HP Plans Split Into 2 Separate Businesses - InformationWeek

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10/6/2014
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HP Plans Split Into 2 Separate Businesses

Hewlett-Packard will split PC and printer businesses off from enterprise hardware, software, and services. Whitman to lead enterprise unit.

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HP announced Monday that it plans to split into two companies: Hewlett-Packard Enterprise and HP Inc. It's the culmination of a long-rumored move to separate the personal computer and printer businesses from the rest of the company.

Hewlett-Packard Enterprise will "define the next generation of technology infrastructure, software, and services," the company said in a statement, while HP Inc. will be "the leading personal systems and printing company delivering innovations that will empower people to create, interact, and inspire like never before."

The split has been on the table for years, advocated by many as a way to enable the enterprise-focused side of HP to focus on fast-growing, high-margin software and services. The consumer-centric Printing and Personal Systems Group business, which accounts for roughly half of HP's $112 billion in revenue expected in 2014, has been hard hit by declining PC sales and thin margins in recent years.

[Want more on HP? Read What HP Gains In Eucalyptus Cloud Deal.]

Both sides of HP have shown signs of recovery during the three-year tenure of CEO Meg Whitman, but they're very different businesses, each serving distinct customers and facing challenges unique to each business. The PC side needs to be more responsive to consumer demands if it is to gain better footholds in the tablet and mobile-device markets. The enterprise side needs to move more aggressively into high-margin software and services, broadening from its data-center roots into business-facing technologies and consulting.

HP's breakup is to occur by the end of 2015 as a tax-free distribution of shares to stockholders. Meg Whitman will serve as president and CEO of Hewlett-Packard Enterprise. Cathie Lesjak, currently CFO of HP, will serve in that role at HP Enterprise. Patricia Russo, currently lead independent director at HP, would serve as chairman of the enterprise business.

“Over the past three years, we have reignited our innovation engine with breakthrough offerings for the enterprise like Apollo, Gen 9 and Moonshot servers, our 3PAR storage platform, our HP OneView management platform, our HP Helion Cloud, and a host of software and services offerings in security, analytics and application transformation,” said Whitman in an HP statement. “Hewlett-Packard Enterprise will accelerate innovation across key next-generation areas of the portfolio.”

Meg Whitman, soon to be chairman of HP Inc. and CEO of Hewlett-Packard Enterprise.
Meg Whitman, soon to be chairman of HP Inc. and CEO of Hewlett-Packard Enterprise.

Dion Weisler, currently executive VP of HP’s Printing and Personal Systems business, will be president and CEO of HP Inc. while Whitman will be non-executive chairman of HP Inc.'s board.

“As the market leader in printing and personal systems, an independent HP Inc. will be extremely well positioned to deliver that innovation across our traditional markets as well as extend our leadership into new markets like 3-D printing and new computing experiences," said Weisler in the statement.

The idea of splitting up HP has been raised before. In early 2013, HP disclosed in an SEC filing that it would "evaluate the potential disposition of assets and businesses that no longer help us meet our objectives." But by February 2013, Meg Whitman dismissed breakup talk, calling Personal Systems "a business we need to be in."

HP's change of heart may have been sparked by forces on Wall Street. Just last week, eBay, the company that Whitman led for 10 years, announced that it would spin off its PayPal unit to create more value for stockholders. What's more, IBM, a direct competitor to HP's enterprise business, concluded the spinoff of its x86 server business to Lenovo. IBM said the move will enable it to concentrate on "higher-value" (meaning, higher-margin) categories including software, services, and high-end enterprise hardware.

HP is also under pressure from Dell, which went private last October so it could hasten its move into software and services without facing the scrutiny and profit pressure of public investors. By splitting in two, each half of HP could, at the very least, better focus on the needs of its customers and set research-and-development priorities accordingly. Each side of the company -- currently a 300,000-plus-employee behemoth -- would also have a shot at becoming a smaller and more nimble organization.

HP has already structured the Printing and Personal Systems Group as one unit with separate financial reporting, but the danger in the breakup is that it will be another distraction within a company that has been rocked by layoffs and restructuring in recent years. As basics ranging from corporate hierarchies to office arrangements are sorted out, the enterprise and personal-device businesses won't be standing still.

Just when conventional wisdom had converged around the cloud being a software story, there are signs that the server market is poised for an upset, too. Get the 2014 State of Server Technology report today. (Free registration required.)

