SELF IMPROVEMENT

Investors abandoned Hewlett-Packard Co. after its plan to get out of the personal-computer business left serious questions about the technology company's strategy.
H-P shares plunged 20% Friday to $23.60, erasing about $12 billion in market value, and leaving the stock near six-year lows.

It capped a tumultuous week for the tech industry, which began with Google Inc.'s surprise $12.5 billion purchase of Motorola's cellphone business, as Silicon Valley giants react to the shift away from computers toward smaller mobile devices.
H-P shocked investors Thursday when it said it is looking to sell or spin off its PC business, the world's largest. It also agreed to pay more than $10 billion for British software maker Autonomy Corp.
H-P's moves in large part reverse a controversial $25 billion deal it sealed nearly a decade ago to acquire PC rival Compaq Computer Corp. At the time, H-P ran into significant opposition from investors and even some objection from its own board.
Much has changed at the company since then—it has switched CEOs two times, and the current board is loyal to new chief Leo Apotheker—but it must again tame rebellious investors.
"They're damaging the business they're trying to sell," said Pat Becker Jr., a fund manager at Becker Capital Management in Portland, Ore., which held about 1.2 million H-P shares as of June. He thinks H-P may have bungled its chance of getting a good price for its PC unit by disclosing its new strategy too early.
Mr. Becker said he's concerned H-P plans to let the PC division operate as a lame-duck arm for a year or more while it completes a spin off. H-P felt it had to announce the plan as soon as the board approved it to comply with Securities and Exchange Commission disclosure rules, according to two people briefed on the matter.
H-P will decide on a course of action soon, but completing a spinout could take as long as 12 months, people familiar with the matter said. The new company, dubbed "Spin Co." within H-P, would need to assemble a board of directors and the tax implications of a separate entity would need to be worked out. In an interview Thursday, Mr. Apotheker said a spinoff could have tax benefits.
PC growth and profit margins were below all of H-P's other businesses, and getting rid of that business will let H-P focus on high-margin software and services, said Basu Mullick, a managing director at Neuberger Berman LLC, H-P's 25th largest shareholder. But he questioned the abrupt way Mr. Apotheker announced the new strategy. "Their communication definitely is not right, the way that they're handling it," he said. "Obviously don't talk about it before you do it."
Another worry driving the sell-off: the Autonomy deal's price tag. H-P is paying an 80% premium for the British firm. It is paying more than $10 billion for a company with only about $1 billion in annual revenue.
Mr. Mullick, who said he was speaking personally and not for his firm, said he supports the plan to get out of PCs, but dislikes the Autonomy acquisition. "It seems to me a destruction of shareholder value," he said. "Leo has not delivered yet and he wants us to trust him with making an expensive acquisition."
Mr. Apotheker spent much of Friday talking to investors about the decision, as did finance chief Cathie Lesjak. Other executives have been explaining the move to customers, employees and retailers. Mr. Apotheker plans to travel to New York Monday to meet investors in person, and will hold meetings in London on Wednesday, said Bill Wohl, H-P's head of communications.
H-P is getting out of the PC business because it can't afford to invest in the consumer devices the unit made while also building out its portfolio of products for businesses, Mr. Apotheker said Thursday.
One problem the company faces is that splitting the PC arm away from the rest of H-P will likely make the PC division a less attractive business than when it was attached to H-P, said analysts, investors and tech-industry executives.
Many of the PCs H-P sold went to corporate customers who bought the computers as part of big bundles that included tech services and server systems, said Rob Cihra, an analyst with Caris & Co. On the consumer side, Mr. Cihra said, H-P got favorable deals with retailers because it also sells printers and ink through them. Without those ties, he said, the separate PC company may have a tougher time competing with low-cost vendors like Taiwan's Acer Inc.
Another difficulty has to do with component pricing: H-P gets bulk discounts on microchips and other items because of the scale afforded by its combined server and PC purchases. Without being tied to a larger company, the new company "may face higher component prices," said Bijan Dastmalchi, whose company, Symphony Consulting, advises tech companies on their supply chains and purchasing. As a result, he said, the PC division may be most attractive to a buyer already in the computer industry.
An H-P spokeswoman said the company may consider options to allow the spun-off PC maker to continue bulk purchases and collaborative marketing with H-P.
H-P's overhaul plan crystallized in recent days, said people familiar with the matter. The company had long discussed getting out of the PC business, but only started discussing it in earnest in the spring of this year, these people said, when it hired advisors to review the company's businesses.
In recent months, said a person familiar with the matter, Mr. Apotheker and other board members have been concerned that H-P shares "traded at a discount." They attributed this in part to confusion by investors about H-P's identity: Was it a consumer-focused PC maker or a vendor of corporate software?
Still, as recently as early spring, Mr. Apotheker was inclined to keep the PC business, said people familiar with the matter. But PC price declines and the newfound popularity of tablet PCs—an area where H-P failed to compete with Apple Inc.'s iPad—made it clear that staying in the PC business would push H-P "in a commodity direction," said a person involved in the discussions.
The board decided to get out of the PC industry, and members felt a spinoff would be "the easy move" to make, said a person familiar with the matter. The company could also sell the PC unit to a private equity firm or another tech company. The challenge, said two people briefed on the matter, is that H-P executives felt they had to announce the decision right away to comply with SEC rules, even though the announcement may make it harder to sell the unit.
In addition to being concerned about what a potential spinoff could mean for their jobs, some employees Friday criticized Mr. Apotheker's decision to kill H-P's tablet effort, which was based on software called webOS acquired last year when H-P bought Palm Inc. H-P introduced its first webOS tablet less than two months ago. "It takes the wind out of your sails when you throw in the towel after only 49 days," one H-P employee said.