Hewlett-Packard’s shares have lost more than a quarter of their value in two days as investors take fright over the timing and scale of a strategic overhaul by one of the world’s largest technology groups.
The company stunned shareholders with simultaneous announcements late on Thursday that it was likely to spin off the world’s best-selling personal computer line, pull the plug on tablet computing, buy UK software group Autonomy and re-evaluate a range of other assets.
Shares in the group, founded in 1939, plunged 20 per cent to $23.60 by the close on Friday, accelerating a decline of 6 per cent the previous day as word leaked of the shake-up. Léo Apotheker, chief executive, told the Financial Times that he was making “difficult decisions”t to commit the company to high-margin business software with the planned $11bn (£6.7bn) purchase of Autonomy, the UK’s biggest software company.
The move to spin off or sell the personal computer business that consumers most closely associate with HP would unlock value depressed by slim profit margins and an uncertain future for a fast-changing sector, he said.
But investors recoiled at HP’s admissions that it faced challenges on so many fronts. It cancelled projects arising out of last year’s $1.2bn acquisition of Palm, the smartphone pioneer, which gave it software for new tablets and phones that it had trumpeted just months ago as its competitive answer to Apple.
In addition, HP said margins in the services business that it acquired with EDS in 2008 would continue to come under pressure. Amid unease in the UK about the potential loss of a strategically important company, Vince Cable, business secretary, spoke to Autonomy founder and chief executive Mike Lynch on Friday to seek assurances about its future. Mr Lynch told Mr Cable that Autonomy, which makes search software, would be run as an independent arm of HP.
Margot James, a Conservative member of the Commons’ business committee, said it would be a mistake to compare the deal to Kraft’s takeover of Cadbury’s last year, which resulted in the swift closure of a plant in Keynsham, near Bath.
“You can make confectionery and snacks almost anywhere but intellectual property is different,” she said. “A company like Autonomy is all about the people and it wouldn’t make sense to uproot it.”
While Autonomy’s shares surged 72 per cent to near HP’s offer price, the price tag of the deal was among a number of questions facing Mr Apotheker, who ran SAP, the German business software giant, until last year. Brokerage houses slashed their earnings estimates and some removed price targets. they had set for the stock based on HP’s earlier strategy. Sterne Agee analyst Shaw Wu wrote: “We are worried that HP may be stretched thin trying to do too many things at the same time.”
Mr Apotheker abruptly reversed more than a decade of reasoning by HP that PC sales gave it force in selling to big technology customers. While he said “the tablet effect is real” he culled what some pundits had decreed a worthy contender to Apple’s iPad in the TouchPad.
Some analysts praised the basic strategy espoused by Mr Apotheker, who had run SAP, the German business software giant, before joining HP nine months ago. They said that software was more valuable than commoditised PCs. But the extent of the changes and list of concerns including the uncertain market for corporate technology spending, raised questions of execution. However, the acquisition and spin-off plans were “coming from a position of weakness rather than strength”, said Morgan Stanley analyst Kathryn Huberty, who questioned “the ability of management to execute divestitures while integrating a large deal and managing deteriorating fundamentals”.
“While you could argue that Palm lacked the scale to make the platform a success, the same couldn’t be said of HP,” said Ovum analyst Nick Dillon. “That HP has abandoned the platform so soon after purchasing it illustrates not only how competitive the mobile devices market is, but how quickly it moves.”
Mr Dillon and others said it seemed unlikely that HP could license the software from the gadgets to other manufacturers, as Mr Apotheker hopes, if HP itself could not make a go of the hardware.
The PC business will take a year at least to jettison, HP said, and investors worry that sales could fall in the interim, aiding rivals such as Dell, whose stock rose 4 per cent on Friday.