Software and PC giant HP has unexpectedly killed off its poorly performing webOS mobile device unit and announced its exit from the hardware space altogether. Instead the firm will focus on software and services with an eye on cloud computing through the $10bn acquisition of Autonomy.

HP chief Leo Apotheker made the announcements during the firm’s quarterly earnings call on Thursday, candidly admitting that tablets were eating into the PC market and that consumers were not buying HP’s own tablet device – the Touchpad — or its webOS-based smartphone relations.

“HP will discontinue operations for webOS devices, specifically the TouchPad and webOS phones. The devices have not met internal milestones and financial targets. HP will continue to explore options to optimize the value of webOS software going forward,” he said, noting that the device platform acquired with the $1.2bn purchase of Palm in April, would live on as an operating system only. The news is a complete u-turn on plans announced in March under which the webOS operating system would be installed on every PC shipped by HP. In fact, HP is getting out of the hardware business altogether, with Apotheker announcing plans to spin off the Personal Systems Group as a seperate entity if it can’t find a buyer.

“PSG is a world-class scale business with a leading market share position and a highly effective supply chain and broad reach and go-to-market capabilities. We believe there are alternatives that could afford PSG more autonomy and flexibility to make strategic investment decisions to better position the business for its customers, partners and employees,” said Apotheker.

“In March we outlined a strategy for HP, built on cloud, solutions and software to address the changing requirements of our customers, shaped heavily by secular market trends that are redefining how technology is consumed and deployed. Since then, we have observed the acceleration of these market trends, which has led us to evaluate additional steps to transform HP to meet emerging opportunities. We believe the acquisition of Autonomy, combined with the exploration of alternatives for PSG, would allow HP to more effectively compete and better execute its focused strategy.”

HP’s renewed focus will be on software and services, specifically the cloud, which will be fuelled by the acquisition of Autonomy, a firm that specialises in unstructured search and data mining, through text, email, web pages, voice and video. “Autonomy brings to HP higher value business solutions that will help customers manage the explosion of information. Together with Autonomy, we plan to reinvent how both unstructured and structured data is processed, analyzed, optimized, automated and protected. Autonomy has an attractive business model, including a strong cloud based solution set, which is aligned with HP’s efforts to improve our portfolio mix,” said Apotheker.

HP’s headline figures for the quarter came in at a nine per cent increase in net profits year on year, from $1.8bn in Q310 to $1.9bn in the same period in 2011, while revenues were up just one per cent year on year to $31.2bn. Software revenues were up 20 per cent year on year while device revenues sunk by three per cent.