Why Splitting HP into 2 Companies Makes Sense

3 minute read
David Roe avatar

The renaissance of HP took another turn today with the announcement that it was splitting into two public companies.

One company will comprise HP’s market-leading enterprise technology infrastructure, software and services businesses, which will do business as Hewlett-Packard Enterprise.

The other will comprise HP’s market-leading personal systems and printing businesses, which will do business as HP Inc. and retain the current logo.

The deal is expected to be completed by the end of fiscal 2015.

A Tale of 2 HPs?

The split comes as no great surprise. HP has been struggling to stay relevant in a market dominated by mobile, cloud and big data innovation. While it has more than its fair share of technologies and products to keep it competitive, the PC business has been weighing it down.

While the fortunes of the PC market in general have been dismal in recent years, HP still has a considerable interest here with printers and other office hardware, which make up about half of its revenues.

However, with business agility a key differentiator in the IT market, the wisdom of maintaining its enterprise business tied together with the PC business must have been weighing heavily on CEO Meg Whitman’s mind. The turnaround she promised shareholders hasn’t happening as quickly as she hoped.

But in recent weeks, she has made considerable progress. She announced the restructuring of HP software into something that resembles its smaller, agile competitors, placing it in a position to respond to the challenges of big data and the emerging Internet of Things.

Under that restructuring, Whitman took the assets that were acquired and developed with Autonomy, combined them with the structured data capabilities of Vertica, created a new marketing optimization unit, and placed it all under a new HP Software umbrella that has all the muscle and agility needed to make it a viable contender in a very competitive landscape.

Learning Opportunities

HP and PCs

With PC’s, though, the problem is different. Independent reports from the likes of Gartner and IDC have all chronicled the steady decline of the desktop market as more work is done on mobile and tablets.

HP under Whitman and her predecessors never really appear to have been sure what to do with the PC business. There was talk at the time of the Autonomy acquisition that it might get rid of the PC business but finally decided against it in response to shareholder outrage.

Since then, Whitman has made a commitment to the PC business, but has never really explained what she wanted to do with it. She did, however, combine it with the printer business in 2012, which suggests that maybe this move has been on the cards for at least the past two years.The catalyst may be the fact that it slipped behind Lenovo last year to position it as the world’s second largest PC maker.

Management Shift

The deal will trigger several key management shifts.

  • Whitman to be president and CEO of Hewlett-Packard Enterprise, and Pat Russo to be Chairman of Hewlett-Packard Enterprise Board
  • Dion Weisler will president and CEO of HP, and Whitman willchair the HP Inc. Board

Whitman said the decision to split the company will enable it to "more aggressively go after the opportunities created by a rapidly changing market.”

In a company statement, she explained that 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."