HP is “[discontinuing] operations for webOS devices, specifically the TouchPad and webOS phones.” The company slid this into its press announcement regarding possible purchase of Autonomy Corp (AU.L); with a market cap of $7 billion, it is the second largest pure software company in Europe.
The HP TouchPad tablet went on sale on July 1, 2011 and the Veer smartphone earlier in the year. Both run on HP’s webOS, which it acquired with Palm in April 2010 for $1.2 billion. HP has discontinued the TouchPad at 49 days.
Compare that with Microsoft, which spent several years developing at an estimated cost of $1 billion, which included the February 2008 purchase of Danger Inc., which had developed the Danger Hiptop/T-Mobile Sidekick, for $500 million. Microsoft announced the two Kin phone models on April 12, 2010; they were available for purchase in May; Microsoft discontinued the phones on June 30, 2010, after 48 days.
- Both products had lifespans of about 1.5 months.
- Both products had development costs that exceeded $1 billion.
There’s something wrong in the market when failures of this magnitude — let’s call them diseconomies of scale — are shrugged off by investors. (Yes, I know that HP’s stock is down, but that’s because it’s 1% growth rate failed to meet expectations.)
Bloomberg reports that HP is offering $10.3 billion in cash to buy Autonomy, “a 64 percent premium over Autonomy’s closing share price yesterday.” Last year, HP had $13.6 billion in cash and assets of $114 billion. Today, Google reports cash of $12.7 billon and total assets of $125 billion. From Bloomberg:
In the past five years, there have been more than 970 takeovers of European software companies, amounting to over $31 billion in deals, according to data compiled by Bloomberg. The largest was SAP AG’s 2008 takeover of Business Objects SA. Buyers have paid a median multiple of 10.8 times the targets’ earnings before interest, taxes, depreciation and amortization, based on 70 deals.
Companies would not grow to be this giganormous (HP market cap is $61 billion; CSCO, $83 billion, recently shuttered Flip, which it bought for $590 million in 2009; MSFT market cap is $207 billion) if there weren’t advantages in the tax code.
The “synergies” of such mergers and acquisitions bring to mind The Mythical Man-Month, the first book to argue that throwing more people at a struggling software project will cause it to take longer to finish. Is throwing money around any different in its ultimate impact? Who truly benefits from such M&As, other than the principals of the acquired businesses, who own significant chunks of stock?
5 replies on “HP TouchPad Joins MSFT Kin On Shoals Of Abandoned Products”
[…] 2011, Microsoft shut down the Sidekick service for T-Mobile customers. It shut down two Kin phones in 2010, after 48 days on the market. Both were part of a $1 billion […]
HP Touchpads will be released again in 18 major stores, keep watching, and details are here: http://www.nextwebinsight.com/2011/08/25/hp-touchpads-will-be-availablereleased-again/
Another followup from Tech Crunch: http://techcrunch.com/2011/08/18/apple-wins-without-throwing-a-punch/
“But the big picture item of today remains what HP is no longer doing: making Post-PC devices or even PCs themselves. In less than the span of a year, the biggest PC maker in the world realized not only that they couldn’t be Apple, but that they couldn’t even compete with Apple. And they admitted it. And called the fight. It was a first-round T.K.O.”
Because I don’t routinely think about HP, I did not realize that “Personal Systems Group (PSG)” meant “our computing division.” Even this separate news release, focusing on PSG, doesn’t mention the word “computers.” Talk about writing like a lawyer (to obfuscate): http://www.hp.com/hpinfo/newsroom/press/2011/110818xb.html
HP did not say it was going to sell the PSG, despite headlines to the contrary:
“HP also reported that it plans to announce that its board of directors has authorized the exploration of strategic alternatives for its Personal Systems Group (PSG). 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.”
If your goal is “sales growth” — then this makes a lot of sense because (a) the market for desktops and laptops is pretty saturated, at least in the developed world and (b) the price of said units goes DOWN every year which means you have to sell more of them to have “growth.”
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