HP Looks Panicky as It Dumps Valuable Mobile, Consumer Product Assets

By Wayne Rash  |  Posted 2011-08-20

HP Looks Panicky as It Dumps Valuable Mobile, Consumer Product Assets

HP's Aug. 18 announcement that it was getting out of the consumer business by simply shutting down its newly built-up mobile division and trying to sell its consumer PC business makes one wonder just how carefully management considered this action. This sudden announcement smacks of a panicked reaction to what should be short-term market setbacks.

The day before the announcement, HP was still touting its new TouchPad as the best thing since night baseball, sending out newsletters on how great the new world of webOS was going to be and how the new OS would be in everything from phones to refrigerators.

Then, without notice, HP shut the door. The change in direction was so fast that I'm still getting emails from HP trying to sell me a TouchPad. Apparently HP has decided that it wants to be the next IBM, focusing on the data center, enterprise software, servers and storage. This is understandable, since these are high-margin markets and HP and the rest of the world likes high margins. But is this the right way to go about it?

Many analysts have compared HP's pending departure from the consumer market to IBM's similar exit a few years ago. But there are significant differences in the manner in which IBM's exit took place. First, IBM's move was extremely well-planned and deliberate. The PC business was moved to Lenovo, which is the company that had been building ThinkPads and IBM PCs for years. The move included a five year-transition plan that's still underway. If you call for tech support on your ThinkPad, you still get IBM.

Contrast that to HP's actions. There's no carefully prepared plan. There's no company in line ready to take over HP's line of laptop and desktop computers. It's not clear which products will be dumped, which will be sold to some other manufacturer, what will happen to existing customers and their support needs. There hasn't been any discussion of what will happen to webOS or all of those TouchPads that people bought thinking they'd have HP around to provide support and foster app development.

"I think they've kind of decided that they're going to wait out the next wave of innovation in a nice air-conditioned data center," remarked the Yankee Group's Carl Howe. The move was really reactionary, Howe said, noting that it will have profound effects on the PC industry as well as the mobile industry. "The smartphone OS market got consolidated in a big way. We've gone from six smartphone operating systems to four."

HP Breaks Trust With Hardware Customers

Howe noted that the shutdown of the mobile division will have a serious impact on the whole mobile patent situation that's already in turmoil. He noted that Palm had more than 1,500 mobile patents, in addition to patents held by HP and Compaq. "I'd be looking very carefully at the patent portfolio," Howe said.

HP should also be looking very carefully at its customers. IBM's well-planned transition out of the PC market was intended to avoid panic. Customers knew well in advance what was going to happen. They knew that the products would remain the same even if the logo changed and that IBM had everything worked out ahead of time. Even customers that didn't buy ThinkPads were confident that IBM was removing every aspect of uncertainty.

HP on the other hand, seems to be fostering uncertainty. For a company such as HP to abruptly change direction without planning is not unlike the captain of a 200,000 ton oil tanker ordering the helmsman to reverse course at once while underway. Anyone with knowledge of ship handling will know that this is unlikely to yield a good outcome. And so it is with HP.

Worse, when CEO Leo Apotheker ordered the sudden change in direction, he did so while still surrounded by the detritus of the Hurd dynasty. While the acquisition of Autonomy obviously fits into HP's long term plans, the other part-the closing of the mobile business and the planned sale of the PC business-must make customers and investors wonder if their money is in the right place or if HP picked the right man for the top spot.

As this is written, HP's stock price has dropped to just over five times earnings - an extremely low figure and an historic low for this stock. Over 20 percent of the stock decline has happened since the change in direction was announced. One can only guess what HP's investors must be thinking, but it probably involves regret that they bought into the company at all.

But one must also wonder what the customers must be thinking. Unlike IBM's moves that were designed to provide certainty, HP's customers must be wondering if the product lines they've been buying for years will suddenly be chucked out the window without warning. Let's face it, if you were considering a purchase, would you buy any HP hardware product knowing that you could find your product, along with the customer support farmed out to some new unproven entity or worse orphaned? I suspect that all of those people who bought TouchPads have already started packing them up for a trip to the retailer to demand refunds.

Those customers deserve it. HP has broken the trust with its customers and its investors, and should be forced to accept the consequences, including refunding the money to all of those customers who bought HP products in good faith. 

Rocket Fuel