HP Plans PC Spinoff, $10 Billion Autonomy Buy

Hewlett-Packard is reportedly set to announce that it will spin off its PC business and purchase analytics software vendor Autonomy for US$10 billion -- moves that will allow it to focus on the higher-margin enterprise business revolving around software, services and servers.

By Agam Shah, Joab Jackson
Thu, August 18, 2011

IDG News Service — Hewlett-Packard is reportedly set to announce that it will spin off its PC business and purchase analytics software vendor Autonomy for US$10 billion -- moves that will allow it to focus on the higher-margin enterprise business revolving around software, services and servers.

The Wall Street Journal and Bloomberg cited sources familiar with the matter for their reports that Hewlett-Packard would be spinning off its global PC business and buying Autonomy. Neither HP nor Autonomy responded to requests for comment. It remains unclear whether HP has found a buyer for the PC business or if it intends to simply move it outside as a separate organization.

HP's Personal Systems Group, which sells PCs, tablets and smartphones, has the company's lowest profit margin although it accounted for nearly a third of HP's overall revenues in 2010. PC sales -- particularly consumer products -- tend to fluctuate more than business solutions and services as they are more sensitive to seasonal buying trends and economic trends, said Charles King, principal analyst at Pund-IT.

"By spinning off PCs, HP could effectively isolate potentially volatile financial numbers and their effect on its more stable, higher-margin businesses," King said.

HP is following in the footsteps of IBM (IBM), which spun off its PC business to Lenovo in 2005 to focus on the higher-margin software and services business. HP may also feel pressure from Apple (AAPL), which has released highly profitable consumer products such as smartphones and tablets. Apple's tablets have hurt PC shipments, a market that HP dominates as the world's largest PC vendor.

HP's PC business has been marginally profitable, but the margins have shrunk over the years, said Roger Kay, president of Endpoint Technologies Associates.

"It certainly goes against Carly Fiorina's theory of 'all's well together,'" Kay said. HP bought PC maker Compaq for $25 billion in 2002 when Fiorina was CEO.

Meanwhile, the rumored purchase of Autonomy would be "completely in keeping with the increased focus on software and business solutions that HP's board had in mind when they hired [CEO] Leo Apotheker," said King.

Based in both San Francisco and Cambridge, Autonomy provides a variety of portal, enterprise search, content management and analysis tools to organizations.

"Autonomy focuses mostly on search and analytics of unstructured data and databases, which includes information that typically can't be captured within traditional relational databases," King said. It has grown a healthy business in the enterprise content space: Autonomy reported revenue of $870 million for 2010.

Traditionally, HP's enterprise services and hardware sales have dwarfed its software sales. For fiscal 2010, services generated almost $35 billion in net revenue and enterprise hardware generated $18.5 million, while software brought in $3.5 billion. Autonomy's sales could push that figure past the $4 billion mark

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