The stock of HP swung wildly since it broke the news that it was exiting the PC business as well as conceding defeat to Apple in the tablet market even before it started. Folks at Apple iPad unit should be drinking palm wine now because one competitor is gone. The only one that remains is Samsung through the Galaxy Tab.
With the news of the HP surgery on its business, the stock fell. Why not? The company has become too tactical, instead of being strategic. Shares had fallen by as much as 8% in early trading on Thursday. It then went up and then got back to negative in the after-hours.
HP also reduced its full-year revenue forecast by 9%, lowered its profit forecast by 16%, and basically changed the business. Henceforth, it will become a corporate services, server driven software company, away from the hallowed tradition of the commoditized low-margin hardware business. The problem is that HP is making these changes without sticking to a clear strategic plan. You bought Palm, you got out. You went into tablet, you got out. It could be that no one is seeing the big picture in HP.
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Yet, it is important to state that CEO Leo Apotheker last March unveiled a plan on how he plans to remake this company which was really going hot before Mark Hurd, the ex-CEO was fired. The largest tech company by annual revenue seems to be working to focus on the areas that show higher margin in what Mr. Apotheker called “value added services” in his HP strategic vision. And that vision means that HP will not “be left with a business that is running out of steam”, he said at the time.
The major problem for HP which is causing all these changes is that consumer PC is on decline because of the assault from iPad. Between February to April, this business in HP fell by 23%. Leaving the PC business will surely result to many write-downs like the Compaq which is bought a decade ago. Palm is also there. It became the largest PC maker in the world when it bought Compaq and presently sells more PCs than any competitor, but the margin has narrowed. It is possible that HP will spin-off the PC business, full or partial. No matter what, HP needs to find answers quick to avoid further damage to its market position.