will move over to the company's board.

(With inputs from Reuters)