HP exits PC biz, to buy Autonomy for $11.7 billion

The moves underscore the problems plaguing personal computers and devices, HP’s core business, and a decade-long search for direction by the original Silicon Valley garage startup, whose “HP Way” was once a model for businesses.

The iconic company associated with the birth of Silicon Valley also plans to kill WebOS-based phones and the TouchPad tablet, which was launched in June but has failed to excite consumers. HP’s third-largest acquisition ever and its potential departure from the PC arena sets in motion a transformation that recalls International Business Machine Corp’s overhaul of the last decade.

HP Chief Executive Leo Apotheker is responding to mounting pressure to fire up growth just as global economic and tech-spending outlooks darken. Like other PC makers, it is struggling to come up with an answer to Apple Inc’s iPhones and iPads, which are gobbling up PC market share.

“HP is at a critical point in its existence and these changes are fundamental to the success we all want,” Apotheker told analysts.

The announcement is the second this week to show how quickly technology companies are transforming as they jockey for position to cope with radical changes in consumer demand. Google Inc, on Monday, announced it was buying mobile handset maker Motorola Mobility for $12.5 billion, launching the Internet search and mobile software company into manufacturing for the first time.

The acquisition of cloud search-software specialist Autonomy, which analysts say may
draw rival bids, marks its boldest foray into the software and technology services after Apotheker came on board with a mandate to drive innovation.

A PC spinoff marks a historic shift for a company that Bill Hewlett and Dave Packard built into a sprawling $120 billion empire from a $538 garage operation in 1939. Speculation has swirled for months that HP was no longer keen on keeping a PC business struggling with low growth and single-digit margins.

The moves would turn a company that in some ways tried to mimic Apple into a devout follower of IBM, dropping a tablet with innovative software, checking out of the PC business and embracing the software and services Big Blue today embraces. HP has twisted and turned before, including controversial former CEO Carly Fiorina’s acquisition of PC maker Compaq in 2001, which a spinoff would undo. Some alternatives HP is exploring include hiving off its PC business into separate company through a spin-off or other transaction that would likely be tax-free to US shareholders. HP expects the process to be completed within 12-18 months.

HP’s Personal Systems Group also includes smartphones, tablets and the WebOS operating system, pulling in about $41 billion in revenue but only about 13 percent of profit.

HP’s decision to discontinue the TouchPad -- which hit the store shelves in July with much costly fanfare — follows poor demand. It was discounted by $100 a month after it was launched in a market dominated by the iPad. WebOS came with the $1.2 billion acquisition of Palm last year. Going forward, HP expects further pressure on its revenue and cut its full-year forecast for the third straight quarter.

HP now expects full-year revenue of $127.2 billion to $127.6 billion, down from a previous estimate of $129 billion to $130 billion. It also cut its earnings per share estimate.