''Hewlett-Packard to Computers: Drop Dead''

The personal computer is dead. Or that's at least what Hewlett-Packard thinks.

The company is getting out of the computing hardware business.No more H-P personal computers, no more H-P tablet computers (not that anyone bought them anyway), no more H-P/Palm-made cell phones (ditto). The company is keeping the WebOS operating system, which is part of the operation that includes Palm.

(Read HERE the H-P news release, which also included some ugly financial outlook numbers. H-P shares, which were halted for news, have resumed their tanking, down nearly 8%.)

This is a shift in business for H-P, which is something that happens all the time. The world zigs left, company strategy zigs along with the trend. IBM realized years ago that the low-margin, fickle consumer PC market was an ugly business. IBM gave up the hardware business to the Chinese. IBM figured it's better to focus on business customers and sell them pricey software and services. H-P has come to the same conclusion.

Makes sense. But let's take a moment and reflect on what H-P is leaving behind.

Remember that H-P has a rich history as a maker of electronics and then computing gear. Bill Hewlett and Dave Packard started their own company in a Silicon Valley garage during the Great Depression. Steve Jobs worked at H-P when he was starting out. Almost everyone in Silicon Valley can trace his or her roots back to H-P, at least a few degrees out.

And now H-P has lost faith in the personal computer, the business that built H-P (and Microsoft) and so many other companies. Bye bye, PC.

Dumping hardware may actually help H-P's business. Hewlett-Packard's personal systems group, which houses its PC business, had $40.7 billion in revenue for the fiscal year ended Oct. 31, representing nearly a third of the company's overall revenue; however, the group's earnings from operations, $2 billion, was just 13% of H-P's profits. Stifel Nicolaus figures removing the PC business would improve H-P's operating margins to about 15% from the current 12%, based on back-of-the-envelope math.

Thus, a more profitable and more attractive H-P likely would command a higher multiple, say 7 times EV/EBIT vs. 5 times, implying a share price of $41 for the remaining H-P, Stifel says. Of course, that doesn't include any purchase of U.K. software company Autonomy.

''H-P Bows to 'Post-PC World''

Hewlett-Packard Co. performed its own dramatic demotion Thursday, as the world's largest PC supplier disclosed it is considering plans that include a spinoff or sale of its personal-systems group, which brought in $40.74 billion in sales during its last fiscal year, or about a third of the company's total revenue. H-P shipped more than 64 million PCs during 2010, or about 18.5% of the total PC market, according IDC.

The 'post-PC era,' as Mr. Jobs calls it, underscores several sharp changes in the behavior of both consumers and corporations that are shifting growth to the likes of Apple and Google Inc., and away from PC stalwarts like H-P and Dell Inc.

The move by H-P to exit the PC business bookended a tumultuous week for the technology industry, in which search giant Google agreed to pay $12.5 billion to acquire Motorola Mobility Holdings Inc., in a bid to strengthen its position in the smartphone industry and its patent position.

Computing, once tied to desktops, is increasingly carried out on pocket-sized devices or so-called cloud services that manage corporate operations and send data to mobile users.

Sales of traditional PCs─most of them running Microsoft Corp.'s Windows operating system and chips based on designs by Intel Corp.─are growing at an anemic rate, rising just 2.6% during the second quarter, according to IDC.

Stiff competition has squeezed manufacturers' prices and profits. The current rule of thumb is that manufacturers like H-P can expect to make a profit margin of 2% to 6% on PCs, while analysts estimate Apple's profit margin in the mid-teens for its Macintosh computers.

At the same time, mobile devices like Apple's iPhone and iPad are drawing many consumers away from the laptop models that have driven the PC business lately. They are good enough for what most consumers do─surfing to websites and playing simple games─and are also proving attractive for business chores like presentations. Apple said in a June earnings call that 91% of Fortune 500 companies have deployed or tested the iPhone while 86% of them have deployed or tested the iPad.

The H-P decision mirrors that of International Business Machines Corp., which once led the market but acknowledged the changing industry with the 2005 sale of its PC business to China's Lenovo Group Ltd.

