HP Spins Off PCs, Kills TouchPad, Eyes Autonomy

World's largest tech vendor will get out of low-margin PC business, send its tablet and smartphone products to an early grave, and buy more enterprise software.
Slideshow: Apotheker Takes The Stage, Paints An HP Cloud Vision
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Slideshow: Apotheker Takes The Stage, Paints An HP Cloud Vision
Hewlett-Packard is considering spinning out its slow-growing, low-margin personal computer business and may step up investment in software by acquiring enterprise content management specialist Autonomy, the company confirmed on Thursday. The company also said it was backing away from its webOS operating system as well as the TouchPad tablet and webOS phones.

The company issued a statement that said: "HP confirms that it is in discussions with Autonomy regarding a possible offer for the company."

It also said it is exploring "strategic alternatives" for its PC group, including "a full or partial separation" of the Personal Systems Group "through a spin-off or other transaction."

HP also said it will "discontinue operations for webOS devices, specifically the TouchPad and webOS phones. HP will continue to explore options to optimize the value of webOS software going forward."

These moves would be a big step toward satisfying investor pressure to do something about the company's underperforming stock. The PC business accounts for about a third of the company's revenue, but it's a slow-growing business with thin margins that have been a drag on HP's overall financial performance.

HP PC revenues were flat in the last quarter, and a big factor was the large bite Apple's iPad took out of consumer PC sales. HP has since introduced its TouchPad tablet, but there are signs it's struggling to take a bite out of iPad demand even as other tablets are now flooding the market and driving prices downward. Indeed, just five weeks after introducing the TouchPad, HP recently cut prices by more than $100 to $399 and $499, respectively, for the 16-GB and 32-GB models.

The Autonomy acquisition would be a $10 billion deal, according to news reports, a premium for a company that had about $870 million in revenue and $217 million in net income in 2010. Based in the U.K., Autonomy has made dozens of acquisitions over the years.

[ Want more background on what's ailing HP? Read this advice that's Art Wittmann gave HP one year ago about fixing its strategy.]

Most recently Autonomy acquired the online backup and recovery, digital archiving, and eDiscovery businesses of Iron Mountain for $380 million in cash. Previous acquisitions included CA data governance assets, Interwoven, Meridio, Verity, Virage, and Zantaz.

The clearest themes in all these acquisitions have been around search (in support of the company's core IDOL platform), e-discovery, records management, and document management, but there are plenty of overlaps and odd-fit bits and pieces. Critics describe Autonomy as a holding company rather than as a cohesive technology supplier.

"The concern with Autonomy from a customer's perspective is less the technology on offer, which is typically decent stuff, but rather the quality and depth of service and support that comes with Autonomy's technology," wrote analyst Alan Pelz-Sharpe in a May comment on the Iron Mountain deal. "The level of research and development funds that get allocated to these individual products in an ever-growing and overlapping portfolio is also a concern."

HP would bring deeper pockets to invest in and support Autonomy's products. In many ways the deal would complement HP's information management strategy, which gained new focus this year with a reorganization and synchronized release initiative launched in April.

Autonomy's strong search, document management, and Web content management assets, in particular, would fill gaps in HP's software portfolio. But there are also many assets in the Autonomy portfolio that would exacerbate overlaps in the area of archiving, e-discovery, and records management. So making sense of Autonomy's broad-ranging portfolio--and wringing more value from it--will be no small task.

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Brian T. Horowitz, Contributing Reporter
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Brandon Taylor, Digital Editorial Program Manager
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Cynthia Harvey, Freelance Journalist, InformationWeek
Sara Peters, Editor-in-Chief, InformationWeek / Network Computing