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Jon Rubinstein introduces the HP TouchPad, a WebOS-based tablet, in February 2011.(Credit:James Martin/CNET)
HP said Thursday that it will discontinue its WebOS operations as the company cut its outlook for the next two quarters.
The company said it will discontinue operations for WebOS devices, specifically the TouchPad and WebOS phones. And that WebOS unit will cost HP some dough to discontinue. HP will also spin off its PC unit.
HP said that it will take a hit to fiscal 2011 earnings of $1.16 a share to $1.23 a share as it restructures and shuts down WebOS devices and related operations. There were signs that TouchPad sales were bleak, but a complete shutdown of WebOS operations was unexpected.
HP's statement held a bevy of items for customers and shareholders to ponder. First, HP's customers--and anyone who bought a TouchPad--wonder what the potential sale or discontinuation of the unit will mean. Shareholders have to consider the spinoff of the PC unit as well as a lower-than-expected outlook for the rest of the year.
HP said that its third-quarter revenue will be $31.2 billion with earnings of 93 cents a share. Non-GAAP earnings will be $1.08 a share. Wall Street was looking for earnings of $1.09 a share on revenue of $31.17 billion.
Overall, the third-quarter results were the least of HP's worries. The company said its fourth-quarter revenue will be $32.1 billion to $32.5 billion. Non-GAAP earnings will be $1.12 a share to $1.16 a share. Wall Street was looking for $1.31 a share on revenue of $33.99 billion.
The guidance indicates that HP is seeing material weakness and having a tougher time navigating economic uncertainty relative to rivals like Dell. HP also confirmed that it is in talks to buy Autonomy.
Remaking HP
HP's move to shed the PC business as well as discontinue the TouchPad has its risks. For starters, HP will take a reputation hit for launching a TouchPad and then killing it.
In a statement, HP said it will seek "strategic alternatives" for its Personal Systems Group (PSG), including a full or partial spinoff.
The real kicker is that HP is going to discontinue its WebOS phones. It will "continue to explore options to optimize the value of WebOS software going forward."
There are two ways to look at HP's moves today. On one hand, HP is making bold moves before the PC and WebOS operations become an anchor for the company. On the other, HP's business is struggling and it has disappointed Wall Street since the end of Mark Hurd's tenure.
Meanwhile, a bevy of IT insiders have questioned HP's potential Autonomy acquisition.
Add it up and HP is aiming to exit the consumer business--or at least quarantine those operations--to focus on the more lucrative software, systems, and services business. If HP is successful, it will look more like IBM when finished. The problem for HP is that IBM is firing on all cylinders. The consumer unit--whether it's shed, sold, or spun off--will be left to battle Apple.
HP shares took a hit in late trading.
HP said its fiscal 2011 revenue will be in the $127.2 billion to $127.6 billion range. That's down from the previous sales range of $129 billion to $130 billion. Non-GAAP earnings will be $4.82 a share to $4.86 a share. That range is down from at least $5 a share. GAAP earnings for fiscal 2011 will be $3.59 to $3.70 a share.
Wall Street was looking for fiscal 2011 earnings of $5.01 a share on revenue of $129.1 billion.
Those non-GAAP earnings exclude charges related to exiting the WebOS operations.
FUD time
As HP goes through this transition, it will face a fear, uncertainty, and doubt (FUD) war with its rivals. HP is fighting a multifront war. On the enterprise side, Cisco, IBM, Dell, and Oracle are chief rivals. On the consumer side, HP faces Apple and Google'sAndroid army.
Michael Dell, CEO of Dell, kicked off the festivities quickly.
Here's his tweet:
Competitors are likely to take aim at HP on multiple fronts and portray the company as distracted. Look for IBM and Dell to target HP's server position. Cisco will look for retribution after quarters of HP targeting the networking giant's core switch products. On the corporate PC side of the equation, Lenovo and Dell will aim for a bigger chunk of the upgrade cycle.
On the consumer side, the reputation hit to HP can't be underestimated. HP will have to smooth over relationships with retail partners, resellers, and consumers who may have taken the TouchPad plunge. On the software side, HP's hasty retreat on WebOS will be remembered by developers. These developers are likely to be skeptical about HP's commitment to other efforts such as the public cloud.
Bottom line: consumers and corporations will have doubts about HP and its intentions amid a potential spinoff of the PC business.
Questions abound
Going forward, HP will have to face multiple questions. Among the larger questions:
- How much time will CEO Leo Apotheker really have to pull off his Lou Gerstner imitation? Gerstner ditched IBM's low-margin businesses and remade the company, but that process took nearly a decade.
- What market share hit will HP see in PCs?
- Will concerns about distractions bleed over into HP's core enterprise business?
- What will happen to HP's plans revolving around cloud computing?
- Will buyers emerge for the PC unit?
- And what's the future of the WebOS going forward? Can a company buy it and make something of the operating system?
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