New President and CEO Meg Whitman, recently elevated to the position from member of the board, said this in a press release Thursday:

“HP objectively evaluated the strategic, financial and operational impact of spinning off PSG [Personal Systems Group]. It’s clear after our analysis that keeping PSG within HP is right for customers and partners, right for shareholders, and right for employees. HP is committed to PSG, and together we are stronger.”

The evaluation of the business meant HP brought in experts from all the different departments at the company and crunched numbers. Only then did HP see “the depth of the integration that has occurred across key operations such as supply chain, IT and procurement.” That “data-driven evaluation” also showed “the significant extent to which PSG contributes to HP’s solutions portfolio and overall brand value.”

It wasn’t a given that HP would wind up at this conclusion. When HP’s board dumped Leo Apotheker as CEO last month and hired Whitman, both board chairman Ray Lane and Whitman publicly said they didn’t disagree with Apotheker’s general direction for the company, which included spinning off PCs.

At the time Lane said, “From what I know now, the strategy is right and the initiative we undertook on August 18 [is] right,” and Whitman said that while she supported the strategy, she would review all the initiatives.

What’s not readily apparent is what this means for the company’s huge bet on software and services with Autonomy, the deal on which it spent nearly all its cash, and if this makes them regret the debacle regarding WebOS.

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Apotheker’s goal of pushing HP into higher-margin enterprise software and cloud services remains valid and Lane, HP’s newly minted executive director, and new CEO Meg Whitman said they are aboard. But they left themselves wiggle room.

“I am supportive of the actions announced on Aug. 18, but I am now deeply involved and will review the initiatives,” Whitman told reporters and analyst on a conference call Thursday night.

Aug. 18 will go down as Apotheker’s Waterloo. It was the day of the third-quarter earnings call and when Apotheker confirmed reports that HP might divest itself of its Personal Systems Group, its PC operations.

Lane said the Apotheker regime was marked by a lack of teamwork. “We didn’t see an executive team that was working on the same page,” he noted. Indeed, HP sources said the news that HP was thinking about divesting its huge Personal Systems Group was not shared with key top-level execs until just days before the announcement.

Also of huge concern to Lane is criticism that Apotheker’s cloud-and-software pitch, which started in earnest last March, devalued HP’s hardware birthright. That firestorm erupted again with the Aug. 18 news that HP would buy Autonomy Corp., a little known enterprise search company,  for more than $10 billion.

Big HP enterprise customers – companies that buy their PCs and servers in bulk — were not amused, as Lane and others quickly found out. He acknowledged hearing “vividly” about these concerns from analysts and customers after the August earnings call.

But he also said the Autonomy buy remains key. HP can “hopefully build a $10 billion business” out of Autonomy over time, Lane said. “But that does not mean we are transforming — and that word has been stricken from our language — HP because HP is a $120 billion company.” Lane added:

“With Autonomy’s enormous success and profitability and the synergies we can gain, we think we can build a hell of a business, but it has nothing to do with transforming HP.”

While many were glad to see the last of Apotheker, early reaction to Whitman as his replacement is mixed. On the plus side, at least HP communicated the changes clearly and fast, said one HP customer and partner, who requested anonymity because he works closely with the company. That was certainly not the case in the messy Mark Hurd-to-Apotheker CEO transition, he said.

On the whole, however, he thinks HP should have looked outside its boardroom for its CEO. The perception that the HP board is dysfunctional means any CEO from that board is suspect, he said.

Lane defended the board strongly in his comments Thursday, stressing that it was not the board that pretexted (spied on reporters) or handled the Hurd ouster. Others aren’t buying that, pointing out that many of HP’s recently installed board members were closely linked to Lane and to Apotheker.

(Live notes from  HP’s Thursday night call are here.)

Image courtesy of Flickr user wilsondan.

