With specific regard to the WebOS Hardware group, that organization and its supporting infrastructure and supply chain will be shutdown in the fourth quarter of this year. WebOS Software development will continue. I would fully expect product support, SW updates, and the normal routine you would expect for HP products for some time to come. In the year to year-and-a-half before anything specific becomes of HP PSG, Apotheker and Lesjak claim that HP will continue business as usual in the effort to make PSG successful in the interim. I would have to believe that some number of TouchPads made their way into Enterprise organizations and I would think that HP will not want to alienate those customers, if they do not take HP up on their refund offers. Regardless, HP feels that WebOS as an operating system is a success, but the attempt to deliver ODM hardware and build an ecosystem containing an OS, hardware, and apps, was not. In fact, Lesjak indicated during the Q&A session that about $830 million in loss could be “directly attributed to Palm” [by this I assumed that she meant the Palm acquisition and failure to realize profit to offset the cost within a defined period of time].
An interesting statement that the CEO and CFO both made is that the strategic intent of the TouchPad was for it to be the “clear number two choice for tablets”. This creates a virtual eruption of of questions that are obvious enough that they do not need to be articulated here. What could be said is that there is one obvious fallout from the HP firesale that occurred over this weekend. While the firesale does not represent the norm, it is apparent that coming out at the same price as the iPad is not enough to compete. Devices running other mobile operating systems need to be priced significantly lower; my guess is they need to be around $299 and with specs comparable to the entry level iPad.
Yeah, I know… this price-point may just be impossible for tablet manufacturers to get down to. If that is the case, it could mean that we are looking at a repeat of the ultra mobile PC timeline all over again. When the tablet market started, I assumed that the price range being roughly $500 less than what UMPCs sold for would make the entire market take off, and that the tablet device category would take root with the general consumer. But if HP is walking away from the tablet business, I certainly cannot see RIM sticking with it for much longer. And just about every other major manufacturer who is producing tablets now, also chose to abandon UMPCs or Tablet PCs, produces categories similar to tablets in form-factor, rather than sticking it out with those device-types. While there are some great tablets on the market now that have received good reviews, the fact is that none of the manufacturers would consider the sales numbers for their tablets to be indicative of a categorical hit. Subjective observation of media outlets and various forums would seem to indicate that the original Samsung Galaxy Tab might be the closest to that mark.
What all of this may mean is that we may not have seen the last tablet firesale. While it is great to pick up devices we love on the cheap, it is not great 2 or 3 years later when there are no new devices in that product category. I still mourn the abandonment of the handtop/palmtop form-factor [another device category that HP championed back in the day]. Hopefully, one of the strategic options that HP is considering will bear fruit. The licensing of WebOS to hardware OEMs seems to hold a wealth of plausible scenarios. Given Google’s recent acquisition of Motorola Mobility, I have to believe that the principle Android handset makers are not going to leave themselves exposed to too much risk in terms of their product portfolio. I realize that all of those companies have publicly stated their support for the acquisition, but again, it is a matter of risk exposure, and diversifying a company’s offerings is one sure way to reduce the impact of that exposure. WebOS handsets from HTC and LG and Samsung seem possible; tablets, too. Apotheker said that they would explore every option with regards to PSG in general, and WebOS in particular. I wonder if one of those options will be making WebOS open source? While I do not consider this scenario likely if the PSG remains part of HP, maybe it would be considered by a separated PSG?
Of course, it is also possible that the division will be put up for sale, and then it is anybody’s guess as to who might buy them. Dell and Lenovo are the next closest competitors in terms of market share in personal computers. I do not see Lenovo wanting to get into the business of fielding their own mobile OS, but I could see Dell taking that challenge on. Acer also wants more market-share in PC sales, and the company got rid of a CEO earlier this year for not being successful enough in the mobile space. Regardless of what becomes of the PSG, for right now, the fate of WebOS is tightly coupled to HP’s PC division. The best hope for WebOS and those of us who love it may be for the alternative OS to be broken free of those chains and allowed to stand on its own.
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>>>the fate of WebOS is tightly coupled to HP’s PC division
No, that is just what everyone thinks.
