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Hewlett-Packard Resurrects the Dead

By Evan Niu, CFA – Updated Apr 6, 2017 at 5:05PM

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HP decides to make webOS open source like Android and may eventually get back into webOS hardware.

Scoot over, Android. You're not the only open-source mobile operating system anymore.

In a dramatic turn of events, Hewlett-Packard (NYSE: HPQ) has announced that its undead webOS, which has been gasping for life, will be open source. It's kind of like having an old pair of shoes that still fit you but are hideously ugly and attract ridicule whenever you wear them out of the house; you can't sell them, so your best bet is to go down to your local Goodwill and donate them.

HP will continue to be "active in the development and support of webOS." The tech titan, along with developers and OEM hardware makers, will continue to enhance the OS and release new versions. It wants to speed up development, while being an active participant and investor, and promote "transparent and inclusive governance to avoid fragmentation."

A mobile money pit
HP paid $1.2 billion for Palm roughly a year and a half ago, as Palm was circling down the drain, steadily approaching zero. HP has already plunged more than twice that into the doomed platform. In HP's most recent earnings release in which CEO Meg Whitman announced the PC business was here to stay, the company also noted that during fiscal 2011, it took a hit to the tune of $3.3 billion in after-tax costs related to the debacle.

HP took an $885 million charge from the impairment of goodwill and purchased intangible assets in the fourth quarter alone and another $755 million from winding down the webOS device business. Presumably, HP has written off the entire Palm acquisition at this point, so donating webOS will unlikely have further impairment accounting implications.

It's alive!
Initially, the company was rather ambiguous on the prospects of future HP webOS hardware. In its FAQ, the company left HP-built hardware up in the air: "As webOS gains traction as an open source alternative in the marketplace, you could see webOS on several different types of devices by any number of vendors. We will explore the viability of putting webOS on devices, just as we do for other leading operating systems."

Then in a follow-up interview with The Verge, Whitman went ahead and confirmed that HP will likely be getting back into webOS hardware. She mostly ruled out the prospect of the company getting back into the smartphone business but said tablets are a real possibility. The webOS team will need to be reorganized, and Whitman is committing a roughly four- to five-year time frame to gauge success or failure.

We're No. 4!
Will the transition to an open platform give webOS a third lease on life? The platform has a pretty lousy track record of competing with Apple (Nasdaq: AAPL) iOS and Google (Nasdaq: GOOG) Android. While Research In Motion (Nasdaq: RIMM) continues to sit in third place, webOS could potentially fight Microsoft (Nasdaq: MSFT) Windows Phone for fourth.

webOS is unlikely to ever catch up, but it presents third-party hardware vendors with another interesting prospect. Instead of having to pay Microsoft a license fee to use Windows Phone or Android, they could go with the free alternative of webOS.

Who's coming with me?
Even with HP maybe reviving the TouchPad, the platform will still face challenges getting off the ground. The whole brush with death hasn't exactly instilled developers with confidence in HP's strategy. We could see third-party OEMs start making devices, but that runs into a chicken and egg problem.

Adding third-party OEM partners should bring in developers, but third-party OEMs may not be interested in embarking upon the expensive and risky road to engineering, designing, and bringing a device to market without a strong developer base. This is particularly true for smartphones, since HP is very unlikely to lead the way.

Who comes first? Developers or OEMs?

The walking dead
It looks like the reports that webOS may fetch "hundreds of millions" from a buyer like (Nasdaq: AMZN) or Oracle (Nasdaq: ORCL) didn't pan out. My guess is that none of the potential suitors saw value in webOS. The only thing HP had left to do was kill the OS altogether or give it away.

Ultimately, I believe webOS will continue to fail, just as it did on its first and second runs. Third-party developers and OEMs will likely remain at a standstill, paralyzed by the uncertainty of what the other party will do. In the meantime, iOS and Android will keep on keepin' on.

For those keeping score, this means Whitman has now effectively backtracked on two out of three of her predecessor's pipe dreams: spinning off the PC business and killing webOS. The only move of Leo Apotheker's that survived him was the Autonomy acquisition, which closed without a hitch. Whitman was officially named CEO less than two weeks before the closing, so it may have been too late to stop anyway.

Remember when I said Whitman has "no meaningful experience" in "resurrecting the dead"? Well, there's a first time for everything.

Add Hewlett-Packard to your watchlist to see how webOS fares as an open-source platform. For more on the mobile revolution, check out this 100% free report on one stock that's riding the mobile waves to riches.

Fool contributor Evan Niu owns shares of Apple and, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Apple, Google, Microsoft, and Oracle. Motley Fool newsletter services have recommended buying shares of Apple, Microsoft, Google, and Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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