Hewlett-Packard made an announcement that it is going to “discontinue operations for webOS devices.” And that’s the end of the line for its just-launched tablet, the HP TouchPad.
In the press release detailing its preliminary Q3 2011 financial results, the company had this to say: “HP reported that it plans to announce that it will discontinue operations for webOS devices, specifically the TouchPad and webOS phones. HP will continue to explore options to optimize the value of webOS software going forward.”
The company said the separation of its PC business into a new company through a spinoff or other transaction would be completed within 12 to 18 months. With this announcement, HP CEO Leo Apotheker, is taking stepd similar to what IBM did six years ago. In 2005, IBM sold its PC unit to Lenovo for $1.25 billion, a move that made IBM a pure software and services company.
Its stock also benefited from the strategy. Thursday’s announcement also goes against the grain of HP’s $25 billion acquisition of Compaq in 2002. “The exploration of alternatives for PSG demonstrates our commitment to enhancing shareholder value and sharpening our strategic and financial focus,” said Apotheker.
The webOS-based TouchPad was seen by many as a real competitor to Apple’s iPad. Despite initial lukewarm reviews, but the device which was launched only 6 weeks ago (and webOS itself) seemed full of potential. HP, the world’s largest computer maker, has had limited success with mobile devices. In April 2010, HP purchased Palm for $1.2 billion, largely because of the potential of the webOS platform.
HP’s PC business is its lowest operating margin business with a 5.7 percent operating margin with annualized revenue of nearly $38 billion. In fiscal 2010, the business generated annual revenues of approximately $41 billion in fiscal year 2010.
HP hasn’t broken out sales figures, but admitted it “wasn’t close to hitting its targets” — which were, analysts say, three to five million tablets by year’s end.
It is known that Best Buy sold 25,000 (less than 10% of its inventory), and HP was forced to slash the price by $100. If to compare that to the TouchPad’s obvious competitor: one million iPads were sold in the first 28 days, and two million in the first two months. Now there are about 9 million iPads sold every quarter.
A survey released yesterday by equity firm Robert W Baird, reported by CNET, asked more than 1,100 potential tablet purchasers what devices they were interested in. An overwhelming 94.5% said the iPad. Ironically, the TouchPad was in second place at 10.3%.
Analysts have been saying that it was time for HP to part ways with the PC business and estimated that its Personal Systems Group could fetch as much as $15 billion.
“Even if we assumed that HP divested the PC business for $12.5 billion and repurchased its stock price at current levels, we estimate the annual EPS accretion of $0.06,” Ticonderoga Securities analyst Brian White wrote in a note to clients.
It seems that the iPad just killed off its biggest competitor. The question is who’s next? It could be RIM’s BlackBerry PlayBook, which suffered its own sales setback earlier this month when Sprint announced it wouldnot be selling its planned 4G version of the device.
Perhaps Samsung’s ongoing legal battle with Apple, which recently barred the Galaxy Tab from being sold in Europe and delayed its launch in Australia, will lead the Korean manufacturer to focus on more profitable electronics.
HP shares, which fell over 20 percent year-to-date, fell $1.88, or 6 percent Thursday, to close at $29.51. In the after hours, the stock fell further by $2.90, or 10 percent, to $26.61. [via Mashable and International Business Times]