Whitman Puts HP Back on Track, Talks Windows 8, Avoids WebOS Commitment

6 minute read
David Roe avatar

On the stock market, everything is about perception. Share prices go up and down depending on how a company is viewed on trading floors all over the world, sometime even regardless of how the company’s products are performing. This probably explains why HP has decided to keep its Personal Systems Group (PSG) rather than spin it off.

It also seems, at least on the surface, that for the first time in nearly 18 months, the company has settled down and is starting to get on with its regular business; and the change coincides with the appointment of Meg Whitman as president and CEO.

Personal Systems Group

Apart from the departure of CEO Leo Apotheker, the first sign that things were changing appeared at the end of last week when a statement issued by the company said that it had done an about-face on the decision to spin off PSG, which includes its PC division.

The decision, which was announced in August, left many people scratching their heads, and many others looking to get out of HP. Friday’s statement changed that. It read:

HP objectively evaluated the strategic, financial and operational impact of spinning off PSG. 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 review the company referred to showed that the hardware business was making a “significant” addition to brand value and that it was so deeply integrated into HPs other businesses and operations that it would have almost been impossible to set the hardware business up as a standalone.

Then there was the cost. According to CFO Cathie Lesjak in a conference call to explain the revised decision, to set it up as a standalone business would have cost an estimated US$ 1.25 billion.

Market Reactions

It would have also cut operating profits by US$ 1 billion annually, which even for a heavyhitter like HP would be hard, especially for a decision that was at best pointless, and at worst… well that’s what the whole stock price drop was about, and no one was really sure when that was going to stop.

Cited on technology site,itp.net Ovum chief analyst Carter Lusher welcomed the move, calling the announcement by Apotheker "an unmitigated disaster."

We applaud HP CEO Meg Whitman, appointed to that position on September 22, for acting swiftly and decisively to eliminate the uncertainty surrounding HP's intentions for the Personal Systems Group (PSG). The announcement by now former-CEO Leo Apotheker that PSG was undergoing a strategic review and could be sold or spun off was an unmitigated disaster," Lusher said.

Given recent figures from Gartner on PC shipments worldwide, you can see where he’s coming from. Earlier this month, its figures showed that instead of declining, HP’s PC market continues to grow.

In a statement, Gartner said:

HP’s PC business grew faster than the industry average, and its market share reached 17.7% in the third quarter of 2011, with strong growth in the U.S. Overall, HP's share increased from 26.9 percent to 28.9 percent worldwide.”

So the market drop precipitated by the August announcement appears to be more than just perception. Since Apotheker took over in November last year of 2010 the HP share price fell by 45%, and started climbing again when rumors that he might be replaced started to surface.

In fact, since Whitman took over in September, HP's stock is up more than 20%, rising 3.5% last Friday alone after it was confirmed that the PC business had been given a reprieve.

WebOS' Future

But if things are looking a bit rosier for HPs PC business, there are still a lot of low-hanging clouds over the WebOS business, and by the looks of things they’re set to burst.

The first thing that is to be said about WebOS is that, as of the end of October, no decision appears to have been made about its future. But there are rumors from both inside and outside the WebOS business, and none of them are good.

According to one employee with the WebOS group and cited in the UK’s reputable Guardian newspaper, staff in the company are expecting its “imminent closure." The result would be the loss, or movement of 500 jobs, with several hundred already gone in recent weeks.

Whitman herself dodged any questions about the fate of it last week, but was happy to talk about making tablets with Microsoft’s upcoming Windows 8 OS.

Cutting WebOS, if it can’t license it, seems like the logical step, even if it means writing down the US$1.2 billion HP paid for Palm in April 2010.

Learning Opportunities

The plan at the time was to integrate it into a whole list of HP products and to tie the computing giant's vast array of servers, PCs, mobile devices, printers and other hardware products together to better offer total HP solutions to its business customers.

Its short-lived experiment with the TouchPad tablet appears to have dampened any enthusiasm for that, but in hindsight it looks like the success of the iPad rather than the failure of TouchPad caused its demise.

The official line is that HP will continue development of tablets on the Windows platform. But it has made no such commitment to WebOS or the 500 staff it has working on the platform, which probably explains the pessimism of the people working on it.

That said, HP still won’t say what it intends to do, which has resulted in a lot ofstraw clutching in a lot of places, largely as a result of ToddBradley’s interventionon Bloomberg’s financial news channel over the weekend.

Bradley, as head of the PC division, should be in a position to know, but he said little. Responding to the Guardian’s report that WebOS is to be killed off, he described it as an “unfounded rumor."

The company is looking at how to "effectively utilize that phenomenal software,”  he said, while not ruling out the prospect of selling it to the highest bidder. In the meantime, it seems condemned to limbo while HP plays footsie with Windows.

He added that consumers shouldn’t be keeping an eye out for a TouchPad 2, but that the company will “clearly look at what’s the right path forward for WebOS.”

Decision Time

The bottom line is that no one knows what’s going to happen with WebOs. But then no one knows what’s going to happen at HP.

Some reports suggest that WebOS could be shut down as early as November and that the entire company could have its credit ratings placed on review for possible downgrade by Moody's Investors Service.

However, going back to perception and Whitman, the company, the board and the markets all seem to have faith in her and that in itself will help HP.

A decision on WebOS, however, is needed quickly to maintain the aura of stability that she has managed to bring to the beleaguered company, which really hasn’t had much breathing space in 18 months.

Undoubtedly, she knows that too. On November 21, HP will announce its Q4 figures and it would not be unthinkable, given the rate of change there, that we will hear more about this then.