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Updated. So, that personal computer business that HP doesn’t want anymore? The one with the largest market share in the world? Samsung isn’t interested either. On Samsung Electronics’ official blog Wednesday, the company attempted to put an end to rumors that it was considering taking over HP’s laptop and desktop unit:

The recent rumors that Samsung Electronics will be taking over Hewlett-Packard Co.’s personal computer business are not true.

We hope this clarifies any confusion that may have occurred.

Whether it’s because Korean companies like Samsung don’t often acquire foreign companies or a multitude of other possible reasons, this isn’t a huge surprise, as we wrote earlier this week. The entire PC industry is struggling, and there isn’t another major PC maker in a great position to take the laptop and desktop business off HP’s hands.

Update: On August 25, 2011, Samsung released the following statement from Geosung Choi, Vice Chairman and CEO of Samsung:

To put to rest any speculation on this issue, I would like to definitively state that Samsung Electronics will not acquire Hewlett-Packard’s PC Business.

Hewlett-Packard is the global leader in the PC business with sales of 40 million units last year, while Samsung is an emerging player in the category and sold about 10 million units in 2010. Based on the significant disparity in scale with Samsung’s own PC business and the complete lack of synergies, it would be both infeasible and imprudent to even consider such an acquisition.

Image courtesy of samsungtomorrow

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According to Bradley, HP’s PC business brings in more than $40 billion in revenues. That is a third of HP’s total sales. As a standalone company, it would automatically qualify as a Fortune 100 company. Actually, I was fairly impressed by Bradley, though his answers about WebOS weren’t convincing anyone.

via Bloomberg

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The candidates

In terms of size, after HP, the largest PC makers are Dell, Lenovo, Acer and Toshiba. Of the 85 million PCs sold during the most recent quarter, those companies accounted for more than 60 percent of shipments, according to Gartner. Dell’s own founder and CEO has been having a grand time on Twitter at HP’s expense, so let’s assume the Round Rock guys aren’t going to come calling; not to mention they’re having their own trouble themselves selling PCs.

Lenovo already subsumed an American PC business seven years ago (IBM), Acer is struggling now after building up its own consumer PC business through a quick series of acquisitions several years back (Gateway, Packard Bell and E-Machines). And Toshiba’s sales are sluggish right now.

In other words, the only other major players in the business aren’t even that great at selling PCs themselves due to a transforming computer market. Over the past year, their businesses have either dropped or inched up only slightly, as consumer demand has tanked due to the economy and, as HP CEO Leo Apotheker pointed out himself last week, “the tablet effect is very real.”

The best-case scenario

The best-case scenario for selling a lot of PCs right now are companies with strong footholds in emerging markets like China (hello, Lenovo–and more recently–Apple ), those with an in to large enterprises through huge corporate contracts or those that supply services coupled with hardware (that’s Dell, and Lenovo again). But while Lenovo in theory might be able to make it work, it’s unlikely, as many have pointed out, that the U.S. government would go for the idea of selling major U.S. assets like that to a Chinese company.

The name that’s been bandied about most with regard to who might scoop up HP’s PC arm is Samsung. The company has many parts of the PC supply chain already covered, and they are making a push with their laptop business, which could make it a good candidate. But, as Macquarie Securities research analysts point out Monday in a report, that’s also fairly unlikely:

In our view, the only possibility could be Samsung which is expanding its PC business aggressively and has a strong balance sheet. The acquisition could benefit from potential synergies – scale, branding and digital home. However, we think the probability of Samsung acquiring HP’s PC business is still very low as Korean companies have very low track record acquiring foreign companies in the past.

Rather, it’ll likely be spun off into a standalone company, but there will be plenty of disadvantages to that scenario as well, according to Macquarie. For one, the spun-off PC business would no longer benefit from extra marketing oomph from HP’s (far more profitable) printer business, or its services business. Plus, it will be a much smaller company, and that will give opportunities to current HP competitors to take some of the company’s market share, in Europe (such as Asustek and Samsung), and here in the U.S. (Lenovo).

