And then Meg Whitman cut the baby in two.
After spending years debating the merits of operating as separate companies, Hewlett-Packard (HPQ) on Monday announced its plans to divide. The technology industry’s biggest company will split into Hewlett-Packard Enterprise and HP Inc. The first company will sell data center equipment and software and offer related services, while the second company will sell PCs and printers. Whitman will run Hewlett-Packard Enterprise, and Dion Weisler, the current head of PCs and printers, will become chief executive of HP Inc.
By the numbers, Hewlett-Packard Enterprise will have revenue of $58.4 billion and an operating profit of $6.0 billion. HP Inc. will have revenue of $57.2 billion and an operating profit of $5.4 billion. HP, which was already in the process of ridding itself of 36,000 employees, has found new “opportunities for reductions” and now expects to dismiss 55,000 people. At least the people in charge of making new business cards know their jobs are safe.
This looks first and foremost to be a deal aimed at pleasing shareholders. HP’s shares still have not returned to the same levels seen under Mark Hurd, despite a huge runup in the broader markets. Whitman’s five-year turnaround plan has stalled in some respects, as well. She had promised growth for the company in 2014, but that failed to occur, and it’s looking like HP won’t grow in 2015, either. Whitman must have decided that one way out of the slump was to do something drastic. As Toni Sacconaghi, an analyst at Sanford C. Bernstein, put it: “The news underscores our belief that HP and CEO Whitman appear increasingly uncomfortable with the status quo and believe that a material shake-up/change at HP is needed going forward. While on one hand the desire to drive change and incremental value creation is positive, on the other, the potential spin-off appears fueled by weakness at HP rather than strength.”
Under Hurd, HP went from a large technology player to the industry’s largest through numerous acquisitions, including the purchase of the services giant EDS. Hurd argued that HP’s size gave it immense advantages when it came to purchasing components, since so many of HP’s products, from PCs to servers, shared similar parts. He also insisted that HP’s breadth turned it into a customer’s key technology partner and ensured that HP always had an audience with top executives.
The split into two companies will certainly unwind a lot of that advantage. Hewlett-Packard Enterprise goes from a giant to a company with lower operating profit and cash flow than such competitors as IBM (IBM), Oracle (ORCL), and EMC (EMC).
The growth prospects for either company aren’t much to get jazzed about. On the business computing side, HP’s software business remains lackluster, and the company’s cloud computing play is just getting going. HP Inc. must still face the reality that it completely missed the transition to mobile computing and that it lacks a blockbuster product that can keep pushing revenue higher.
HP has tried to counter all these negatives in the way you would expect. It’s arguing that splitting into two companies will allow each company to have better focus and to act more quickly. And that might be true.
Given how much time HP has spent weighing this move, one has to question the naming choices that were made. It’s understandable that HP would want to try to maximize its historic brand, but having Hewlett-Packard Enterprise and HP Inc. around at the same time seems not only confusing but also sort of a sad reminder of what once was. The company spun off Agilent (the original HP) many years ago, then acquired Compaq. With today’s moves, it feels like the time to lay to rest the idea that HP’s core identity has anything at all to do with the company built by Bill Hewlett and Dave Packard.
