|I want to be an IBM too|
|Saturday, 20 August 2011 00:00|
Being in the PC business is not fashionable anymore, and no one knows this better than the world’s largest PC firm—HP’s Personal Systems Group accounts for a third of the company’s revenues but under an eighth of its profits. This was obvious when, seven years ago, IBM sold its PC business to the Chinese firm Lenovo, and got worse with mobile devices and tablets beating PCs hollow over the last few years—in China, sales of Apple products have just crossed those of Lenovo! So it comes as no surprise that 72 years after Bill Hewlett and Dave Packard made their first PC in a garage, HP should want to exit the low-margin business, and that the company’s board should want to stake its future in the higher-margin software business—apart from being the largest printer company in the world, HP remains one of the world’s largest in the server/data-storage business. HP has paid a large price for this attempt at transforming itself. At $11.7 billion, the price it has paid for the UK-based Autonomy is 11.5 times its previous year’s revenues and a 75% premium on Autonomy’s closing stock price before the announcement. Autonomy specialises in analytic software that helps companies manage their data such as emails and phone calls as well as to glean out patterns from unstructured data streams including audio and video streams.
HP’s transformation, of course, will require more than just spinning off its PC division and buying Autonomy. The price paid is large enough to mean that reaping the dividends will take a long time. It doesn’t help that many of HP’s attempts to transform itself, right from the time it tried a $25 billion deal with rival Compaq in 2002, haven’t been successful. HP bought EDS Corp for $14 billion in 2008 to help build up its competitiveness vis-a-vis IBM, it bought 3Com for $2.7 billion in 2010 to take on Cisco and Palm for $1.2 billion to take on firms like Apple in the smartphone/tablet space—along with the PC division, HP has now decided to opt out of the smartphone/tablet space. Whether Autonomy brings freedom to HP remains to be seen, more so since others are making forays into the businesses that HP is vacating—Google just announced a $12.5 billion acquisition of Motorola’s mobile business a few days ago.