A separate HP company selling PCs also brings a whole new set of questions that need to be tackled — who will be put in charge? How will these PCs be differentiated from any of its competitors? How will webOS be utilized? And that’s on top of a question the whole industry, or at least those not named Apple, are struggling with: how to turn a decent profit on a commoditized product like the PC.

Thumbnail courtesy of Flickr user roland

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HP CEO Leo Apotheker

On Thursday Hewlett-Packard announced plans to spend some $10.25 billion in cash to acquire Autonomy, the United Kingdom–based software and services company.

Given that HP’s cash reserves currently total $12.9 billion, the deal represents a major monetary outlay that will leave the company’s wallet significantly lighter than it has been for many years. Why is HP is taking such a huge leap?

In a Q&A session with investors and analysts on Thursday, HP’s CEO, Leo Apotheker, acknowledged that the Autonomy bid is bold, but he insisted that it will pay off in the end. Here are his main reasons why:

• It’s now-or-never time for HP. Apotheker recognized that people may question why HP is making such a big bet, but according to him, drastic times call for drastic measures.
  

  This is about a transformation to position HP for the future. These changes are fundamental for the future we all want. HP is at a critical point in its existence.

• Businesses today deal with a ton of data, so Autonomy’s software to help manage that data will be in demand for years to come. None of HP’s current businesses have that kind of growth potential.
  

  Autonomy represents an opportunity for HP to accelerate our vision to . . . lead a large and growing space, which is enterprise information management. If we execute this deal it will position HP as a large and growing leader in the space.

• Margin-wise, Autonomy can hit the ground running at HP. Apotheker pointed out that Autonomy has grown its revenue at a compound annual growth rate of 55 percent, and with an operating profit of 83 percent over the past five years.
  

  We’re buying a very strong business and we believe we can extract a lot more out of this business by combining it with HP. That was the justification for the price.

• Apotheker has a soft spot for software. Apotheker joined HP as CEO nine months ago, after spending more than 20 years in various roles at SAP, the German software corporation. In the earnings call, Apotheker noted that buying Autonomy puts him in a comfortable space.
  

  As an executive who has spent most of my career primarily in software, this is a world I know very well.

On the earnings call, several people pressed Apotheker on Autonomy’s price tag — “You are paying a fantastic price,” Sanford Bernstein analyst Toni Sacconaghi said — but they seemed to agree that moving toward a higher-growth market such as enterprise software is a smart move for HP. Whether those benefits will be worth the big cost will only be seen in time.

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On Thursday Hewlett-Packard, one of the oldest companies in Silicon Valley with deep connections to the PC ecosystem (they paid $25 billion for Compaq in 2002) and the world’s largest seller of PCs, confirmed it is looking to sell off its personal computing business. It’s also getting out of the hardware game altogether, ditching its tablet and smartphone operations too. But if HP does eventually find a buyer for its PC division, it will only be catching up with IBM, which in 2004 decided that the low-margin PC business wasn’t worth pursuing.

HP is not the only company that is finding itself on the wrong side of PC history. Earlier this week Dell reported its earnings and acknowledged that its bread-and-butter PC business isn’t what it used to be.

But it’s not just those two. Annual growth rates for the PC industry as a whole have been shrinking in recent years, with small single-digit rates of growth. It can’t be inspiring for the manufacturers looking at their balance sheets.

Those companies looking to innovate won’t find much interesting about building PCs anymore either. Laptops will get faster processors, and marginally thinner. HP and Dell, along with the other top PC companies by volume (Acer, Lenovo and Toshiba) build essentially the same computer, with the same software, chips, and hardware. The only thing to scrap over is minor design flourishes and who can price theirs the cheapest–not exactly an inspiring business if you’re interested in being a part of mainstream personal computing advances. Or, for that matter, growth that will boost your stock and keep investors happy.

