HP Drops a Grenade and Google Purchases Patent Protection

I generally like to cover a wide range of topics in this column, but two blockbuster tech industry announcements dominated the headlines this summer and will have ramifications for years to come. So let’s dive right into what can only be described as the most interesting year for tech news in a long while.

HP Drops a Grenade in Room, Runs

PC giant Hewlett-Packard (HP) made several blockbuster revelations in mid-August, and attached them, for some reason, to its otherwise decent quarterly financial results announcement. The firm said it would purchase corporate search software maker Autonomy for $10.3 billion, would stop selling its webOS-based smart phones and TouchPad tablet, and was examining whether to sell or spin off its PC business. HP, in other words, is following in the footsteps of IBM.

Curiously, the webOS piece of the announcement got the most press. But the other two revelations are far more important. HP is attempting to do what IBM did before it, which is to reinvent itself as a purely corporate-focused provider of software and services.

That HP would drop its PC business is, perhaps, the most shocking. At the time of the announcement, HP was the number one PC maker in the world, selling far more units per quarter than its closest rival, Dell. (According to IDC, HP controls 18 percent of the worldwide market for PCs, compared to 11 percent for number-two Dell.)

So why the exit strategy?

HP, like the old General Motors, is a big company that brings a lot of overhead to every physical product it sells. But the PC market is a low-end, cut-rate commodity market, except for Apple, which has nicely established itself as the only high-end PC maker that customers actually consider.

And HP’s strategy to play in Apple’s territory has failed on two counts: Its expensive MacBook Pro knock-offs, the Envy line of PCs, have been ignored by consumers. And its attempt to copy the success of the iPhone and iPad via its blockbuster purchase of Palm a year ago has been even less successful: Smartphones based on Palm webOS fall into the “Other” category in smartphone market share reports and haven’t dented the market in the slightest.

Even Windows Phone looks like a powerhouse by comparison.

Looking just at HP’s PC business, there are heady revenues ($40.7 billion for its previous fiscal year) but relatively tiny profits ($2 billion for the same time frame). And while smaller PC makers like ASUS, Acer, and Samsung may be able to flourish in such a market, this just isn’t HP’s forte.

One wonders if Dell, which today offers a similar mix of PCs and corporate services, is next. Though let’s be honest here: A month ago, few people were wondering about such things. That the top PC maker would simply give up is nothing short of a bombshell.

Which leads naturally to Microsoft. HP wasn’t just Microsoft’s biggest PC maker partner, it was also the software giant’s closest companion, the one company that would follow wherever Microsoft led.

Anytime a Microsoft product came to market, HP was there with the corresponding hardware. It reads like a Who’s-Who list of forgotten Microsoft products, from the Pocket PC and Windows Mobile to Media Center and the Tablet PC. It was corporate co-dependency as its most obvious.

In the finest traditions of Monday morning quarterbacking, however, we should have seen this one coming. HP, of all companies, purchased ailing Palm and promised to unleash its webOS platform not just on smartphones, but on tablets and, get this, even on its PCs.

That’s right: HP’s plan was to deliver PCs to consumers and businesses that would dual-boot between Windows and Palm webOS, offering a choice, yes, but also a not-so-subtle shiv in the side of Microsoft’s decades-long strategy.