The Market Has Spoken On HP's Grand New Plan

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Photo: HP

Hewlett-Packard did a bunch of things today:

  • Reported Q3 earnings and revenue that came in right in line with expectations — better than its competitor Dell, whose earnings were fine but revenue light.
  • Announced it was jettisoning an unsuccessful, money-losing business, the WebOS hardware line it bought as part of the $1.2 billion Palm deal last year.
  • Bought a large, profitable, fast-growing enterprise software company — Autonomy — to shore up its own fastest-growing and most promising business, which is selling combinations of hardware, software, and consulting services to large enterprises.
  • Said it was considering new options for another ailing business, PCs, which has shown declining revenues for the last three quarters, particularly to consumers. Those options might include spinning it out into an independent company.

The market’s verdict?

HP’s shares dropped 6% during the day and are down another 10% after hours.

It was a bad day on Wall Street all around — the S&P was down almost 5% and some other enterprise tech stocks like Salesforce and EMC were down almost 10%. (Although they didn’t drop after hours.)

But HP underperformed them all — despite the fact that these acts seem like pretty straightforward and logical moves for a company that had already said it was in transition.

So why did the market react so badly? Several possible reasons:

  • HP completely botched the release of its big news — Bloomberg leaked some of the news this morning, HP put out an early earnings press release with some confirmations and more news, and then put out a SECOND official earnings release in which it finally confirmed the Autonomy acquisition.
  • HP blew a golden opportunity this week to licence WebOS to Android handset makers like Samsung and HTC who are nervous about the Google-Motorola tie-up. But ditching the hardware business BEFORE licensing the software shows a real lack of confidence in WebOS — if WebOS is so great, and HP is such a solid and experienced hardware company, why couldn’t HP make a go of it? Maybe HP simply couldn’t afford the ongoing losses, but now it will be hard-pressed to get any value at all out of its $1.2 billion purchase of Palm last year.
  • Market watchers could view HP’s retreat from tablets, smartphones, and hardware as an admission that Apple has really and completely won. And the market might not think that HP’s new plan — to become more like IBM — has as much upside as the previous plan to become more like Apple.

 

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