HP Splits, Hopes To Get It Right This Time

If there has ever been a company that has struggled to reinvent and find itself and its former stature in consumer and commercial technology, it’s HP.

There was a time when HP had no equal in several product segments, such as test & measurement, calculators, pocket PCs/personal assistants, etc., but those days are long gone. Sure, the company reigns in printers, and their desktop and mobile workstations are utilitarian (although the HP Z1 is a notable exception), but not nearly as competitive as in the good old days.

In an attempt to return to its former glory days, HP said Monday that it will split into two public companies with one side focusing on its cloud and enterprise market (Hewlett-Packard Enterprise), and the other on personal systems (computers) and printers (HP Inc.). The company also plans to cut another 5,000 jobs.

Although it’s a couple years old, check out HP’s CEO, Meg Whitman explain her plans for reviving HP:

Interview with Meg Whitman, HP CEO – The Plan to Revive HP

Some of the highlights of the announcement include:

• Hewlett-Packard Enterprise will build upon HP’s leading position in servers, storage, networking, converged systems, services and software as well as its OpenStack Helion cloud platform
• Meg Whitman to be President and Chief Executive Officer of Hewlett-Packard Enterprise; Pat Russo to be Chairman of Hewlett-Packard Enterprise Board
• HP Inc. will be the leading personal systems and printing company with a strong roadmap into the most exciting new technologies like 3D printing and new computing experiences
• Dion Weisler to be President and Chief Executive Officer of HP Inc.; Meg Whitman to be Chairman of the HP Inc. Board
• Company reiterates fiscal 2014 non-GAAP diluted net earnings per share (EPS) outlook of $3.70 to $3.74 and updates GAAP diluted net EPS outlook to $2.60 to $2.64
• Company issues fiscal 2015 non-GAAP diluted net EPS outlook of $3.83 to $4.03 and GAAP diluted net EPS outlook of $3.23 to $3.43

Immediately following the transaction, which is expected to be completed by the end of fiscal 2015, 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.

The announcement comes as HP approaches the fourth year of its five-year turnaround plan. Over this time, the company has executed at least somewhat successfully against its turnaround objectives.

“Our work during the past three years has significantly strengthened our core businesses to the point where we can more aggressively go after the opportunities created by a rapidly changing market,” said Meg Whitman, Chairman, President and Chief Executive Officer of HP. “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.”

Both companies will be well capitalized and expect to have investment grade credit ratings and capital structures optimized to reflect their distinct growth opportunities and cash flow profiles. The separation into independent publicly traded companies will provide each company with its own, more focused equity currency, and investors with the opportunity to invest in two companies with compelling and unique financial profiles well suited to their respective businesses.

Hewlett-Packard Enterprise will have a portfolio and strong multi-year roadmap across technology infrastructure, software, and services to allow customers to take advantage of the opportunities presented by cloud, big data, security and mobility in IT. By leveraging its HP Financial Services capability, the company will be positioned to create technology deployment models for customers and partners based on their specific business needs. Additionally, the company intends for HP Financial Services to continue to provide financing and business model innovation for customers and partners of HP Inc.

Customers will have the same choice of how to deploy and consume technology, and with a more nimble partner. The separation will provide additional resources, and a reduction of debt at the operating company level, to support investments across key areas of the portfolio. The separation will also allow for greater flexibility in completing the turnaround of Enterprise Services.

HP Inc. will continue in the personal systems and printing markets with new technologies. The new company’s profitability and free cash flow will enable investments in growth markets such as 3D printing and new computing experiences. According to the company, at the same time, HP Inc. will continue to execute against a well-defined and established strategic plan, ensuring continuity for customers and consistent value to shareholders.

“This is a defining moment in our industry as customers are looking for innovation to enable workforces that are more mobile, connected and productive while at the same time allowing a seamless experience across work and play,” said Weisler. “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.”

HP’s reign as the world’s largest manufacturer of personal computers came to an end in the second quarter of 2013.

In that time sales figures showed that Chinese PC manufacturer Lenovo shipped more computers during that period than HP, which has held the crown as the largest PC maker since at least 2006.

“We don’t like being number two and we don’t plan to stay there,” a Hewlett-Packard spokeswoman said last year. “We have a multi OS, multi architecture and multi form factor computing strategy that we believe will delight customers and rebuild share. We’re also focused on building a profitable business that’s smart about its future.”

Like other PC makers, HP has struggled as customers shifted toward smartphones and tablets and away from desktops and laptops. It also has been shifting its services business toward cloud computing opportunities as fewer customers opt for traditional data storage. Revenues have declined in 11 of the past 12 quarters.

As part of a reorganization that started when Meg Whitman took over as CEO in 2011, total job cuts are now expected to reach 55,000.

Whitman said the split will give the two companies “the independence, focus, financial resources, and flexibility they need to adapt quickly to market and customer dynamics.”

Whitman will oversee Hewlett-Packard Enterprise as its CEO, while Dion Weisler becomes CEO of HP Inc.

Splitting off PCs could make it easier to sell the business if an attractive offer is made, or it could be due to the stock market’s recent support for spin-offs, like Ebay and PayPal.

If the split mimics what happened after HP spun off Agilent back in 1999, the result could mean the two groups will still work in the same location — just different floors. If HP handles this the same way they did the Agilent split, they will physically segregate the printing/PC company from the server/enterprise company into separate buildings or floors.

During its most recent quarter, HP reported revenue of $27.6 billion, a 1 percent annual gain. It marked HP’s first year-over-year increase in quarterly revenue since late 2011. Printers and computers contributed 51 percent of the company’s quarterly revenue, with the rest coming from technology services like consulting, software and financial programs.

The split, if approved by the company’s board, is expected to close by the end of fiscal 2015. Once complete, HP stockholders will own shares of both companies.

In the final analysis, we wish HP all the best and hope it can return to some semblance of its old self, which are now selves.

Editor’s Note:

Immediately after Labor Day we attended a product launch of new desktop and mobile workstations, and one of the most interesting things we witnessed was HP’s willingness to go after Apple and the Mac crowd, especially in the media and entertainment segments.

Next week we’ll detail the new products that were launched. In the near future, we will report on an evaluation/review of one of the new HP desktop workstations and how it compares with other recently introduced engineering workstations from competitors.

Tags: Hewlett-Packard, Hewlett-Packard Enterprise, HP, HP Inc., Meg Whitman, personal computers, printers

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