msnbc.com staff and news service reports
updated 8/19/2011 10:13:19 AM ET 2011-08-19T14:13:19

Hewlett-Packard stock fell more than 20 percent Friday after the company announced a massive restructuring that will see it virtual abandon its consumer-facing businesses including smartphones, tablet computers and personal computers.

HP stock was off more than $7 to about $23 in early trading — a level unseen since 2005 — as investors gave a thumbs-down to prospects for the iconic Silicon Valley company, which also announced quarterly earnings and a major acquisition late Thursday.

Brian White, an analyst with Ticonderoga Securities, said earnings were in line with expectations but said the company's projections for the current fiscal fourth quarter were below Wall Street's expectations.

"Despite weakness in the stock on this announcement, we still advise investors to stay on the sidelines as we believe more bad things could be lurking around the corner," he told Reuters Thursday.

HP's restructuring contains an unmistakable message: HP has failed to cater to both consumers and corporations. As a result, it needs to exit most of its consumer businesses, just as IBM did six years ago.

The overhaul will have three parts:

  • HP will stop making tablet computers and smartphones by October.
  • It will try to spin off or sell its PC business, the world's largest. By the end of next year, HP computers could be sold under another company's name.
  • The company plans to buy business software maker Autonomy Corp. for about $10 billion in one of the biggest takeovers in HP's 72-year history.

HP, the largest technology company in the world by revenue, will continue to sell servers and other equipment to business customers, just as IBM now does. Those businesses currently don't generate as much revenue for HP as PCs, but they have higher profit margins.

HP CEO Leo Apotheker would not say whether any jobs will be cut. HP plans to take a charge of about $1 billion for restructuring and related costs, some of which could go for severance payments. HP employs more than 300,000 people worldwide.

The changes announced Thursday are motivated by a shift toward an IBM-style business model, which is focused on selling to corporations and governments.

But the influence of Steve Jobs and Apple Inc. shouldn't be underestimated. Apple is the hottest consumer electronics company on the planet with its highly popular iPhones and iPads.

"Apple singlehandedly knocked HP out of the PC, smartphone and tablet business," Gleacher & Co. analyst Brian Marshall said in an interview.

R.I.P. webOS, we hardly knew ye

Rather than remain locked in a futile fight with a company that seems to have found the magic touch on making hit consumer products, HP decided to whittle its competition to the other business technology specialists — namely, IBM, Oracle Corp. and Cisco Systems Inc., Marshall said.

The focus makes sense considering that Apotheker spent most of his career at German business software maker SAP AG, another company that catered to the technology needs of companies and government agencies.

"This is his bread and butter," Marshall said. "Now he has to deliver."

The Associated Press contributed to this story.

Video: HP revenue misses estimates

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