HP lost about $12 billion in market value as its stock fell $5.91 to close… (David Paul Morris, Bloomberg )
Wall Street showed Hewlett-Packard Co. what it thought of the company's plans for a dramatic transformation: Shares plunged 20% to their lowest point in more than six years.
The technology giant shed about $12 billion of its market value as more than half a dozen Wall Street analysts downgraded its stock, citing a litany of concerns over the company's ability to reinvent itself.
Friday's drop of $5.91, to $23.60 a share, came a day after HP said it would seek to spin off or otherwise divest itself of its personal computer division, which had made it the world's largest PC maker and had provided 30% of its revenue in its latest quarter.
The company also said it would halt production of its TouchPad tablet and line of smartphones and, as one key to its reshaping, would pay about $10.3 billion for British business software company Autonomy Corp.
The moves surprised analysts and investors and left them worried that the world's leading personal computer maker had picked a perilous time to bail out of its biggest business.
"HP getting out of the computer business is like McDonald's getting out of the hamburger business," said Jayson Noland of Robert W. Baird & Co., who downgraded the stock to neutral from outperform. "It's a pretty major change, and doing it in the middle of difficult macroeconomic times is going to be challenging."
With the future of HP's computer division up in the air, Noland said, larger customers may turn to established computer vendors such as Dell Inc. HP said it could take up to 18 months to sell or spin off its PC unit.
Analysts also fretted that the effect of radical adjustments to three of its major business lines — computers, software and mobile devices — might upset the balance of its tightly choreographed global operations.
"We are worried that [HP] may be stretched thin trying to do too many things at the same time," Sterne Agee analyst Shaw Wu wrote in a note to investors. Wu downgraded the stock rating to neutral from buy.
HP also drew second guesses for its decision to offer such a hefty price for Autonomy. Though the smaller firm's sales amount to about 1% of HP's revenues, the Palo Alto technology giant paid what amounts to 15% of its market value for Autonomy, analysts said.
"We think this may not be the best use of [HP's] cash today given its depressed share price and the high price tag," analyst Avi Silver of Credit Agricole Securities Inc. wrote in a note to investors. Silver downgraded HP stock to underperform from outperform.
Analysts also wondered what HP would do with its webOS mobile operating system, the software that runs on its TouchPad and smartphones.
The software has garnered rave reviews from consumers, and was one of the prize spoils in HP's April 2010 acquisition of phone-maker Palm Inc. for $1.2 billion. But the imminent demise of HP's Pre, Pixi and Veer phones leaves the future of WebOS in doubt.
Some observers have speculated that HP might sell WebOS to a phone maker looking to compete with the increasingly dominant Android operating system from Google Inc. and iOS on Apple Inc.'s iPhone.
William Kreher, an analyst at Edward Jones and Co., thought that hopes of WebOS finding a new home were fading.
"We don't expect to see much in the way of WebOS innovation at this point," he said. "It's essentially been left for dead."
HP stock was also downgraded by analysts at Deutsche Bank, Needham & Co., UBS and Cross Research.