Friday, August 19, 2011

Cold, dead fish

I started my career 30 years ago at Hewlett-Packard. Back then, HP was almost completely engineering-driven--so much so that the saying at the time was that "HP would market sushi as cold, dead fish." HP's marketing may have been lacking, but its product development capabilities were undeniable. Turn the clock forward to 2011, however, and the HP of today is a company with only one real strength--its printer division--and a management team that's almost completely lost the trust of the company's investors.

Yesterday, in addition to releasing its financial results, HP announced that it was killing its webOS-based tablet, the TouchPad, which had been shipped less than two months earlier, and its line of smartphones. Not only did the company announce that it was killing the products, but it was also immediately ending support, leaving customers who had purchased the products as late as yesterday in the lurch. HP then said that it was considering what to do in order to "maximize the value" of the webOS software. HP also announced that it had made an offer for Autonomy, the U.K.'s second-largest software company, and that it was looking at "strategic options" for its PC business.

These may very well be the right decisions; rumors have been floating that the company has considered getting out of the PC business for years, and those rumors picked up over the last six months. HP's acquisition of Palm was questionable to begin with, and the company bungled the launch of its new webOS products, along with the management of the webOS Developers Program. The acquisition of Autonomy will push HP further into the software business, with an emphasis on "big data" analysis applications. The problem isn't with what HP announced, but how it announced it.

The decision to kill the webOS products came just two weeks after the company launched a major promotional campaign dropping the price of the TouchPad tablet by $100, and while HP was running a national television advertising campaign to promote the device. I saw two HP TouchPad ads on national television last night, after HP had announced the decision to kill the product. HP announced that it was reserving $100 million for returns of TouchPads, but it said nothing about what it was going to do for recent purchasers of the HP devices. Should they return them to where they purchased them for a refund? Should they send them to HP? Should they keep them but send proof of purchase to HP? Would HP do anything at all to make them whole?

Update, August 20, 2011: Late yesterday, HP reduced the retail price of the 16GB TouchPad to $99 (US), and $149 for the 32GB model. Some resellers, most notably Best Buy in the U.S., have chosen to return the tablets to HP rather than sell them at the lower price. Best Buy has also extended its return period from 30 to 60 days in order to cover all sales of the TouchPad from when it first shipped.

Yer another update, August 21, 2011: Best Buy, which had initially decided to return the TouchPads in its U.S. stores, has instead decided to sell them at the prices suggested by HP. Purchases will be limited to one per customer, with no returns or refunds allowed. Customers who purchased TouchPads from Best Buy at higher prices will still be allowed to return them for a full refund.

As for keeping webOS viable, I would have expected HP to have a definitive announcement: It's selling it to another company. It's open-sourcing it and making it available for anyone who wants to use it. It's setting up a Mozilla-like foundation to take it over. But instead, HP said that it didn't know what it was going to do.

The PC announcement had at least the same level of uncertainty. Leo Apotheker, HP's CEO, said that the company was considering spinning out, selling or keeping the PC business, but that no decision would be made for as long as a year. Again, you would have expected HP to say "The PC business is being sold to X", or "We're spinning the PC business off to our investors", or nothing at all. The indecisiveness of HP's statements make the decision look like it was taken at the spur of the moment, without a lot of thought.

Even the acquisition of Autonomy was couched more as "Yeah, we're considering buying them", then as "We've made a definitive offer to acquire Autonomy for $10 billion", as has been reported. The entire set of announcements feels as though it was designed more to deflect attention from a mediocre earnings report than as a well thought out strategy for turning the company around. The investment community responded by driving HP's stock price down to its lowest level in years, dropping almost 21% in a single day near today's market close.

Making the announcements that it did, while leaving so many questions unanswered, did nothing but increase doubts about the competency of HP's management team. This is the wrong time, and the wrong stock market,  for HP to make its future plans so uncertain.
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