Proposed spinoff of PC unit marks HP's shift to software

HP which has been synonymous with the ubiquitous PC is set to effect a paradigm shift with the announcement of plans to sell or spinoff its personal computers business, dump its line of smartphones and tablet PC, and buy UK software company Autonomy for $11.7 billion. (See: Hewlett-Packard to acquire UK software firm Autonomy for $11.7 billion)

While releasing its third quarter results late last night, HP said as part of the transformation of the company, it would explore strategic alternatives for its Personal Systems Group, which would include a full or partial separation from HP through a spin-off or other transaction.

The sudden shift comes after the Californian company, based in Palo Alto denied media speculation in the past that it plans to spin off or sell its personal-computer business, the world's largest and one of its biggest divisions that is also one of its least profitable.

According to analysts  spinning off the PC division and giving up on efforts to compete directly with Apple in mobile devices by discontinuing products that run WebOS software could go a long way in improving HP's bottom line.

Additionally, selling the patents associated with mobile devices could bring in significant amounts of cash if recent deals are any indication.

Analysts point out though that while dismantling was easy, re-building around a software core may be painful. With Autonomy's business of managing and searching things like email, video and audio HP could expect years of 15 per cent or higher growth ahead of it say analysts. But this is coming at a huge price-11.5 times last years' revenue and a whopping 64 per cent premium to Wednesday's market price.