Analysis: By splitting into enterprise and device business will HP finally achieve its turnaround?
Hewlett-Packard has confirmed rumours it will divide into two separate companies – splitting its corporate hardware and services arm entirely from its PC and printing empire.
Hewlett-Packard Enterprise will focus on the firm’s servers, storage, networking and converged systems offerings, along with services and software and its OpenStack Helion cloud platform.
HP Inc, meanwhile, will comprise the legacy businesses of personal computing and printing – looking to expand into the 3D printing market.
CEO Meg Whitman, who will become chairman of HP Inc, said it is the latest move in her five-year restructuring programme to restore HP to its former dominance, after losing out to Lenovo in 2013 as the world’s top PC manufacturer.
She said: "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."
Shares rose 6.25% in pre-market trading following rumours of the split, though Quocirca analyst Clive Longbottom believes it is a move that should have taken place years ago.
"It is an interesting possible move," he told CBR. "One that should have been taken a long time ago. Now, it has a redolence of yet another HP ‘rearrange the deckchairs’ strategy."
But Creative Intellect UK’s Bola Rotibi sounded a more positive note, saying it would give HP more room to focus on what are fairly diverse areas of the company.
"It allows them to keep a support arm and not get bogged down from an organisational point of view in hardware," she said.
"The challenge with HP is it’s been saddled with worries about its various businesses, it’s been difficult for it to hold its own against more targeted strategies from not just IBM but other players like VMware."
While Lenovo became the top PC player last year, HP did claim the most revenue in server shipments in 2014 according to a Gartner survey, while it told CBR recently that it planned to capitalise on Windows Server 2003 expiry with its new range of ProLiant 9 servers.
HP Split Facts
HP’s third quarter revenue came to $27.6bn
Its non-GAAP profit for the period was $2.3bn
Its ‘Personal Systems’ division revenue hit $8.6bn, with an operating profit of $346m. HP said desktops revenue was up 8% year on year.
Its ‘Printing’ division fared less well, with both total hardware units and supplies revenue down 5% despite operating profits of $1.03bn
On the back of the rumours it will sell its PC and printer divisions, HP’s shares jumped 6.25% on the New York Stock Exchange
HP Inc will push into 3D printing and what the company terms "new computing experiences" under its very own CEO, Dion Weisler.
He said: "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.
"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 – inventing technology that empowers people to create, interact and inspire like never before."
And analysts believe HP could do well in what is a growing market, despite the existence of 3D printing for at least a decade, as the technology becomes cheaper and more widely available.
Longbottom said: "What is out there is still pretty 1.5 generation (outside of 3D metal printing for e.g. Formula 1 and laser bath monomer to polymer printing)," he said. "Liquid polymer printing is where the market for general 3D printing will be – and HP has the capability to create well designed and engineered systems at reasonable cost.
"It would be good to see a proper range of 3D printers from a company which has a good brand and a solid reputation out there."
Creative Intellect UK’s Rotibi added: "There’s quite a bit of space to innovate there, it’s not over and done with."
Current Analysis principal analyst Amy DeCarlo said the split would make HP a more agile company.
"This is a good thing for HP, at least from the services perspective," she claimed.
"In its current state, HP is too massive to move with the kind of agility the market requires of technology companies today. By separating the business into two companies, one that targets the enterprise and one concentrating on the consumer, HP has an opportunity to create two corporations that still have the scale to serve a large customer base with diverse requirements but at the same time can be much more focused and dynamic.
"The services business should gain the ability to evolve its portfolio at a more rapid rate. This new company will be able to make the appropriate investments and acquisitions to meet the rapidly changing needs of its customer base."
While shares rose on the back of the news, HP has not convinced shareholders it is healthy again yet.
Global PC shipments dropped by 2.9% to 32.5 million in the second quarter of this year according to IDC, and with a 12% stake, HP trailed both Dell (15%) and Samsung (12.8%).
TechMarketView analyst Kate Hanaghan said: "While Whitman’s turnaround programme has helped to create some improvement in the business of late, there is still a way to go in terms of creating sustained profitable growth across all of HP’s current businesses."
And Longbottom believes lumping PCs and printers together could make any further failings in the personal computer market all too evident to investors.
"PCs are a falling business – when print was put with them a while back, it was pretty apparent that the idea was to hide any problems in the PC business by matching it with the very well-performing print stuff," he said. "It would be harder to hide and PC problems in a company that really only did personal computing plus print."
Hanaghan reckoned that HP as one company is too big to keep up with more nimble rivals.
"Evolving to compete in this setting is a highly challenging balancing act that involves growing revenue in emerging areas while retaining ‘bread and butter’ business where it makes financial and/or strategic sense. Bold moves will be an absolute necessity for success," she said.