HP kills webOS device business

Hewlett-Packard said it will discontinue its webOS devices business, specifically the TouchPad tablet and its webOS phones, a stark reversal for HP nearly 16 months after it bought webOS along with Palm for $1.2 billion.

Click here for a slideshow of webOS devices through the years.

Click here for a slideshow of webOS devices through the years.

HP said in a statement it "will continue to explore options to optimize the value of webOS software going forward." Company executives said all options are on the table for webOS, including selling the platform or licensing it. HP has acknowledged in June that it was in discussions with multiple companies about licensing the platform to others, but never identified any companies that were interested. 

HP CFO Cathy Lesjak said the sales of HP's webOS products, including its phones and tablets, were not what HP had hoped for. She said the mobile market is intensly competitive, and that HP would need to invest significant cash into the webOS business during the next one to two years to give it a fighting chance--and that success was by no means guaranteed.

Thus, the company decided to shut down its webOS device business to avoid additional expenses.

It's unclear exactly what will happen to HP's webOS devices, which include the Pre 3 and Veer smartphones and TouchPad tablet. AT&T Mobility currently sells the Veer, though no U.S. carrier currently sells the Pre 3. AT&T had planned to sell a cellular-capable version of the TouchPad, though it's likely that product won't make it to market.

AppleInsider calculated that HP will take a $100 million charge in shutting down its webOS device business.

Separately from the company's decision to discontinue webOS, HP also said it will explore strategic alternatives for its Personal Systems Group, which encompasses smartphones, tablets and PCs. HP said it will consider a broad range of options that may include a full or partial separation of the group from HP through a spin-off or other transaction. PSG is HP's biggest division, and earned revenues of $9.6 billion in HP's most recent quarter, or about 31 percent of the company's total revenue.

Finally, HP announced it acquired Autonomy Corp., a software company that makes database search programs, in a deal valued at around $10 billion. "Autonomy has an attractive business model, including a strong cloud based solution set, which is aligned with HP's efforts to improve our portfolio mix," said HP CEO Léo Apotheker. "We believe this bold action will squarely position HP in software and information to create the next-generation Information Platform, and thereby, create significant value for our shareholders."

HP's decision to drop support for webOS comes after reports of lackluster sales of the TouchPad, which was positioned at first as a challenger to Apple's (NASDAQ:AAPL) iPad. After releasing the device, HP then acknowledged that it might be a better fit for enterprise users and said it did not intend to challenge Apple directly. Either way, HP's decision to abandon support for the TouchPad is a clear indication that the product failed to find traction in the marketplace. 

The webOS platform was developed by Palm as an attempt to rejuvenate the Palm brand. However, Palm's efforts floundered as it burned through cash and its flagship devices, including the Pre, failed to gain market acceptance, despite praise from analysts for the operating system itself, which emphasizes multi-tasking and combining information from multiple sources.

When HP bought Palm in April 2010, Todd Bradley, executive vice president of HP's Personal Systems Group, praised Palm's webOS operating system and said that HP would leverage its distribution channels and financial strength to help expand the platform. HP talked about bringing webOS to its printers and putting it onto PCs.

Analysts said HP has multiple options for webOS, including licensing the platform or selling it, but the platform's future remains murky. CCS Insight analyst John Jackson said that given the intense interest in the wireless market for patents right now, "there would seem to be a premium on the sale of webOS IP as a 'strategic option.'" 

"For now, webOS remains a prescient and in many ways truly unique software platform," he said. "But it continues to struggle to find a place in the market. I don't think it's over yet though. There's plenty of value there, particularly given all the uncertainty we're seeing in the market."

Forrester Research analyst Charles Golvin was less optimistic about the platform's prospects. "The only possibilities I can see are ambitious Chinese entrants like ZTE or Huawei, who would buy the platform for the same reason HP did: to control its software destiny," he said. "But right now they look to be making big gains with Android so [it's] hard to see that as necessary."

Gartner analyst Michael Gartenberg said it's not clear which company would want to buy or license webOS given how quickly the market is evolving. "You could argue that the market was already moving too fast by the time they got into the game," he said, referring to HP. He, along with Current Analysis analyst Avi Greengart, cited the iPad and more mature Android products as examples of what HP had to compete against.

"It's hard to play the fast follower game," Gartenberg said. "You can play the fast follower game when the market is moving 100 miles per hour. It's impossible when the market is moving 5,000 miles per hour."

Gartenberg said the downfall of webOS gives Microsoft (NASDAQ:MSFT) an opening to make a stronger case to carriers to support its Windows Phone platform. "It absolutely gives Microsoft some significant momentum right now to say to carriers, we can be that No. 3, we can fill that market gap," he said.

For more:
- see this webOS device slideshow
- see this webOS timeline
- see this HP earnings release
- see this HP PSG announcement
- see this HP Autonomy announcement
- see this AppleInsider article
- see this Bloomberg article

Related Articles:
Report: HP's TouchPad fails to sell at Best Buy, other retailers 
HP's DeWitt focused on webOS market penetration, working with Rubinstein 
HP reorganizes webOS leadership team
Will other companies license HP's webOS? And will this strategy work? 
HP positions TouchPad as enterprise play, not iPad killer 
HP confirms talks to license webOS, Samsung reportedly interested

Mike Dano contributed to this report.