HP: Farewell to the PC to survive

When Hewlett-Packard Global President and CEO Li Aike went to China to attend the Hewlett-Packard China Summit in June 2011, he was still talking about how to develop the Chinese market. Two months later, he suddenly announced that he would spin off the PSG department.

After a lapse of 6 years, the world’s number one PC giant Hewlett-Packard also reluctantly followed the footsteps of IBM.

In the same way that IBM sold the PC division to Lenovo in 2005 and transformed it into a software services industry, HP also announced a strategic transformation on August 19, 2011. It will separate HP Personal Systems Group (PSG) by means of divestiture or other transaction. An independent company and officially abandoned all operations of mobile phone and tablet devices equipped with WebOS operating system.

In response to the strategic transformation, HP also announced that the board of directors approved the purchase of Autonomy’s all outstanding shares at US$42.11 per share in cash. Autonomy is an industry-leading British software company.

With 2010 revenue of US$126 billion, HP is one of the largest technology companies in the world. For any industry boss, it is extremely difficult to abandon its existing leading market position, and HP's Personal Systems Group (PSG) is about to give up one-third of its revenue, including smartphones and tablets. New services such as computers and WebOS operating systems and traditional PC services.

As one of the oldest technology companies in Silicon Valley, Hewlett-Packard has had several spin-off mergers and acquisitions in the 72-year history — 1999 Stripped Instrumentation Division (Agilent); 2001 against PC boss Dell, spending $25 billion on acquisitions Three Compaq. Under the leadership of former CEO Mark Hurd, Hewlett-Packard was the king in the PC field and succeeded in resisting the attacks of Japanese companies in the printer market and stood firm.

However, HP is irresistible to embark on the PC industry's recession cycle. In the era of accelerating 3G Internet and cloud computing, various handheld terminals are beginning to replace personal computers. Internet-based platforms and products are also becoming more and more important.

HP tried to keep up with this trend. In addition to acquiring a large number of software companies, it also hopes to integrate hardware and software to keep pace with Apple. However, these efforts did not work.

WebOS did not bring a miracle. Hewlett-Packard gave up the news of PSG very suddenly. In April 2010, the merger and acquisition war around PalmOS, the owner of WebOS, still vividly witnessed: Hewlett-Packard experienced more than a month of tussle-type competition, with a price of 1.2 billion U.S. dollars from five companies, and the final purchase price is only more than the main Competitors are up 20 cents/share. After the success, WebOS "fans" had hoped that this classic operating platform in the hands of HP rejuvenation, use it to connect all of HP's equipment to form a platform-wide integration program, and thus stand like the Apple mobile Internet trend.

In February 2011, Hewlett-Packard executive vice president and PSG president Todd Bradley also chanted “Think beyond” at the new Tablet TouchPad conference of Hewlett-Packard Tablets, saying that it will extend the WebOS platform to include PCs. More equipment. In March, Léo Apotheker, the new CEO of HP, who had just four months in office, announced the company’s new strategy and also stressed to the media that “absolutely not” would sell PC business.

Just a few months later, HP set up a "white flag" on PCs, mobile phones, and tablet computers. According to foreign reports, sources said that even Bradley and Palm’s former CEO Jon Rubinstein were “in the dark” until the above news was announced just a few days before they had just received Apotheker’s notice, which also made people The two HP executives stayed in doubt.

An HP insider told the reporter that the poor market performance of TouchPad is an important reason why HP executives are determined to give up their WebOS hardware. In the six months since its release, TouchPad’s market performance has been described as “dismal”. The user's feedback is that the TouchPad has a short standby time, lack of application, and the reaction speed is not as good as the iPad generation.

According to sources, Rubinstein once said that the TouchPad is still immature, but Apotheker has rushed to release the TouchPad in spite of his public promise of "not perfect and not released."

According to AppleInsider’s report, 270,000 TouchPads were ordered before the United States hypermarket, Best Buy, and only 25,000 units were sold, and there were no deductions. Best Buy therefore refused to pay the remaining 240,000 units and requested them to be returned to HP.

Another WebOS new product, the Pre3 smartphone, finally went public in Europe after several “jumps”. Due to poor market response, it was not even officially listed in the United States.

In a recent interview, Apotheker admitted: “Solving WebOS equipment costs a lot of money. It would be better to spend money on it.” According to Bloomberg, HP has invested a total of 600 engineers and 2 billion US dollars for WebOS. In contrast, Google’s 2009 Android team was only 150. In the fourth quarter of 2011, Hewlett-Packard will set aside a loss of about one billion U.S. dollars due to the suspension of research and development of WebOS equipment.

HP China spokesperson Chen Lei told reporters that the reason for HP's suspension of WebOS hardware development is that it did not reach its internal financial targets, and Li Aike did not want it to dilute the resources and budget of other departments.

Chen Lei said that WebOS has not been canceled, and HP may license WebOS to other manufacturers, or to other non-mobile/tablet devices, such as car platforms and set-top boxes. The United States famous technology blog BusinessInsider believes that HP is likely to resell WebOS, rather than sell licenses.

