Hewlett-Packard Co.'s shares sank to a 6-year low Friday after the technology conglomerate announced third-quarter results and said it will shut down its mobile devices business, try spinning off its PC business and pay about $10 billion for business software maker Autonomy Corp.
THE SPARK: HP said Thursday that it will attempt to spin off or sell its PC business, which is the largest in the world, and buy Autonomy _ one of HP's largest acquisitions ever _ to enhance its software and services offerings. It also said that by October, it will stop churning out smartphones and tablet computers, which run on the webOS software the company got when it paid $1.8 billion for struggling mobile device maker Palm Inc. last year.
The company said its third-quarter net income rose, but it gave a lower outlook for the current quarter than analysts expected and it lowered its revenue outlook for the full year.
THE BIG PICTURE: HP, based in Palo Alto, Calif., is trying to focus on its strength in the corporate market. Its consumer business has struggled in recent years as it competes against Apple's iPhone and iPad and against phones and tablets running Google Inc.'s Android operating software. By getting out of the consumer market, the company will become more like its business technology rivals IBM Corp., Oracle Corp. and Cisco Systems Inc.
THE ANALYSIS: In a note to investors, Sterne Agee analyst Shaw Wu downgraded the stock to "neutral" from "buy," saying the changes at HP present "increased execution risk."
Wu, who also removed his $33 price target for the stock, noted that the company's PC business brings in $40 billion in revenue per year _ about 30 percent of the company's total revenue and 16 percent of its net income.
Though he agrees with HP's reasoning for removing the PC business, he said uncertainty about the business will put pressure on the unit's financials and its value will drop because it's now clearly up for sale.
Wu is concerned that HP "may be stretched thin" by making all these changes at once.
SHARE ACTION: HP shares sank $5.91, or 20 percent, to $23.60 after falling as low as $22.75 earlier in the day, its lowest point since June 2005. It has traded as high as $49.39 in the past year.