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In nod to IBM, HP overhaul minimizes consumers

By Jordan Robertson

Associated Press

Published: Friday, Aug. 19 2011 10:05 a.m. MDT

FILE - In this April 28, 2010 file photo, the Palm headquarters is seen in Sunnyvale, Calif. In a dramatic reshuffling, Hewlett-Packard Co. on Thursday, Aug. 18, 2011 said that it will discontinue its tablet computer and smartphone products and may sell or spin off its PC division, bowing out of the consumer businesses. The announcement comes just two years after spending $1.8 billion on smartphone maker Palm, which gave HP the webOS software that has been praised by critics but largely been ignored by the marketplace.

Paul Sakuma, File, Associated Press

Enlarge photo»

SAN FRANCISCO — Hewlett-Packard's decision to surrender in smartphones and tablet computers and possibly get rid of its personal computer business underscores how Apple has transformed consumer electronics in just four years.

HP's new CEO Leo Apotheker is now trying to turn the Silicon Valley stalwart into a twin of East Coast archrival IBM Corp. In doing so, he is acknowledging that his company has failed to balance the demands of both the consumer and corporate markets. As a result, it needs to exit most of its consumer businesses, just as IBM did six years ago.

Apple is the hottest consumer electronics company on the planet. The iPhone's debut in 2007 brought ease of use and an intuitive design unmatched by predecessors, including smartphone pioneer Palm, which HP bought last year in hopes of getting a foothold in mobile devices. Apple followed in 2010 with the iPad tablet computer and managed to persuade people to buy a product they never knew they needed.

Rather than remain locked in a futile fight with a company that seems to have found the magic touch on making hit consumer products, HP is whittling its competition to the other business technology specialists — namely, IBM, Oracle Corp. and Cisco Systems Inc.

"Apple singlehandedly knocked HP out of the PC, smartphone and tablet business," Gleacher & Co. analyst Brian Marshall said in an interview.

HP's overhaul, announced Thursday, has three parts:

— HP will stop making tablet computers and smartphones by October.

— It will try to spin off or sell its PC business, the world's largest. By the end of next year, HP computers could be sold under another company's name.

— The company plans to buy business software maker Autonomy Corp. for about $10 billion in one of the biggest takeovers in HP's 72-year history. That would expand HP's software and services offerings, where IBM is strong.

HP, the largest technology company in the world by revenue, will continue to sell servers and other equipment to business customers, just as IBM now does. Those businesses currently don't generate as much revenue for HP as PCs, but they have higher profit margins.

Apotheker would not say whether any jobs will be cut. HP plans to take a charge of about $1 billion for restructuring and related costs, some of which could go for severance payments. HP employs more than 300,000 people worldwide.

HP's move toward an IBM-style business model, which is focused on selling to corporations and governments, makes sense considering that Apotheker spent most of his career at German business software maker SAP AG, another company that catered to the technology needs of companies and government agencies.

"This is his bread and butter," Marshall said. "Now he has to deliver."

Investors appeared underwhelmed and sent HP's stock down 6 percent Thursday on a day the broader market declined, with the Standard & Poor's 500 index falling 4.5 percent. In morning trading Friday, HP lost another 20 percent, or $5.81, to $23.70.

Apotheker is seeking radical changes to help erase the stain of scandal and leave his imprint on a massive company he inherited last year. His predecessor, Mark Hurd, resigned under pressure a year ago, after an investigation found expense reports that were allegedly falsified to conceal a relationship with an HP marketing contractor.

In trying to ditch most of HP's consumer businesses, Apotheker is reversing a decade-long binge on computer hardware.

The area where HP has been most visibly lacking is mobile devices.

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