Can HP Survive the Post-PC Revolution?

    December 30, 2012

On November 20, 2012, Hewlett-Packard (HP) announced its second quarterly write-down of over $8 billion dollars in a row. That in itself is cause for alarm, but the fact that HP blamed the write-downs on two of its largest recent acquisitions means the company could be flailing to find a foothold in a world where PCs and printers are quickly becoming niche products.

In 2012 the market for tablets and mini tablets exploded as Apple, Amazon, Google, and other manufacturers bet big on the technology. And it’s worked. Global shipments for tablets are expected to rise to 210 million in 2013, beating estimates for PC shipments.

Welcome to the the Post-PC era. Here’s your tablet.

Will the desktop PC ever truly be gone? Give us your predictions in the comments.

HP’s flirtation with mobile technology consisted largely of its acquisition of Palm in 2010. However, the company wasn’t able to compete with Apple, and discontinued all of its webOS products near the end of 2011. HP recently released several hybrid PC/tablet devices based on Microsoft’s Windows 8 operating system, but if Microsoft’s Surface is any indication, those devices aren’t particularly in demand, at least from home consumers.

So, losing the hardware game that had sustained it for decades, HP has turned to its enterprise services for revenue. Unfortunately, value hasn’t been found there either, and HP has announced 29,000 layoffs planned by the end of fiscal year 2014.

In HP’s third quarter 2012 earnings report, the first $8 billion write-down was blamed on Electronic Data Systems (EDS), an IT services company HP bought in 2008 for $13.9 billion. It’s value didn’t hold, and HP shares continued to decline. At the end of 2012, HP stock is trading at around $14, down from highs of around $50 near the beginning of 2011

The company’s fourth quarter 2012 earnings report blamed the majority of the second $8 billion write-down on Autonomy, a British knowledge management service company it acquired in 2011 for $10.2 billion. There was a twist this time, though. HP specifically laid the blame for more than $5 billion of the write-down on former Autonomy CEO Mike Lynch and other former Autonomy executives. HP brazenly accused Autonomy execs of “serious accounting improprieties, misrepresentations, and disclosure failures” prior to the acquisition.

Almost immediately, Lynch fired back at HP, claiming that HP mismanagement was responsible for key people leaving Autonomy after the acquisition. Lynch even created a website and issued an open letter to combat the allegations. In his letter he denies any wrongdoing on Autonomy’s part, saying, “I utterly reject all allegations of impropriety.” He points out that world-class auditing firms, as well as HP’s own accounting people, had access to Autonomy’s books during the due diligence period of the acquisition.

Lynch goes on to accuse HP of operational and financial mismanagement of Autonomy, and leveled some allegations about HP department infighting that made the company appear rather childish. He implored HP to explain, in detail, how $5 billion dollars in accounting fraud could have gone unnoticed.

HP responded to Lynch’s open letter, though it did not detail the numbers in its allegations. Instead, HP insisted that the matter would be resolved by the UK Serious Fraud Office, the U.S. Securities and Exchange Commission, and the U.S. Department of Justice. It then haughtily added that it looks forward to “hearing Dr. Lynch and other former Autonomy employees answer questions under penalty of perjury.” On December 28, 2012, it was confirmed by HP that the U.S. Department of Justice is currently investigating Autonomy’s accounts.

Obviously, someone is lying. Either Lynch and other Autonomy execs are guilty of a nearly unfathomable amount of fraud and deceit, or HP ran Autonomy (and possibly EDS, for that matter) into the ground with shoddy management. Either way, HP overpaid for Autonomy, a move that shows just how desperate the company is to gain traction with its enterprise services.

Who is telling the truth, HP or Mike Lynch? Let us know your thoughts in the comments.

As HP looks to the future, it’s hard to see 2013 being a turnaround year for the company. In addition to Autonomy-related lawsuits which will carry on for years, the company’s restructuring efforts will continue to cut into its quarterly profits. While Apple and Samsung compete to dominate the new frontier of computer hardware, HP will be limping toward a coherent, fully-integrated business structure.

This doesn’t mean the death of HP, though. In its many decades of existence the company has, much like IBM, re-invented itself a few times, and it is likely to survive by doing so again. Exactly what value HP will be bringing to customers in the future isn’t clear, but come 2015 the company should be lean enough for a solid leader take it in almost any direction.

How can companies like HP succeed in the future? Let us know in the comments.