Silicon Valley has dropped a couple of bombshells this month. First, Google announced that it was buying Motorola's mobile arm. Now, HP, the world's biggest computer manufacturer, is pulling out of the desktop and laptop computer business and shutting down its webOS division.
The decision to shut down the webOS division is very surprising given the company's previous announcements that it had a long-term outlook and strategy for both the smartphone and tablet markets.
The company even had plans to bring webOS to other devices such as printers. Although the webOS-based TouchPad and Pre haven't been strong sellers, the underlying operating system is impressive. Plus, the TouchPad itself was launched only weeks ago (four days ago in Australia) and the Pre 3 was due to launch in mere days.
Less surprising is the plan to either sell or spin-off its laptop and desktop PC unit. Although HP is the world's largest PC manufacturer, its profit margins in this business are reportedly just 5.7 per cent. In comparison, Apple has a reported profit margin of around 23 per cent for its Mac business. If shearing off a consumer computer business to concentrate on enterprise hardware and services sounds familiar, it should – IBM did the same thing when it sold its ThinkPad and PC business to Lenovo in 2005.
Leo Apotheker, HP's CEO poached from SAP, is clearly leaving his mark on the company. These decisions effectively reverse the strategic decisions made by his predecessors. HP's PC business grew rapidly after Carly Fiorina masterminded the takeover of PC industry stalwart Compaq in 2001, while HP acquired webOS developer Palm during the administration of Mark Hurd little over a year ago, Apotheker's most immediate and controversial predecessor.
Why it happened
With HP now concentrating on printers, servers, services and other more profitable ventures, a wry observer could argue that Apotheker is merely retreating into his enterprise comfort zone. That would be a touch unfair though – Apotheker is cutting HP's deadweight. Despite its impressive technology, webOS clearly has less momentum behind it then either webOS or Android and perhaps even Blackberry OS or Windows Phone. This may have been different if HP had acquired Palm earlier, or if the combined HP-Palm had been more aggressive in its hardware designs, channel distributioin and pricing.
Meanwhile, PCs and laptops are increasingly a commodity business unless you can charge premium prices, like Sony or Apple. HP has never managed to successfully do this on a mass scale, despite its acquisition of premium gaming PC manufacturer Voodoo and its attempts to market 'fashionable' laptops available in a variety of colours and designs.
More important are the executive decisions that led HP to this point. The company has been rapacious in its acquisitions over the years from Compaq and Palm to DEC, EDS, Voodoo and 3Com, but has been inconsistent in integrating those acquisitions and technologies into its existing portfolio. Its attempts over the years to dominate markets as diverse as printers, smartphones, tablets, PDAs, business PCs and laptops, high-end gaming PCs, consumer laptops, digital cameras, enterprise servers, business services and networking equipment has led the company to being a jack of all trades, but arguably a master of very few.
What happens now
If the company is to avoid a repeat of this public embarrassment a few years from now, then it has to be much more discerning about future acquisitions. HP clearly can't do everything. So it shouldn't try to.
For existing customers of HP's computers and webOS devices, the main question is what happens to those divisions and products now? The most likely scenario for the PCs division is that it's either spun-off, just as HP spun off biotech and measurement equipment firm Agilent back in 1999, or it's bought in a similar way to how Lenovo acquired ThinkPad from IBM
Either way, it's the beginning of a slow decline for familiar HP computer brands such as Compaq and Pavilion. HP dominated the PC market because it had massive buying power and economies of scale leading to rock bottom prices. Unless another major existing PC manufacturer inexplicably buys HP's PC unit, we can't see this competitive pricing and market domination continuing.
Meanwhile, we think webOS is dead. Long-time Palm devotees may be hoping that HP licenses the operating system. However, unless the company also sells, licenses or open sources the webOS source code, we can't see any substantial third-party support for webOS, which is essential for its long-term future.
Even then, without the full-hearted backing of a major Silicon Valley company, its chances of success in the hypercompetitive tablet and smartphone markets currently dominated by Apple and Google are slim.
HP will remain a household name and will likely continue making healthy profits from its enterprise products. However, it looks like its days of ambitiously setting the technology agenda in numerous markets are behind it.
It all depends on whether Apotheker's gamble pays off. His moves are similar to the early days of Steve Jobs' return to Apple. Back then, Jobs shuttered Apple's unprofitable printer, OS licensing and Newton businesses to concentrate on the the company's core strengths and new, untapped markets. Does Apotheker have a similar plan or is he winging it? Only time will tell.
This article originally appeared at itpro.co.uk