HP stock suffered a much greater loss than the general market on August 19, 2011 after lower than expected guidance for its fiscal fourth quarter, as well as on the news that it would be spinning off its PC business, selling its WebOS software, leaving the smartphone/tablet space after shortly releasing its first tablet, and buying Autonomy for 10 billion dollars – significantly above its current market value.
Investors seemed primarily concerned with the idea that HP was simply changing too much too quickly. Many consumers when they think HP think PC, so it seems odd that HP would be making such a drastic move as possibly spinning off its PC business, although, IBM was able to recently spin off its ThinkPad business to Lenovo. Still HP is not IBM and this is not the best timing. This part of its business will be difficult to sell since the PC market is not doing well. Also, undoubtedly, a concern to investors is whether or not this CEO can successfully lead this company. It was not long ago that Leo Apotheker told us that WebOS would be on over 100 million devices every year. The plan was to include it on their PCs on top of Windows and perhaps, with time, make it the primary operating system. WebOS would be on smartphones, PCs, and tablets. Now HP is buying Autonomy, a business-analytics software company for 10 billion dollars, and giving up on its previous plans. HP ended the quarter with roughly 12 billion dollars in cash equivalents. With less cash on hand, over an expensive acquisition, HPs stock deserves to take a hit. HP seems overly capricious at present. Also, as an individual investor, I do not feel that I can trust the CEO.
HP looks to be ceding ground to Apple in the consumer space. The overall PC business has been shrinking as a result of the recent surge in mobile device sales, mainly Apple’s iPad as well as smartphones sales in general. Leo has stated that the “tablet effect” is indeed real. HP is looking to possibly spin off its PC business and leave itself with its printer business, which happens to be the only area where it does not directly compete with Apple. Actually, interestingly enough, HP printers are the only ones that currently support the AirPrint feature on Apple’s iOS operating system. Although this is likely just a coincidence, it is worrisome to think that this space is no longer just highly competitive but so cutthroat that even the mighty HP is left in such a condition as it now finds itself.