''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.