Hewlett-Packard insiders analyzed that the failure of WebOS proved that PSG’s internal short-term performance is too strong, and everything is tied to performance. Team setting and model are not conducive to the expansion of new business.

In any case, once the heritage of the Palm banner company Palm, the classic WebOS platform through this toss, only on the mobile communications market iOS and Android's two strong contenders on the wall.

The shrinking PC market within HP is even more intriguing than the fate of WebOS. It is the future of PSG. The Board's opinion on the disposal of PSG is only a short sentence: it will be separated into an independent company by means of divestiture or other transaction. "Now PSG is popular, but everyone is still waiting." An HP insider said that at present, there is nothing more than the possibility of splitting and selling.

The reason for HP to peel off or sell PSG is to migrate to higher-profit software and service businesses. In the competitive homogenous PC industry, profits are getting thinner. In 2010, HP's personal systems division, including the PC business, contributed 13% of the company's profits; the printing and imaging division was 30%; and the consulting services sector contributed 56%.

In the last quarter, PSG contributed 9.6 billion US dollars in revenue and sold 64 million PCs with a market share of 18.5%, but its 5.9% operating margin was 13.5% compared to service business and 19.4% of software. 14.7% of the print and imaging business dwarfed others.

And this trend is hard to change. The PC market is shrinking. In the previous quarter, PSG's total revenue fell 15% from the same period in 2010. Apotheker recently said in a conference call that people are increasingly inclined to buy tablets instead of PCs, and the board asked him to find another way out for the PSG.

According to science and technology blog Guardian estimates, if you give up the PSG, HP's company-wide average gross margin will increase from 10.1% to 12.7%, HP's quarterly revenue will be reduced to 21 billion US dollars, but the dividend per share will increase, the stock price will rise. However, HP will also lose some "linkage" orders, such as service contracts brought by the PC business.

If HP sells PSG, who will get the plate? In 2011, PSG’s estimated revenue was approximately US$32 billion, which was valued by the industry between US$16 billion and US$20 billion. For such a high price, although Samsung has financial resources but apparently has no intention to hang around in this sunset industry, and has bluntly expressed no interest in PSG; Dell's direct sales model and HP are incompatible, and is likely to face antitrust investigation; Asustek and Acer are powerless; China The Lenovo Group holds 3.8 billion U.S. dollars in cash, but has just acquired NEC computers and it is unlikely that large-scale mergers and acquisitions will take place again.

Therefore, like Motorola's mobile phone business, PSG is more likely to split into independents first. HP will use 12-18 months to complete the PSG "strategic change" process. It is reported that it has hired Perella Weinberg as its financial consultant and two law firms as legal advisors.

The more "soft" HP Hewlett-Packard is trying to increase profitability is the acquisition of Autonomy. In fact, in the new global strategy for March 2011, Apotheker stated that HP will focus its strategy on cloud computing, solutions and software, with a special focus on the corporate market and government market. At the time, the new CEO, who had worked for SAP as a corporate software giant for 20 years, told Bloomberg that the company plans to acquire software companies.

Correspondingly, the British company Autonomy acquired by HP this time was established in 1996. It is a leader in enterprise infrastructure software and is more advanced than data mining, business intelligence and cloud computing. Over the past five years, Autonomy's revenue has grown to a compound annual growth rate of 55%. Among the 25,000 customers, AOL, Boeing, Citi, Coca-Cola and other large companies are among the 25,000 customers. HP hopes to reshape its $55 billion business analytics software capabilities by acquiring key assets from Autonomy.

The $11 billion acquisition of Autonomy will become the largest merger and acquisition since Hewlett-Packard’s $25 billion acquisition of Compaq in 2001 and the $13.9 billion purchase of Electronic Data Systems (EDS) in 2008. After the transaction is completed, the software business will account for 8% of the total revenue of HP (including PSG) by 2015, and the current software business accounts for approximately 3% of HP's annual revenue of US$126 billion.

Hewlett-Packard board member Marc Andreessen, a well-known Internet pioneer, recently published a long article entitled "Why software is devouring the world." The article believes that mobile Internet is a huge business opportunity for software tools and Internet-based services. Software is subverting many Traditional industry. "This also provides a basis for HP to take cloud computing, solutions and software as a strategic priority," said Chen Lei, an HP China spokesperson.

For HP, software is a "leverage" that can help it sell more IT infrastructure and services. “We calculate that the software revenue of 1 yuan can bring 8 yuan of total revenue, so we put the software on top of TSG (enterprise computing and professional services).” Insider of HP China software business told reporters .

In the past five years, Hewlett-Packard has acquired 15 software companies. The investment in software has accounted for 70% of the company's annual R&D investment. After CEO Mark Hurd stepped down from the sex scandal in 2010, the board chose Li Aike instead of rumored Bradley to take charge of HP, and it has already indicated its direction for HP. At that time, the industry questioned Apotheker's work experience in SAP is not enough to take charge of such a diversified giant company as Hewlett-Packard.

In August, HP non-executive chairman Ray Lane has made it clear that HP will not follow Apple's "software and hardware integration" route. "Only Apple has successfully integrated hardware and software business. It is only a special case."