3 min read

HP finally decides to split in two

InfrastructureMeg Whitman

Well it finally happened. HP is now officially split in two.

After many attempts to split up or spin off HP business units, in the dead of night on Oct. 6th HP confirmed it would set sail as two separate publically traded companies. The Enterprise Group will be on its own run by current CEO Meg Whitman and the Printing and Personal Systems Group will be its own entity in control of Dion Wiesler, the executive vice president of HP’s PPS who now becomes CEO of HP Inc. Whitman stays as Chairman of the board for HP Inc.

Whitman said in a prepared statement: “The decision to separate into two market-leading companies underscores our commitment to the turnaround plan. It will provide each new company with the independence, focus, financial resources, and flexibility they need to adapt quickly to market and customer dynamics, while generating long-term value for shareholders. In short, by transitioning now from one HP to two new companies, created out of our successful turnaround efforts, we will be in an even better position to compete in the market, support our customers and partners, and deliver maximum value to our shareholders.”

Industry analyst Rob Enderle of the Enderle Group, thinks its good idea. “HP because of its breadth was really in competition with a lot people that IBM has been systematically partnering with — Lenovo and Apple, to name two. The combination of the companies always put them at war with everybody but by separating the two companies, the two entities will be free to partner with the folks they can’t partner with now,” he said.

For example, the back-end group can partner with device companies, while the client-side group can partner with back-end companies much more aggressively, according to Enderle.

“That allows them to both get the kind of leverage some of the companies that are coming up so rapidly haven’t been able to get. HP just became too big to manage,” he added.

Marty Hayman, a senior executive from CDN Top 100 Solution Provider Ainsworth agreed but said that this is a way for HP to get themselves out of the PC/notebook business and reminds him of a similar move made by IBM back in 2004.

Enderle however, does not believe the split is too late. He said HP was waiting on this announcement until the PC division showed growth before spinning it out. If announced before that “the stock market would have pummeled them.”

The PC division did do well in the last financial quarter and the printer division is waiting on the emergence of 3D printing, which is still under development.

If that comes out it will make “a huge difference,” Enderle added.
The names of both companies are also an interesting side note to this news. The enterprise group will be now known as Hewlett-Packard Enterprise, will PPS is now HP Inc. HP Inc. retains the logo.

What they have done here is spelled out HP on the enterprise side and kept the acronym on the PPS side.

In terms of a go to market not much changes as Hewlett-Packard Enterprise will still be selling servers, storage, networking, converged systems, services, software and its cloud solutions.

With HP Inc., it will still be client devices, printers and 3D printing solutions.

Pat Russo was named chairman of Hewlett-Packard Enterprise’s board of directors.

Expect this all to be completed by the end of the 2015 fiscal campaign. HP shareholders will own shares of both Hewlett-Packard Enterprise and HP Inc. The transaction is intended to be tax-free to HP’s shareholders for federal income tax purposes.

Weisler said this is a “defining moment in our industry”. But it’s not the first time HP has gone down this separate path.

As recent as September of 2011, leaked memos from HP corporate had the hardware division being prepared for spin-off as it informed its webOS Global Business Unit employees that it will be split in two immediately.

Of course earlier in 2011 under former HP CEO Leo Apotheker the company decided to it would explore the sale or spinoff of then called Personal Systems Group because of a slowdown in PC sales and the razor-thin margins dragged profits. Back then the analyst community slammed the move saying the PC business contributed to the company’s bottom line and added purchasing power for enterprise hardware parts. Another contributor was the Apothekder was unpopular with HP executives.

When he was replaced by Whitman, she initially stayed the course only to change her mind later on in 2011 and kept the PC division to the relief of the channel.

Enderle told CDN the synergy between the units just wasn’t where it needed to be to justify them being together. “In the end this is exactly what companies like eBay are doing, and what Sony should to do.”

“Management for both (new HP) entities should be more focused on their respective businesses and not have distractions of the other side. They’ll be much more willing to listen to customers … should be much more agile.”

With files from Howard Solomon