August 18, 2011, 1:48 PM — Update:
IDG News Service's Elizabeth Heichler writes that HP has confirmed it is seeking to unload its PC business -- a decision HP referred to as seeking "strategic alternatives for its Personal Systems Group" -- and also is in talks to purchase U.K. software company Autonomy.
Further, HP said it is killing its WebOS device business, including its untouchable TouchPad tablets and any WebOS smartphones. Wow. That was fast.
The company should be announcing Q3 results soon. I suspect it will be bad.
Original post below:
Hewlett-Packard, long known for being the world's largest maker of computers, plans to spin off its PC business, according to anonymous sources cited by Bloomberg.
The news agency reported that sources also said HP (NYSE: HPQ) was in talks to purchase U.K.-based database-search software company Autonomy for $10 billion.
First off, if this is true, it's a dramatic (if not totally surprising) shift in strategy for the computer maker. In the second quarter, HP's computer division (Personal Systems Group) generated $9.4 billion in revenue, or 29% of total quarterly revenue.
Still, chief executive Leo Apotheker has made it no secret that he believes HP's future is in cloud-based software and services, which provide higher margins than PCs. Maybe he thinks a clean break is best. He's certainly under shareholder pressure to do something dramatic.
And the truth is that HP's computer revenue is declining. PSG's $9.4 billion in sales was down from both the year-ago quarter (Q2 2010) and the first quarter of this year.
Meanwhile, HP's software unit increased sales over the previous and sequential quarters, but still only totaled $764 million in revenue. Autonomy reported $256 million in revenue for its second quarter and is aggressively growing its cloud business.
Secondly, you have to wonder what HP's fiscal third-quarter results will look like when they're announced after the market closes Thursday.
If you recall, back in May HP moved up its earnings announcement after a leaked memo from Apotheker warning about "another tough quarter" sent shares down more than 9%. In the ensuing conference call, HP warned that results for its third quarter would not meet previous estimates and also reduced its forecast for the fiscal year.
My guess is HP got that "tough quarter" and then some. I wouldn't be surprised to see another downward revision of full-year numbers in Thursday afternoon's earnings call.
Shares of HP were down 1.40, or 4.4%, to 30.00 in early afternoon trading Thursday. Investors are bracing themselves.