Hewlett-Packard has burned their brand into the minds of generations of Americans. As I write this post on an HP laptop, I can’t help but wonder about the future of this company. However, as in all cases of lengthy corporate tribulations, it is important to understand not just where HP is now, but where they’ve been. Make no mistake about it, right now, HP is in the fight of its life in a bitter battle to determine if there is still a place in the world for what they offer. HP’s blockbuster acquisition of Autonomy, the London based pattern recognition Enterprise, has sent chills up the spines of even their most ardent supporters. Not necessarily because of a perceived lack of value in the Autonomy transaction, but because it appears to be an oddly defensive play in a red hot season of M&A action.
HP is far from the only organization looking to strengthen their position through acquisition. One need look no further than Mountain View California to see Google’s monsterous acquisition of Motorola and while Google isn’t in the same danger as HP their methods do have a very similar ring.
One could argue that both plays were defensive. Google buying Motorola to fend off the patent trolls at the gates and HP buying Autonomy to become relevant again. Although HP extended itself significantly more than Google (in terms of cash on hand) neither activity was particularly tasteful to their stockholders and they’ve made their displeasure known in the markets. But this is where the similarities end and the real drama unfolds for HP.
I think HP has been afflicted with chronic mismanagement since at least Carly Fiorina’s reign. More specifically and recently, the acquisition of Palm turned out to be one of the worst decisions in corporate history. Not only has WebOS been a complete non-starter, but, as of the Autonomy acquisition, all things Palm have ceased within HP. And the worst part of it is that everyone knew at the time WebOS stood no chance of unseating Android or iOS. That’s not to say that any third operating system will be immediately crushed, but one would have to launch the new OS with some serious hardware and developmental firepower backing it up; two things notably missing from HP’s approach.
So after running the company into the ground through a series of not-so-wonderful management decisions, HP decides to spend almost all of their on-hand cash to buy London-based Autonomy, and for what? Sure Autonomy makes a lot of money on very decent margins, but HP has always been an equipment manufacturer and not a cerebral data analysis firm. Further, why is HP spinning off their personal devices group (their production arms) into a separate entity or a commodity organization to be partitioned among bidders?
The answer is difficult to swallow, but the reality is that hardware is dead. I don’t mean all hardware, but the hardware HP makes, laptops, printers, etc. it’s all dead technology. Sure there is a need for those products now, but tablets are rapidly replacing laptops, and physical media is dying in favor of its digital cousins. This is a dramatic shift but it’s not unlike the changes Netflix made recognizing the coming streaming video boom. HP simply woke up one morning to the realization that everything their doing now doesn’t have the growth potential to meet investor expectations.
Is becoming a gigantic interpretive data analysis firm a realistic goal for HP? They certainly have the engineering talent, but can they make good on tomorrow’s promise swiftly enough to satisfy their shareholders. My guess is that over time the Autonomy play will turn out to be quite profitable but there will be short term turmoil while the organization restructures. I think HP didn’t have its heart in hardware and hasn’t since at least the Compaq merger/acquisition. It sucks to watch HP give up their hardware business, but it would suck even more to watch them waste away slowly into the night.
This is another example of a business that virtualization cannibalized and I think it’s positive that their leadership did something about it.