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HP Kills webOS Devices, Buys Autonomy, Looks to Dump PCs

Rumors of a spin-off have been low level off and on for months

Hewlett-Packard is moving to spin off the PC unit it acquired when the ill-fated Carly Fiorina bought Compaq and is buying Autonomy, Britain's second-largest software house, for $42.11 (£25.50) a share, roughly $10.24 billion cash, a 64% premium. It's a hysterically high price that will take most of HP's bank balance.

The news, which Bloomberg broke early Thursday afternoon, hit a few hours before HP was to report another drab quarter and make worse projections.

Presumably the company suffered another one of its signature boardroom leaks. The only thing the tipsters missed is the fact that HP is shutting down its short-lived webOS operation.

With the secret no longer a secret, Autonomy confirmed ahead of any word from HP that "it is in discussion" with HP "regarding a possible offer for the company." HP said the same thing a short while later when it up and pre-announced its fiscal Q3 results and took down guidance. Apparently in the hour or so it took for Wall Street to close they sewed up the deal, even CNBC didn't realize it an hour after. Given HP's track record with acquisitions Autonomy gets points for guts.

HP said its plans for PCs are unsettled. While the board has "authorized the exploration of strategic alternatives for its Personal Systems Group (PSG)," the company is forging ahead and shutting down TouchPad and webOS phones and whatever other webOS devices it's got in the works.

The company said it "will consider a broad range of options" for the PC group, including "a full or partial separation of PSG from HP through a spin-off or other transaction." Meanwhile, it will "continue to explore options to optimize the value of webOS software going forward."

HP paid $1.2 billion last year for Palm, which brought it webOS. Goodness knows what it has put in the place since then

Word started filtering back from the channel in the last few days that the vaunted TouchPad, out only since July 1, wasn't selling.

According to the AllThingsD blog, Best Buy is sitting there with 240,000 unsold TouchPads on its hands after moving just 25,000 of the widgets and although HP cut the price by a hundred bucks the chain store reportedly wants a reluctant HP to take the dingus back.

Apparently the story is the same at Wal-Mart, Fry's and Microcenter.

Things are at such a state that HP is now reportedly trying to find a home for webOS with the automotive and home appliance set, the Wall Street Journal said.

There was supposed to be a new 64GB TouchPad on the way with a 1.5GHz Snapdragon processor bump. Currently the 16GB and 32GB TouchPads use Qualcomm's 1.2GHz chip.

HP said it sold $226 million worth of Palm widgetry and lost $322 million. It figured the red ink was only going to get worse this quarter and, spooked by Googlola, management lost its nerve. It was staring at potentially years' worth of losses so instead HP will be taking a billion-dollar charge next quarter and maybe license the software.

HP CEO Leo Apotheker, who kindly put continues to seem all thumbs, said a few months after he arrived at the company in November that he would like HP to be deeper into enterprise software, which has never been a big seller for the company. Of course he came from SAP and is probably uncomfortable with low-margin PC hardware, especially when demand is dodgy, although the company described the PC unit as "core" only five months ago.

Rumors of a spin-off have been whispered on and off for months. HP is the largest PC supplier in the world and the unit accounts for a third of its revenue. With the company uncommitted to its PCs it's unclear if consumers and corporates will continue to buy them through the 12-18 months it's likely to take to dispose of the still-profitable business. Leo is apparently scared of the "tablet effect." Still, HP could wind up doing nothing and then what.

At the same time, Apotheker said Thursday that HP was "fully committed" to the Itanium chip in its high-end proprietary servers though the company said Oracle's decision not to continue to support the thing has resulted in canceled orders. It is suing to force Oracle to continue to produce software for the Itanium, which Oracle claims is end-of-life.

HP's stock, depressed since Mark Hurd left the company under a cloud a year ago and worse under the investor-unloved Apotheker administration, spiked slightly on the Bloomberg report then fell again during a complete wretched day on Wall Street. Apotheker, who has even missed his own guidance, is under increasing pressure to improve the company's performance, causing some observers to view his current plans as "gotta do something."

Investors aren't going to be any more pleased with HP fiscal Q3 results than they were its previous three quarters. HP's earnings beat the Street by a penny at $1.10 a share but at $31.2 billion revenues just met consensus.

This quarter HP is now projecting revenues of $32.1 billion-$32.5 billion against estimates of $34 billion and an EPS of $1.12 to $1.16 compared to estimates of $1.31.

Leo cut its guidance for full-year FY11 revenue from $129 billion-$130 billion to $127.2 billion-$127.6 billion and said EPS would be in the range of $3.59-$3.70, not at least $4.27.

CFO Cathie Lesjack described it as "a tough outlook particularly for me as CFO."

PCs were down 4%. Consumers were down. Enterprise servers and storage were up 7%. Networking was up 17%. Asia-Pacific was up, the US and EMEA were down. The pubic sector is a problem. Printing was down 1%.

Autonomy, whose stock closed at $25.80 in New York on Wednesday, did $859.9 million last year, up 18%, about 70% of its revenues derived from the American side of the pond. It earned $214.7 million, up 13.8%.

The 15-year-old company, which is moving to SaaS, organizes unstructured data from e-mail, web pages, presentations, business applications, voice, video and other sources not usually stored in databases. The data can then be reused for CRM, BI and document management.

IDC recently recognized Autonomy as having the largest market share and fastest growth in the worldwide search and discovery market. Whether it's worth $10 billion and change will likely become another issue.

Its customer base includes 25,000 multinationals, law firms and federal agencies such as the BBC, Bloomberg, Boeing, Citigroup, Coca-Cola, Daimler, Deutsche Bank, Ericsson, FedEx, Ford, GlaxoSmithKline, Lloyds TSB, NASA, Nestle, the New York Stock Exchange, Reuters, Shell, Tesco, T-Mobile, the US Department of Homeland Security and the SEC. It says it is also OEMed by 400 companies including Symantec, Citrix, HP, Novell, Oracle, Sybase and Tibco.

Apotheker apparently feels it's a good mate for Vertica Systems, the Michael Stonebreaker analytics database management software company HP acquired in March and will create the "next-generation information platform."

The Autonomy acquisition, HP's third-largest, is supposed to close by the end of the calendar year and be accretive to earnings year one. Autonomy is supposed to remain free-standing.

Apotheker packages the changes he's making as "transformative" made in the name of "long-term shareholder value."

HP said ex-IBMer John Visentin, lately head of corporate services for the Americas, will be the new head of its Enterprise Services unit, another guy reporting to Apotheker, and a member of its executive council. He replaces Tom Iannoti, who retired.

Frank Quattrone's Qatalyst advised Autonomy giving it two outsized deals in one week. It also advised Motorola Mobility.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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