'H-P was the biggest seller of PCs in the world, but they have concluded that's tied to looking backwards and they need to look forwards,' said Brad Silverberg, a venture capitalist and former Microsoft executive. He called the H-P move 'another tectonic shift' providing further evidence of a post-PC world.

Not that H-P has done badly in the business. It outdueled Dell, for example, to take the No. 1 spot in PCs several years ago.

Jean-Louis Gassée, a former Apple and H-P executive who is now a venture capitalist, credited H-P executives with tight management of the hardware production process. But they couldn't change the underlying reality that there is little profit to be made in the business.

'It's structural. It's not bad management,' said Mr. Gassée. 'A competent manager could add a point or two' of profit margin, but that still doesn't make it business. It's a commodity.'

Apple, meanwhile, has siphoned a huge share of whatever profits can be earned from selling hardware to consumers. The company has ridden its recent success to become the world's most valuable company, though Exxon Mobile Corp. recently took back the title. In the quarter ended June 25, Apple recorded profits of $7.3 billion on revenues of $28.57 billion by selling record numbers of iPhones, iPads and Macs.

Apple can make outsized profits in part because it controls software for the devices, which helps it charge more favorable prices. It also has developed add-on services, like its iTunes store--to sell music, videos and software.

'As good and sexy as their hardware is, it often uses their hardware as a means to generate revenue for its services,' said Mark Margevicius, an analyst for research firm Gartner Inc. 'It opens doors to more business and more of an annuity stream,' he said.

Nor has it been easy for PC makers to follow Apple's lead into the newer breed of mobile devices. H-P gambled on the business last year when it acquired Palm Inc. and later launched the TouchPad tablet and webOS smartphones, which also gave it rare influence over both hardware and software.

H-P on Thursday said it would discontinue operations for the TouchPad and webOS phones, and write off at least $1 billion─ and potentially hundreds of millions more in goodwill writedowns─in the months ahead.

At the same time, opportunities beckon in selling to companies, many of which are using Web technology to transform the way they handle computing chores in a trend called cloud computing. H-P is the biggest seller of the server systems sold in high volumes to manage such applications, and the company has moved effectively into other segments recently such as computer networking.

Software and services needed by companies hold the promise of even better profit margins. H-P has made a series of acquisitions in the business software field already, and Mr. Apotheker signaled Thursday with a $10 billion deal to buy Autonomy Corp. that he will make good on a pledge to become more active to build that business.

'''Google's $12.5 Billion Gamble'''

Google Inc. forged a $12.5 billion deal to buy Motorola's cellphone business, a move that could reshape the Internet giant's fortunes in the mobile world while also giving it an arsenal of patents for legal warfare with Apple Inc. and others.

The purchase of Motorola Mobility Holdings Inc., by far the largest in Google's history, thrusts the Internet company into the cutthroat business of making smartphones, tablet computers and cable set-top boxes. It will nearly double Google's work force and test the company's young alliance with other cellphone makers.

The Motorola deal also gives the search giant a trove of more than 17,000 patents to defend itself against a rash of lawsuits against its Android software─which powers more than 150 million devices world-wide, including Motorola's line of Droid smartphones.

But the deal, which must pass a review by the Justice Department's antitrust division, carries enormous risks as Google steps out of its comfort zone as a software maker. It will have to run manufacturing plants, manage inventory, and nurture relations with carriers and retailers.

People close to the deal said one of Google's motivations, in addition to the patent trove, was its desire to design not just the way gadgets work, but also how they look, giving it the sort of control over software and hardware that arch-rival Apple enjoys with its iPhone. Talks between Google and Motorola heated up only in recent months, the people said.

Google Chief Executive Larry Page, in an interview, said Google will continue to promote its software to phone makers that compete with Motorola. 'The strength of Android has been its diversity, and we have 39 handset makers' that use the software, he said.

Industry-watchers still see the potential for conflict. 'Google is in the business of supplying software to hardware makers, and buying one of those hardware makers isn't going to endear them to the rest of their customers,' said Charles Golvin, a Forrester Research analyst.