Doug Henschen is Executive Editor of InformationWeek, where he covers the intersection of enterprise applications with information management, business intelligence, big data and analytics. He previously served as editor in chief of Intelligent Enterprise, editor in chief of ... View Full Bio

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PaulS681
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PaulS681,
User Rank: Ninja
10/11/2014 | 6:07:36 PM
HP
Hopefully HP knows what it's doing. It sounds like the right move to split into two buisnesses. One for computers and printers and the other for everything else.
Ashu001
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Ashu001,
User Rank: Ninja
10/7/2014 | 12:16:15 PM
Re: Leo Apotheker vindicated?
Doug,

For the sake of all Long-suffering HP Shareholders out there I certainly Hope you are right on this one.

However,the overwhelming majority of the crowd here at Informationweek thinks its too late for HP today.

Could we be wrong?

Lets hope so.

Ashish.
Ashu001
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Ashu001,
User Rank: Ninja
10/7/2014 | 11:59:30 AM
Re: This started long ago
Stephane,

Thanks for sharing your Valuable Experience and expertise here.

As most posters here clearly point out there is a strong feeling out there in the market-place (and even amongst former HPers) that the Best of the Company is behind them.

Sad But true.

Its stunning how many present HP employees talk about how low morale is at the firm today.

What's keeping them at the same dicey firm today?

The Weak Economy all around us I guess?

Regards

Ashish.
Ashu001
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Ashu001,
User Rank: Ninja
10/7/2014 | 11:52:25 AM
Re: This started long ago
Pablo,

Very Well said.

However,in All Fairness the folks at HP could'nt have accurately predicted when the Tech Bubble would reach its peak and when it would Pop.

However,there is something much more insidious at play here-I am sure you are also aware of this reality(which I had pointed out earlier as well).

M&A Activity peaks at the Top of a Stock-Market Cycle (even though its not really in the best interests of Shareholders per se).

That's because that's when Money is at its easiest and so it becomes much easier to finance these Gigantic Valuation Bubbles.

Compaq for 25 Billion?? WoW! 25 Billion was most certainly worth a lot more back then than today.

Sad to see HP get reduced to a shadow of their once mighty Selves.

Regards

Ashish.
Brian.Dean
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Brian.Dean,
User Rank: Ninja
10/7/2014 | 11:05:56 AM
Re: Leo Apotheker vindicated?
This seems like a good move -- specialization and focusing on a single environment is good. Back in 2001, HP bought Compaq to help it increase its computer business. I guess the move was a relative success as it made HP to compete well with IBM. Currently, computer sales are low due to the cloud in the enterprise and mobile in the consumer space, both areas are huge and each requires a high level of focus in order for a company to succeed in it.
Stephane Parent
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Stephane Parent,
User Rank: Moderator
10/7/2014 | 7:37:00 AM
Re: This started long ago
Let's not forget the EDS purchase. As a former EDSer, laid off under the HP regime, I can attest the company tried to apply commodity-pricing strategies to the high-margin service business. The focus was on efficiency, not effectiveness.
Gary_EL
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Gary_EL,
User Rank: Ninja
10/6/2014 | 3:36:03 PM
1999
The glory of HP WAS that it was once one of the greatest manufacturers of scientific, medical and engineering instrumentation in the world. HP was synonymous with the best that money could buy. Then it spun all that off as Agilent in 1999. The big problem there was that the "spin off" should have been called HP, and the rump could have been called - anything. The entity that now calls itself HP has nothing to do with what used to be.
D. Henschen
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D. Henschen,
User Rank: Author
10/6/2014 | 1:50:43 PM
Re: This started long ago
Didn't recall Compaq was that expensive? Agreed that HP is still overcoming past mistakes -- Compaq, Palm, Autonomy -- but I think it has focus now. I'm impressed with the Whitman-Lesjak team and think that they have a good shot at catching up.
Pablo Valerio
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Pablo Valerio,
User Rank: Ninja
10/6/2014 | 1:40:08 PM
This started long ago
The problems HP is facing started long ago when Carly Fiorina's ambition was so big that purchased Compaq for $25b in 2001 just to become the biggest computer company. They could have waited another year and have Compaq for a fraction of the price, even for free.

HP was a company I admired in the past. When I went to engineering school their products were the best around: solid, accurate and well built. Now they are just doing the same as everyone else.

I think the decision is right, the company still has good products, but needs focus.
D. Henschen
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D. Henschen,
User Rank: Author
10/6/2014 | 12:28:54 PM
Re: Leo Apotheker vindicated?
I see it differently, Ashish. I agree that Autonomy and Palm were mistakes, but Whitman would probably agree with you, too. I think her approach, over the last three years, has been to make the most of what HP has. And in finally doing this split -- which probably doesn't ential the kinds of bank investment fees encountered in M&A -- it's doing so with a well-laid plan. Investors apprently agree, as the stock is up nearly $2 today.
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