HP to Divide Into 2 Companies

By TC Doyle

Four years into a turnaround that has surprised fans and doubters alike, HP has decided to split its $112.3 billion computing empire into two different entities, one focused on high-end enterprise systems, software and services, and another dedicated to personal systems and printing devices.

Hewlett-Packard Enterprise will revive the company’s traditional brand name and cater to high-end customers and their infrastructure and applications needs. HP Inc., meanwhile, will focus on HP’s PCs, tablets and printing products. The transaction is expected to be completed at the end of fiscal 2015.

The decision to split the massive company, one of the few that caters to consumers and large, enterprise organizations alike, comes amid a resurgence at the broader technology company, which has picked up market share, improved its finances (including significant debt reduction) and solidified relations with partners in recent quarters.

Despite the improvements, the company’s ongoing transition meant continued reorganization internally, which often resulted in layoffs and direction changes. The upheaval kept the company in a constant state of flux, insiders say. With this change, the organization is taking a big step to create entities with a clear mission and focus.

Current CEO Meg Whitman will stay on and serve as president and CEO of Hewlett-Packard Enterprise, while Dion Weisler will serve as president and CEO of HP Inc. (Whitman will also serve be Chairman of the HP Inc. Board of directors, according to a statement from the company.)

Reaction to the news, which broke early Sunday, has been largely positive. HP shares that trade under the “HPQ” symbol were up nearly 5 percent as of 11:30 a.m. ET on Monday. In addition, analysts have largely praised Whitman and the HP board for the decision. martinwolf advisors called the move “strong” and “well-timed.”

“It’s a strong move, and yet another demonstration of Meg Whitman’s prescience as CEO,” said martinwolf Analysis in a prepared statement. “HP has long been operating as a union of two separate efforts — one featuring low value-add products and one offering high-margin solutions. The two have few synergies, and this change will allow each effort the dedicated focus and support that it needs.”

The report went on to say that the move is also well-timed given the fallout of the failed merger with EMC, which was widely reported in late September.

“HP has so many individual components under its large umbrella that it isn’t able to achieve pole position in the more desirable pieces of the business: services, software and solutions. While this wasn’t previously a problem – their printer business historically printed money, for example – commoditization of the PC-based ecosystem and the rise of tablets has delivered the one-two punch of reduced demand and lower margins. Now, unencumbered by its PC offerings, an enterprise-oriented HP can steer its clients to the best solutions available and build itself up as a leader in the space.”

HP Inc. will, of course, continue to develop notebooks and PCs, and further invest in its printing platform, including 3D printing solutions. Hewlett-Packard Enterprise, meanwhile, will focus on its increasingly competitive platforms of server, storage, networking, converged systems, services and software products, as well as its OpenStack Helion cloud platform.

Like Cisco, which ditched an ill-conceived foray into the consumer market a few years ago, HP is the latest technology company to have given up the idea that one entity can be all things to all customers. Like IBM, which abandoned low-end computing in favor of high-margin platforms, services and solutions, HP is sending a signal to the world that both mature and evolving market segments need dedicated focus and personnel.

In a prepared statement, Whitman summed the rationale behind the split this way: “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.”