HP move out of hardware puts it at mercy of platform providers

Stan Beer
Monday, 22 August 2011 13:07

IT Industry - Strategy

The shock announcement last week by Hewlett-Packard that it will dump its WebOS platform, its HP TouchPad and is seriously considering spinning off its massive PC business has the market in a spin and analysts questioning the wisdom of its strategy. At least some wonder whether HP's contrarian approach of moving out of hardware while other major players are going in the opposite direction will leave the IT giant exposed and vulnerable.

 

HP, from its origins in the Palo Alto garage of Dave Packard, was the quintessential hardware company. Even before its acquisition of Compaq Computer in 2002, which took it to the number one spot on the PC league table, HP was already a major player in the PC space.

Since then, HP acquired for US$13.9 billion EDS to make it a major services player and now it will hand over about US$11.5 billion for UK enterprise software vendor Autonomy, signalling in no uncertain terms that HP intends to improve its margins by divesting itself of the highly commoditised PC, tablet and phones businesses in favour of software and services.

But is this a wise move in the current market?

According to Ovum analyst, Nick Dillon, the HP strategy of divesting itself of hardware interests is at odds with a pretty powerful foe which is heading in exactly the opposite direction. What's more, this move out of hardware could put the company at risk of losing its one-stop-shop supply chain advantage - something that other vendors aspire to achieve.

"Interestingly HP is making an opposite move from Google - moving out of hardware and into services and software. In doing so HP will no longer be able to control the access to its services, leaving itself at the mercy of other platform and hardware providers, many of whom also have competitive services and software," says Dillon.

He may have also mentioned Apple, which has always maintained a strategy of being a tightly integrated hardware and software supplier.

According to Dillon, HP may have also been a touch trigger happy to shoot down its WebOS platform

"Despite being a capable operating system, WebOS never found the commercial success it might have achieved. There is no denying that HP had struggled to sell the platform to customers, failing to generate either operator or customer interest in the Pre3 or TouchPad devices. Its products lacked a unique selling point and failed to stand out in an increasingly crowded market.

"However, it does seem somewhat premature to abandon the platform given that HP only acquired Palm a little over a year ago for $1.2 billion. While you could argue that Palm lacked the scale to make the platform a success, the same couldn't be said of HP. 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. Given HP's new focus on software and services, mobile devices had become a peripheral part of HP's business and we can therefore assume that it was unwilling to dedicate the level of investment required to make it a success.

"It is unlikely that HP will find any licensees for WebOS, as it offers little benefit over existing platforms in terms of functionality or governance. However, it might make a tempting purchase for a handset maker looking to end its reliance on Google and/or Microsoft, or an adjacent player wanting to expand into mobile. Such companies could include HTC, Facebook or Amazon."

If HP does go ahead and spin off its PC business, pundits may well be entitled to ask questions about the fate of its printers division.