Meanwhile, the rise of alternatives to traditional PCs, tablets, continues its march on. UBS recently upgraded its already-optimistic tablet forecast for this year, to 60 million tablets from 55 million, and next year, to 90 million units from 80 million. And it’s not just shipments. People are buying them.

We’re not looking at a complete takeover of PCs by tablets. There will still be several hundred million PCs sold worldwide for several years because people will still need PCs for certain tasks. But it’s very clear that many of the habits we associate with personal computers can be carried out with a decent-sized touchscreen and a good internet connection. And better yet, done anywhere, and quickly.

Before all of these signs became unavoidably obvious, the other original PC company was the only one that saw the end of this era coming and actually did something about it: Apple.

Over a year ago, Apple CEO Steve Jobs started heralding the end of the dominance of the PC, dubbing it the post-PC era. He compared PCs to special-use vehicles in June 2010:

“When we were an agrarian nation, all cars were trucks because that’s what you needed on the farms.” Cars became more popular as cities rose, and things like power steering and automatic transmission became popular.

“PCs are going to be like trucks,” Jobs said. “They are still going to be around.” However, he said, only “one out of x people will need them.”

Not coincidentally, this foretelling of “the post-PC era” occurred after the introduction of the original iPad. Jobs saw the device as the future of personal computing, while critics and skeptics saw it as little more than “a big-screen iPod touch.”

Nineteen months later, we see what the iPad has wrought: the iPad is a blockbuster hit (Apple’s sold 9 million this year, and 15 million all of last year), and has sent PC makers much larger than itself scrambling to come up with a response. Meawhile, PC profits remain low, and even the world’s leader in sales  is disinterested in continuing the slog.

So while the era of the primacy of personal computers in their traditional form is fading, they are not disappearing entirely. They’re just taking on a different form.

Thumbnail courtesy of Flickr user Kıvanç Niş. HP laptop image courtesty of by treehead.

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When first unveiled by HP, the TouchPad showed a lot of promise, thanks in large part to the slick tablet-optimized version of webOS that powered it. Our own Kevin Tofel was genuinely impressed with the TouchPad in his testing of the device.

But it was also obviously not a runaway hit yet for HP. Reports suggested that it was selling only somewhere around 10 percent of its stock at Best Buy locations, and HP instituted two big price drops already for the TouchPad even though it has only been on the market for two months. Apple’s iPads, in contrast, haven’t seen a price drop prior to a new model being introduced.

New numbers released Thursday revealed that world tablet sales are growing, even without the iPad included in those figures. But it’s not clear that the TouchPad helped spur any of that increase. And for HP, it’s likely that even a moderately successful device wouldn’t have generated acceptable margins at the price point it was eventually forced to set for the TouchPad. It’s still possible HP will attempt to license webOS to third-party hardware makers, but it can’t instill confidence in those device manufacturers that HP itself can’t make a go of it. Nor will developers be lining up to create software for the platform without a clear future for it.

Gartner didn’t see webOS as a significant threat to Apple’s tablet market share in the immediate future, predicting HP would take only three percent of the overall market by 2015, despite being one of only a handful of potentially viable competitors in play. The only true competitors to the iPad are Android tablets, and even those aren’t doing too well just yet, since tablet shipments overall from all manufacturers and platforms besides Apple only reach 5.6 million last quarter. Apple is also making headway against Android tablets in court, which may help it stay out in front of the crowd of Google-backed devices for a while longer. After Android, the only other major alternative is the BlackBerry PlayBook, and we all know that device is on shaky ground at best.

One thing’s for sure: Calling any bets regarding the tablet game is a sucker’s bet right now. HP and RIM have both performed pretty poorly using a unified hardware/software approach in coming up with iPad competitors. Add in Google purchasing Motorola, which might indicate that the Android-maker is on the verge of trying the same thing, and it’s clear the landscape for tablets is undergoing rapid and unpredictable change. Despite the upheaval, however, the iPad remains a surefire winner.

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