He added that companies such as HTC Corp. and Samsung Electronics Co., which all flocked to Android as a way to compete with Apple, will likely 'hedge their bets' by creating more devices using Microsoft Corp.'s mobile-operating system.

Mr. Page, a Google co-founder who took over as CEO earlier this year, said Motorola Mobility would continue to operate as a separate business and be given no advantages over other makers of Android-powered handsets.

Inside Google, the deal was a tightly guarded secret involving only top management, said a person familiar with the matter. Some senior members of Google's Android team first learned of the deal Monday morning, this person said.

The deal underscores a long-term shift in the power balance in technology from old-line manufacturing companies to younger, nimbler standard-setters that came of age during the Internet era.

In January, Motorola Inc. split itself into two companies; the second company, Motorola Solutions Inc., focused on sales of wireless technology to companies and governments. Motorola Mobility is the more prominent half of the 82-year-old radio pioneer that first commercialized the cellphone but managed to lose $4.3 billion between 2007 and 2009, thanks to a disastrous decline of its phone business.

Since then, Motorola Mobility Chief Executive Sanjay Jha has turned around the cellphone business by betting on Google's software and Verizon Wireless's need for a competitor to the iPhone, over which AT&T Inc. had an exclusive hold until this year. But his company now is a small player going up against bigger and diversified rivals.

Mr. Jha said in an interview that under Google he would run Motorola 'the way I've been doing things for the past three years.' The two businesses 'will coexist and will have different objectives, different ways to be judged,' he said.

Google, meanwhile, built a technology giant by becoming the dominant player in Internet advertising. That was largely a business built on the back of the personal computer as people used Google's search engine to find information and products.

But as phones and other devices become the central point of computing for consumers and businesses, Google is trying to position itself to provide services that help consumers navigate and search for places to eat and shop while on the go─areas in which it is lagging rivals such as Apple and others.

In the same way that Apple has created hit devices by integrating software and hardware into a single experience, the deal for Motorola gives Google a way to create a consistent experience across devices, including phones, tablets and TVs.

'The best way to put itself in a position to win is to be able to influence and control how' Google services end up in hardware, said Matt Murphy, a venture capitalist at Kleiner, Perkins, Caufield & Byers.

Since Google's 2005 deal to buy Android─a small company led by Andy Rubin, who now heads its mobile software efforts─the company has worked to ensure that its search engine becomes a mainstay in the age of smartphones and tablets. Google was once a partner with Apple, providing it with applications such as the search engine and Google Map. But now the two are competitors.

Motorola's patent trove could become an important factor in that battle. Google has fewer patents in mobile technology than some major competitors, and the company has lost out on two recent deals to buy patents.

Besides countersuing in the event it is attacked, Google could use the Motorola patents to lend a legal hand to Android partners such as HTC Corp., which is entangled in litigation with Apple over Android. Motorola last fall filed patent claims against Apple, which responded with a countersuit of its own.

When he was asked if handset makers had demanded Google do more to protect them from patent suits, Mr. Page said Motorola has 'tremendous expertise in intellectual property' and pointed to supportive statements by HTC, Samsung and others that implied the deal would give them protection.

Besides smartphones, the Motorola deal gives Google a clearer path into cable set-top boxes that can connect TVs to the Web; Google has already used Android to create a system called Google TV, which has sold slowly to date but could benefit from Motorola Mobility's strong position in living room devices.

'Google expects to complete the transaction by early 2012, and is on the hook for a breakup fee of $2.5 billion in cash, according to a person familiar with the matter. The hefty amount may indicate some nervousness about the deal's regulatory prospects as Google is undergoing an antitrust probe by the Federal Trade Commission, which includes an examination of whether Google prevents smartphone manufacturers that use its Android operating system from using competitors' services, people familiar with the matter have said.

Mr. Page said he was 'confident this deal will be approved' by regulators. He added, 'I believe it's tremendously beneficial to consumers,' in part because the deal will act as a defense against 'anticompetitive attacks on Android that try to limit competition'─a reference to lawsuits against Android handset makers.