Apotheker will hold onto webOS and all of the patents, not include them in PSG. That portion alone could bring in separately more money than they would “bundled” with PSG.
And for enterprise keeping webOS alive? Production ranges from 400,00 to 1 million HPTPs produced. Enterprise buyers did not line up at stores for the firesale, which was limited to one per buyer. Enterprise sales are a rounding error of that.
WebOS is tightly coupled to the PSG until a decision is made to decouple them. At the point in the timeline where Apotheker takes the action you project, then the future of WebOS and PSG will be decoupled.
I said I expect that some number of TouchPad’s were purchased by Enterprise customers and that I think that HP would not want to alienate them. That could mean limited support that is only released to enterprise customers and is later rolled out to consumers or not at all. At the end of the day, it will come down to whether or not HP prime can fully decouple themselves from WebOS, or if there are contractual mechanisms in place that make it difficult to divest themselves from WebOS in its entirety, or if such things develop in the next 12 to 18 months.
In order to not have anchors develop in the next 12 to 18 months, HP will have to take a Heat approach (“Don’t let yourself get attached to anything you are not willing to walk out on in 30 seconds flat..”) for any sales they make out of PSG involving WebOS over the assessment period. This dynamic, and others, is what may be leading analysts to ask HP why they are not doing something about dropping PSG now rather than taking 12 to 18 months…the intervening time means trying to be successful while concurrently trying not to allow themselves to be tied down by anything. Since they are not talking about putting WebOS on a shelf over that time, it means they will have this same obstacle course to navigate.
I also did not say that these purchases occurred during the firesale. I would expect that any organizations that purchased the Touchpad for board-room use did so before the announcement that the WebOS HW section was being shut-down.
– Vr/J.
I wonder… Certainly at least they have managed to make buying HP PC products less attractive with its future being unclear even within the warranty period.
Anyway, what’s the problem with shrinking or stagnating markets? My awareness of economic theories might be limited, but I can’t see why not even a shrinking market could produce steady income until the absolute numbers decline to far — rather than the GROWTH of absolute numbers declining.
@Yu…your understanding of the financial factors that are commonly employed to assess market exit or continuance in a static market sector are basically correct. If you take your own understanding a couple of steps further…
– the PSG was down 3% on revenue, and sold roughly the same amount of units. I did not do a deep dumpster-dive into all of the financials (but can if readers think this would be of value to them; I did not believe that it was), but you can surmise that, without concurrent cost savings in operations to produce those units, this likely resulted in a net loss for the division. Comparatively, the PSG was the lowest Growth division out of all HP divisions. So when you talk about Earnings-per-share and the impact the various divisions had on that factor, the PSG hurt the overall value of HP’s stock rather than helped, again, in comparison to the other divisions.
The PSG also had the lowest Operating Profit among HP’s divisions. It did experience some savings, roughly $98mil specifically. Other divisions had OP that was down year-over-year, but still scored significant margins in terms of expenses versus revenue,a nd all experienced revenue growth. In the case of the SW and Financial Services group, this Revenue growth was significant (20 and 22% respectively), so you would think that following quarters would show increased operating margin and increased profits commensurate with the growth in those divisions. Also consider that services and SW have persistent riders that can lead to continuing revenue after delivery…maintenance contracts, upgrades, additional content.
Within PSG, Notebook and Desktop revenue were both down 4% each, and Consumer Client revenue was down 17%. At the end of the day, the PSG makes good revenue, but in terms of inputs vs outputs, has very small margins. And when HP execs and share-holders look at where they get the most bang for their buck, it is in the other divisions that are making bigger margins (almost every division had 2 to 3 times the profit margin that the PSG had last quarter), and represent sustainable growth in the near term. So HP likely sees eking more margin out of the PSG as a losing battle of attrition that they will eventually lose.
Off-loading the PSG, if the assessment proves that a viable option, means dropping an anchor that is holding back their stock value, and leaving themselves with the divisions that are only making good-news stories right now.
And when you add that Apotheker comes from enterprise solutions, and that is what he knows, you can see his own desire to off-load a division that likely requires more of his own effort to grasp and manage, or to find the right people who can do so.