Technology giant Hewlett-Packard has said it wants to buy Autonomy for $10.3 billion and is thinking about a spin-off of its PC division.
In a barrage of news that stunned Wall Street and triggered an early announcement of its third-quarter results, HP also announced it would kill a plethora of WebOS devices, including a TouchPad tablet that failed to excite consumers.
An acquisition of Autonomy, which specialises in search software for email and documents, would rank as HP's third largest. It has offered to buy all outstanding shares of Autonomy for $42.11 per share.
HP and its chief executive Leo Apotheker are responding to mounting pressure to fire up growth just as global economic and tech spending outlooks darken.
Speculation has swirled for months that HP was no longer keen on keeping a PC business struggling with low growth and single-digit margins.
A PC spin-off marks a historic shift - mirroring IBM's own transformation over the last decade - for a company that Bill Hewlett and Dave Packard built into a sprawling $120 billion empire from a garage operation in 1939.
Spinning off the PC division would mark one of the biggest transformations for the company since 1999, when it spun off its measurement and components businesses to form Agilent Technologies. In 2001, it engineered an acquisition of PC rival Compaq, laying the foundation for its later domination of the sector.
Apotheker, a former chief of European software giant SAP, had been expected to drive an expansion of the company's relatively small but very profitable software division - including through major acquisitions.
UK-based Autonomy counts Procter & Gamble Co among a long list of major corporate customers that use its software to search and organise unstructured data like e-mails. Last month, it posted a 16% jump in quarterly sales-driven demand for internet-based cloud computing.
HP's Personal Systems Group includes smartphones, tablets and the WebOS operating system apart from PCs, and pulls in about $41 billion in revenue but accounts for only about 13% of profit.
Its low-margin but high-volume PC business had been seen as a spin-off candidate for a while, given intense competition and the slide in consumer PC demand.
HP's decision to discontinue the TouchPad - which hit the shelves in July with a large marketing budget - follows poor demand for the WebOS-based tablet. It was discounted by $100 a month after it was launched in a booming market dominated by Apple Inc's iPad. The TouchPad was the result of the $1.2 billion acquisition of Palm last year.
Meanwhile, HP expects further pressure on its revenue and has cut its full-year forecast for the third straight quarter. Revenue for its third financial quarter rose to $31.2 billion from $30.7 billion a year ago, in line with Wall Street expectations.
HP now expects full-year revenue of $127.2 billion to $127.6 billion, down from a previous estimate of $129 billion to $130 billion. It also cut its earnings per share estimate to a range of $3.59 to $3.70, down from its previous estimate of at least $4.27 per share.