The $40-a-share offer is a 63% premium to the price Friday of Motorola Mobility's shares. It is also a way to quickly appease activist investor Carl Icahn, who recently argued the company's patent portfolio was an undervalued asset.

Shares of Motorola Mobility jumped 56% to $38.12 in 4 p.m. trading Monday, while Google slipped 1% to $557.23.

'Google got a pretty good deal,' Mr. Icahn said in an interview. 'They are really buying a lot of good stuff. They are getting the patent portfolio relatively cheaply.'

'Apple's Lion Brings PCs Into Tablet Era''

With its iPhones and iPads, Apple has led people toward a new way of operating digital devices that relies on direct manipulation of items with finger gestures, not a mouse and scroll bars. Icons are arrayed front and center, not buried deep in a file system or limited to a strip at the bottom of the screen.

Now, Apple is bringing those concepts and others to the personal computer via its most radical new Macintosh operating system version in years. It's called Lion and it went on sale Wednesday for just $29.99 -- a price that allows installation on as many personal Macs as you own.

Lion is a giant step in the merger of the personal computer and post-PC devices like tablets and smartphones. It demotes the venerable scroll bar at the side of windows and documents, relying primarily on direct manipulation of documents and lists. It eliminates the need to save your work, automatically saving every version of every document. It resumes programs right where you left off. It can display programs, or an array of all your app icons, in multiple full screens you simply swipe through. And it elevates the role of multitouch gestures and adds new ones.

The new system doesn't turn a Mac into a tablet. It retains traditional computer features like the usual file system, multiple windows, the mouse and physical keyboard. It still runs traditional Mac programs, still can handle Adobe Flash, and doesn't run iPhone or iPad apps. It doesn't use a touch screen, instead continuing to rely on the touch pad to perform finger gestures.

But it's a big change. Lion also is a harbinger of things to come. Apple's historic rival, Microsoft, is working on its own radical overhaul of the dominant Windows PC operating system, due next year, which is also aimed at putting multitouch and other concepts borrowed from smartphones and tablets front and center.

I've been testing Lion on four Macs, and I like it. Its many new features -- 250 in all -- make computing easier and more reliable. I found upgrading easy, and compatibility with existing apps to be very good. Only one app I use frequently proved incompatible and its maker has a new revision that works.

I only suffered one crash in Lion. It occurred on one of many occasions I used iTunes, but Apple says a forthcoming version of iTunes made for Lion should eliminate that.

To take full advantage of Lion's new features, programs will have to be rewritten. But, in my tests, current versions ran fine. I am writing this column on a MacBook Air running Lion using an unrevised version of Microsoft Word for the Mac, with no problems.

There are, however, downsides to anything this new and major. The biggest of these is that switching to Lion will require a major adjustment even for veteran Mac users, though it will be easier for those who use iPhones or iPads. Lion will significantly increase the learning curve for Windows users switching to the Mac.

One of the biggest changes is in scrolling. Instead of moving the top of a page upward by dragging the scroll bar down, or moving your fingers downward on the touch pad, you do the opposite -- you just push the page up. A scroll bar appears only while scrolling. (Older programs may still have the traditional scroll bar.)

Standard programs and features like Apple Mail are significantly different, too, and there are smaller changes in almost every corner of the operating system, including some keyboard shortcuts. Just mastering all the new and altered touch-pad gestures -- a couple of which are so unnatural I actually had to practice them -- will take time. Luckily, almost all of the actions performed by the gestures can also be done with a mouse, icons, menu commands, or keys.

If you dislike some of these changes, Apple provides settings to return to traditional scrolling, the classic Mail layout, and to turn off gestures and other things.

Here are some of the main new features in Lion:

-Auto-Save and Versions: Apps running in Lion automatically save your work when you pause or every five minutes. There is no interruption during this process and you can still save manually. This isn't a new idea, but it's implemented beautifully and can work on all programs whose authors issue new versions to take advantage of it. Right now, it works on some of Apple's own programs.

