HP To Halt All WebOS Device Development, Confirms Talks To Shed PC Group

HP (NYSE: HPQ) announced Thursday that it plans to stop making WebOS devices after a disappointing debut for its TouchPad tablet. The decision puts the future of the fifth major mobile operating system into chaos, as HP also confirmed that it is looking to shed its PC group.

The announcement came amid an earlier-than-expected release of HP’s third-quarter earnings, which was probably forced by reports from Bloomberg and the Wall Street Journal (NSDQ: NWS) that HP was getting ready to shed its PC group. Those numbers were immediately overshadowed by the decision to halt development of the TouchPad tablet and Pre smartphones, which have not resonated with consumers over the past few months.

“HP reported that it plans to announce that it will discontinue operations for webOS devices, specifically the TouchPad and webOS phones. HP will continue to explore options to optimize the value of webOS software going forward,” the company said in a press release. The decision comes just a month after HP decided to reorganize the WebOS group with plans to “go big,” according to Stephen DeWitt, the executive named to head the group after former Palm CEO Jon Rubinstein took a different role within the company.

In a separate press release issued after the close of the stock market, HP said sales of WebOS devices “have not met internal milestones and financial targets.”

As for the PC group, HP said it was exploring “strategic alternatives,” which in business-speak is akin to putting a for-sale sign on the division. HP is the world’s leading PC maker, but like many of its counterparts from the traditional PC industry has struggled to shift its business away from PCs and toward mobile devices like smartphones and tablets, a trick only Apple (NSDQ: AAPL) has managed to pull off. During its third quarter, revenue from HP’s Personal Systems Group declined three percent overall and by 17 percent among consumers. Still, HP said its PC business “remains the PC market leader in terms of units, revenue and profit share,” perhaps in hopes of convincing a buyer that things aren’t all that bad.

HP reported overall revenue of $31.2 billion, up from $30.7 billion in last year’s third quarter, and earnings per share excluding special items of $1.10, both of which were in line with analysts expectations as polled by *Yahoo* Finance. But HP downgraded expectations for full-year revenue and profits, with a pronounced readjustment downward in the profit category from previous expectations of $4.27 in earnings per share to new estimates of $3.59 to $3.70. The company will now focus much more on its enterprise businesses, such as IT consulting services, server sales, and printers, which account for the bulk of its revenue and profit.

A conference call is scheduled for 2 p.m PT to discuss HP’s quarter. That discussion, however, will be dominated by questions about the future of HP’s client computing business, which marks a huge strategic shift in the company’s history. HP completed its $1.2 billion acquisition of Palm just over a year ago but has had very little to show from that deal in terms of products.

Palm has given HP a strong mobile patent portfolio, however, so when considering that Google (NSDQ: GOOG) is willing to pay $12.5 billion in 2011 for Motorola (NYSE: MMI) mostly because of its patent portfolio, history might eventually conclude HP got a deal on some valuable mobile patents.

New HP CEO Leo Apotheker has discussed licensing WebOS to other parties over the past couple of months, but it sounds like HP is preparing to possibly sell the division altogether. Who might step up to buy WebOS? That’s an interesting question considering that Android vendors have to be re-examining their options following Google’s announcement earlier this week. Samsung, HTC, or other Android partners might consider taking a flyer on WebOS as a way of competing with Apple and a vertically integrated Google perhaps now bent on making its own hardware and software.

But we’ve known for quite some time that the evolving mobile market was not going to be able to support five different operating systems. WebOS was barely a blip on the radar of the mobile developers who can’t wait to make versions of their software for Apple’s iOS and Google’s Android operating system. Research in Motion (NSDQ: RIMM) has had a difficult year, but is light-years ahead of HP and WebOS when it comes to having a strong mobile brand and a loyal user base. Even Microsoft (NSDQ: MSFT), which arrived the latest to the mobile party with Windows Phone 7, stands to benefit from developer interest in its OS now that Nokia (NYSE: NOK) is on board as a hardware partner.