Why HP Is Getting Out of the Consumer Game

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Hewlett Packard has abruptly announced that it’s getting out of the smartphone and tablet game, a little over a month after it launched its TouchPad tablet and around two years after it ponied up almost $2 billion to buy Palm for its mobile “WebOS” software. Speculation about such a decision has been brewing in recent months, though HP had staunchly denied any indications that it was considering shuttering any of its consumer lines.

Today, however, the company reports “that it will discontinue operations for webOS devices, specifically the TouchPad and webOS phones” and is mulling over what to do with its Personal Systems Group (PSG), which is responsible for its personal and business PCs: “HP will consider a broad range of options that may include, among others, a full or partial separation of PSG from HP through a spin-off or other transaction.”

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HP is also in discussions to purchase a U.K.-based software company called Autonomy, which specializes in enterprise infrastructure software—Bloomberg estimates that HP may pay upwards of $10 billion for Autonomy.

The move smacks of IBM’s decision back in 2005 to get out of the consumer business and focus on the enterprise when it sold off its PC division to Lenovo. It’s no secret that selling personal computers is a low-margin business for most companies.

Case in point: HP is the largest PC maker in the world and its PC division generates the most revenue for the company, but it’s HP’s least profitable division, as the AP points. On the flipside, software and services sold at the enterprise level generally have much better margins since there aren’t as many tangible, moving parts at play—literally and figuratively.

So from a purely business standpoint, it’s not all that crazy that HP would decide to go this route. It may take the company quite some time to really dig its heels into the enterprise side of things, however, if it hopes to gain back all the revenue it’d otherwise lose by shedding its consumer lines. It’ll still keep its relatively lucrative printing division intact as well.

And the fact that it sunk so much money into Palm and then gave up so quickly on its WebOS smartphones and tablets is a shame, but the old fail-fast mentality may serve it well in this case. In a market sector with such low margins and such little room for error—and with one fruit-themed company executing its tablet and smartphone lines so successfully just as consumers are shying away from buying full-fledged PCs—it’s almost certain that HP saw the writing on the wall and decided to get out before things got worse.

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