The best part is that each auto-save creates a separate version of your document and you can view all these versions in a visual stack arranged by date, next to your current version. You can swap back to an older version, or even copy and paste text from one version to another. These versions are created by storing the changes behind the scenes, not by creating numerous files.

-Resume: If you relaunch a program, any document you were working on appears again with the cursor right where it was, and even any highlighting is preserved. If you restart the Mac, all your programs are resumed in this manner, unless you check a box to prevent this.

-Full-screen apps: You can launch some apps, or individual browser tabs, in a full screen, just by clicking on an icon at the top right. In full screen, the menu bar and other controls are hidden unless you move the cursor to the top of the screen.

-Launchpad: Pressing a special key on a new Mac, or an icon on an old one, brings up an iPad-like display of all your app icons in full screen. If they occupy more than one screen, you just swipe through them.

-Mission Control: One of the nicer features on the Mac was called Expose, which, with one click, showed all your open windows in miniature. Now, it's been subsumed into something called Mission Control, which does the same thing, but also displays any full-screen apps or extra desktops. I found it cluttered and wished the simpler, prior feature had been retained.

-Gestures: The Mac already had a variety of iPhone-like gestures you could perform on the touch pad. But Lion has changed some of these and added more. One I liked: You can double-tap with two figures to resize a section of a Web page or PDF to zoom in to fill the screen, just like on the iPhone or iPad.

Two I dislike: the gestures for calling up Launchpad and Mission Control require pinching or spreading three fingers and a thumb -- a clumsy method for such important features.

-Mail: Apple's Mail app has been totally overhauled to look and work more like the Mail app on the iPad. It sports a beautiful optional conversation mode, a particularly nice feature which combines and numbers each message in a thread. It also hides duplicate emails. There are too many changes to detail here, but, after hating the new Mail at first, I have come to like it. And you can switch to Classic mode if you wish.

The bottom line: The past two major computer operating system releases, Windows 7 and Snow Leopard, were incremental. Lion is very different. It's a big leap, and gives the Mac a much more modern look and feel for a world of tablets and smartphones. If you are willing to adjust, it's the best computer operating system out there.

In Like a Lion: Moving

To the Operating System

Another big change is in the way Lion is being distributed. It won't be sold on a disk, initially only via download from the Mac App Store. Since it's a 4 gigabyte download, that could be a problem for people with slow Internet connections. Apple says its stores will help such users with the download, and that it will sell Lion on a USB thumb drive for $69 in August.

In my tests, the download alone took under half an hour on a very fast connection, and about an hour and a half on a more typical one. Once I downloaded the product, the rest of the installation took about an hour.

Also, you can only upgrade to Lion directly from the prior OS version, Snow Leopard. So, if you're running an earlier version, you'll first have to pay to upgrade to Snow Leopard.

In addition, Macs with the older PowerPC processors can't run Lion, and even some of the earliest Macs with Intel processors are shut out. These are mainly machines released in 2006. Older programs originally designed for PowerPC, which still ran on Snow Leopard, will no longer work in Lion. The best known of these is Intuit's Quicken 2007.

Even if you buy a new Mac with Lion pre-installed and your older Mac has Snow Leopard, you'll have to download a new version of Apple's migration program for Snow Leopard in order to move over all your programs, settings and files.

The company made this new migration utility available on Tuesday.

When I tried to migrate my stuff from a Snow Leopard machine to Lion using the current migration program -- normally a strength for Apple -- the process failed. The company sent me the new version of the migration program and it worked.

Lion also introduces a new migration feature that will move data and settings -- but not programs -- from a Windows PC to a Mac, though it requires a free Windows migration utility that Apple couldn't provide in time for this review.

Speaking of Macs with Lion pre-installed, Apple also is upgrading its thin and fast MacBook Air laptops so the machines use faster chips from Intel. The company is killing off the bottom model of its laptop line, the plain MacBook.

The new MacBook Airs, available on Thursday, have the same design, prices and base storage capacity as their predecessors.

Official Google Blog: When patents attack Android

Official Google Blog: When patents attack Android: "I have worked in the tech sector for over two decades. Microsoft and Apple have always been at each other’s throats, so when they get into ..."