HP to spin off Personal Computers, exit Tablets

Hewlett-Packard said on Thursday that it was considering spinning off its personal computer (PC) business into a separate company and was in talks to acquire Autonomy, a business software maker.

Those would be the biggest moves yet by Leo Apotheker, HP's chief executive, to refocus the company on business services and products. Mr. Apothecker has been trying to ramp up the company's growth, which has been slow.

HP also said it would kill off its TouchPad tablet, which was just introduced in June and was meant to compete with the iPad from Apple, and stop making mobile phones that use the webOS operating system, which HP picked up when it bought Palm.

Autonomy, which is British, released a statement to the London Stock Exchange on Thursday afternoon confirming that it was in talks with HP about "a possible offer for the company."

Splitting off the PC unit would eliminate the drag of that low-margin business on HP as it tries to move more toward providing corporate customers with services and cloud computing -- a term used to describe delivering products and services online. Earlier this year, Mr. Apotheker outlined a plan to grow HP's tiny business software unit and expand into the cloud. That strategy challenges IBM and Oracle, two giants in the market.

The spinoff of the PC unit would also reverse HP's $25 billion acquisition of Compaq Computer, the PC maker, in 2002. For years, HP has said the consolidation of the PC companies gave it the scale to cut costs and secure favorable prices on parts, and also gave it clout with corporations which were also seeking servers, storage and other data products for the enterprise.

In a preliminary earnings report on Thursday, HP showed that it was continuing to struggle with slow growth. It reported preliminary net income in the quarter ended July 31 of 93 cents a share, versus 75 cents in the year-ago quarter.

The company said revenue inched up nearly 2 percent, to $31.2 billion from $30.7 billion.

The adjusted income of $1.10 was slightly above the expectations of Wall Street analysts. They had expected $1.09 a share and revenue of $31.19 billion, according to a survey of analysts by Thomson Reuters.

HP's outlook for the fourth quarter was well below expectations. Revenue is expected to be $32.1 billion to $32.5 billion, short of the forecast from analysts of slightly more than $34 billion. Adjusted income is expected to be $1.12 to $1.16, again below the $1.31 predicted by analysts.

The company's stock was down more than 6 percent in afternoon trading at$29.43.

Autonomy could command a price tag of nearly $10 billion, according to people briefed on the matter. That would be HP's third-largest acquisition ever, after Compaq and Electronic Data Systems. It would also represent a rich premium for Autonomy, which has a market value of about $6 billion. The company already trades at a much higher multiple than other software companies on the London Stock Exchange, Capital IQ data show.

For the 12 months ended June 30, Autonomy had revenue of $969 million, according to Thomson Reuters data.

News of the deal was reported earlier by Bloomberg News.

Mr. Apotheker, who joined HP last year, is trying to revitalize the company after a series of disappointing quarters. Sales in a number of core businesses are weak because of internal missteps, shifts in the market and a slumping economy.

HP's computer business is struggling from an industrywide softness in demand, in part because of a shift in customer appetite for tablets. In June, the company introduced its TouchPad tablet in hope of taking market share from the iPad, but sales of TouchPads were slow, and HP had to cut its price 20 percent.

Wall Street has been concerned about HP's growth ever since Mr. Apotheker joined the company, and the weakening economy has added to the uncertainty. A series of disappointing quarters and forecasts had sent the company's shares down nearly 22 percent since the start of the year.