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HP outlines "difficult but necessary" decisions spurred by success of iPad

After just nine months on the job, HP's chief executive Léo Apotheker announced plans to radically shift the company away from the shrinking PC market, drop its mobile competition to the iPad and iPhone entirely, and instead focus on its online services, printing and software businesses.

In the company's quarterly earnings conference call, Apotheker stated that after careful consideration about "what needs to be fixed, what needs to be shut down, and what needs to be separated," the company would begin an effort to shift priorities in multiple respects.

The first, affecting HP's PC and mobile hardware business, acknowledges a competitive landscape and changes in how consumers are using PCs, a clear nod to Apple's blockbuster iPad sales. Apotheker said HP's Personal System Group, which builds PCs, needed 'the flexibility and agility" to explore its options independently.

HP is now looking at a "range of options that include a spin-off" of the company's PC manufacturing business, which is expected to take 12-18 months to complete. Apotheker still described PSG as being a profitable business, however, noting $9.6 billion in revenues and profits of $569 million in the most recent quarter.

Asked about why HP wasn't announcing an immediate spinoff of its PSG unit, Apotheker stated that the company's board had so far only committed to "looking at all strategic options," and would continue to look at what it needed to do.

Asked about whether HP was still investigating the concept of putting webOS on its PCs as an alternative to Windows, Apotheker similarly described various options of using of webOS internally or licensing it to third parties as all being options on the table, but had no specific decisions to announce.

Just six months ago in February, PSG head Todd Bradley indicated during the company's webOS tablet event that HP's PCs would be a target for the new OS, saying, "Do the math on two PCs per second. You easily exceed 100 million devices with WebOS deployed annually. That's the start of something pretty big."

Out of TouchPad

However, the company presented a very dim view of its webOS-based mobile devices, including the TouchPad tablet and Pre smartphones. Due to market dynamics and intense competition, Apotheker said the company would be taking the "difficult but necessary decision to shut down WebOS hardware in Q4 2011."

Apotheker said HP is "tracking market opportunities," and exploring how best to use the webOS platform it acquired last year as part of its $1.2 billion purchase of Palm. Sales of TouchPad and webOS phones "did not meet milestones," and "would require significant investment over one to two years" to continue to develop, taking on increasing risk in a very competitive market.

HP said it would take a billion dollar restructuring charge to cover the costs of shutting down its fledgling webOS mobile devices business after determining that sales of the TouchPad were simply "not meeting our expectations" after the new hardware was "poorly received" by the market.

Palm


Focusing on software, services

The company is now "focused on transforming services," part of a "multiple quarter journey" to focus on delivering cloud solutions and "software accessible to any type of device," as well as existing printing hardware and software businesses. Apotheker also said HP would also be lowering its Q4 guidance "to be realistic about where we are."

In addition to issues related to its PC PSG business and WebOS hardware, Apotheker also described the company's squabble with Oracle, which has pulled support for Intel's Itanium processor from its database and ERP software. That decision hit HP hard, because it forces its customers with HP-UX Itanium-based servers to either buy new equipment to run Oracle's latest software, or to continue to use their existing software knowing that existing bugs won't be fixed.

Oracle, which recently acquired Sun, is now recommending its own Sun hardware, and claims that while HP tried to negotiate a contract with Oracle that would guarantee continued support for Itanium, Oracle never agreed to those terms. Further, Oracle says HP knew that Intel eventually planned to terminate its Itanium hardware platform, and that HP's lawsuit demanding that Oracle reverse its decision to support Itanium servers was "utterly malicious and meritless."