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August 19, 2011 8:48 pm
It can often seem as though the biggest tech companies are engaged in a deeply thought-out chess game, as they seek to extend their technology platforms to outflank each other and gain strategic advantage.
But when the ground in the industry shifts suddenly, the pieces fly and the contest looks more like a disorderly scramble.
That was the impression left this week by a bout of dealmaking that turned some old notions on their head and pushed investor confidence in the world’s biggest computer maker to a new low.
The barrage of selling that dragged Hewlett-Packard’s stock down by 20 per cent on Friday provided the clearest sign yet of how quickly the careful strategising is starting to feel like panic.
Many on Wall Street had long wanted HP to quit the highly competitive PC market, in which it is the world leader in terms of sales. But to see it announce that it was considering a retreat without having any clear plan for the business, while at same time slashing its financial forecasts in the face of the latest economic downturn, and unveiling a $11bn acquisition of UK software maker Autonomy, left many investors fearful that it was fast losing control of its own destiny.
The perception that HP was overpaying massively for Autonomy – spending the equivalent of 23 per cent of its own stock market value for a company that will only add 1 per cent to its revenues – only contributed to the sense of desperation.
By comparison, Google’s unlikely $12.5bn agreement this week to buy Motorola Mobility – a move that will see it nearly double the size of its workforce, potentially diluting the company’s famous “brainiac” culture – seemed almost a non-event.
The Motorola deal is ostensibly designed to bring Google the armoury of technology patents it needs to face down legal challenges to its highly successful Android mobile handset software from companies like Apple and Microsoft.
But the deal also comes with a strategic sting in the tail. By adding a hardware business, it will bring an unexpected element of vertical integration to the world’s leading internet company, turning it overnight into a competitor of companies like Samsung and HTC – the very handset makers on which it has relied to further its Android ambitions.
Together, the Google and HP moves have provided stark evidence of the disruptive forces sweeping through the tech world, while also setting the stage for the next round of strategic moves by competitors.
“Our industry is being redefined and the cards are being reshuffled,” said George Kadifa, a director at Silver Lake, Silicon Valley’s biggest tech buy-out firm. “Companies are resetting their strategies by taking bold moves.”
Behind the upheaval lie deep changes in personal computing that have been set in motion by the industry’s most creative mind: that of Steve Jobs. The one-two punch of Apple’s iPhone and iPad have set off the biggest realignment in the tech world since the advent of the PC thirty years ago.
The mobile communications and personal computing worlds, which had already been on a collision course, are now set to converge into a single market even more rapidly than had been expected, says Al Hilwa, an analyst at IDC, a tech research firm.
The extent to which the iPhone has turned the mobile world upside down has been evident for some time. With Google’s Android also opening the floodgates to a wave of Asian manufacturers, some of the industry’s traditional leaders have been forced into uncharacteristically defensive postures.
Nokia earlier this year jettisoned its CEO and threw its lot in with old rival Microsoft, while Palm, one of the pioneers of the smartphone business, sold itself to HP and Motorola aligned itself with Google’s Android.
With this week’s moves, HP has finally delivered the coup de grace to Palm, announcing that it will no longer make new devices (though it still hopes to find a future for the company’s WebOS operating system), and Motorola stands to be fully absorbed by Google.
Now it is the turn of the iPad, which is fast changing the outlook for the traditional PC business.
According to Léo Apotheker, HP’s chief executive, the failure of HP’s own rival tablet, the TouchPad – launched only at the start of last month – has been the final straw that has led the company to consider a spin-off of its PC division.
“With the emergence of tablets and other high-mobility devices, PCs are not growing any more,” says Mr Kadifa. The Palm acquisition, a belated attempt to help HP catch up with the trends in personal computing, was a case of too little, too late.
The convergence of the mobile and PC industries is now gathering momentum. Microsoft is preparing next month to unveil its own bid for a software platform that will extend across PCs and tablets, with Windows 8. Meanwhile, Apple’s own separate Mac and iOS operating systems are on course to merge in the next three or four years, says Mr Hilwa.
The deep tensions this will cause in the tech world were aptly dramatised this week. With other companies now forced to reconsider their own strategic positions with greater urgency, the latest spate of deals is unlikely to be the last.
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