Hewlett-Packard To Announce It's Splitting In Two

Three years after then-new CEO Meg Whitman reversed then-ousted CEO Leo Apotheker’s plan to split Hewlett-Packard into two companies, the Silicon Valley stalwart intends to announce just such a rending later today. It will divide into one company selling personal computers and printers; a second will market servers, networking and other products to the corporate market, according to several stories. 

The development, first reported by the Wall Street Journal’s Joann S. Lublin, Dana Mattioli, Dana Cimilluca and Shira Ovide yesterday, roused tech reporters around the world from their weekend pursuits to gather details and reactions from parties other than HP, which officially had “no comment,” according to spokeswoman Sarah Pompei.



Nonetheless, “the split is upon us,” a “person familiar with the HP board’s discussions” confirmed to the New York Times.

“HP is considered the foundational Silicon Valley company, originating in a garage and then serving as a training ground for several generations of technology leaders,” write the Times’ Quentin Hardy and David Gelles. “Its changing fortunes are a mark of how much the technology industry, which has reordered many areas of the business world, is now doing the same to itself.”

HP, which “lost its place as the largest PC maker by shipments” to China’s Lenovo Group in 2013, according to IDC data, “is expected to make the split through a tax-free distribution of shares to stockholders next year,” according to one of the WSJ’s sources. 

“Ralph Whitworth, an HP investor who until recently was its chairman, said about the news in a text message [to the WSJ] Sunday: “This would be a brilliant move at just the right moment in the turnaround,” write Lublin, et al. “It would liberate significant trapped value.” 

But beyond the implications for investors, the separation is expected to make each of the entities more fleet of foot operationally.

“It’s a good idea for them to do this,” computer industry analyst Patrick Moorhead tells the Times’ Hardy and Gelles. “HP is such a massive company, and they must have looked at the company and decided that the benefits of moving at the right speed outweigh the cost savings.”

“CEO Meg Whitman, who has led a multiyear restructuring, would serve as chairman of the PC and printer business and CEO of the separate company, which would be chaired by HP's current lead independent director, Patricia Russo, according to several published reports,” writes Wendy Koch in USA Today.

Whitman was rejecting such a “scenario … as recently as last year,” recallsBloomberg Businessweek’s Jack Clark, “saying more time was needed to restore the company’s stature as the innovator that put Silicon Valley on the map.”

“‘If you try to hive a division off, it’s really hard because you almost have to recreate the whole thing,’ Whitman told Bloomberg News in 2011. Last year, Whitman defended her strategy for the company, saying it ‘will be one of the great comeback stories in American business,’” Clark continues.

HP has, indeed, turned the massive ship around in increasingly turbulent seas, as Barron’s Jack Hough reported in April. “Costs are down, debt has been slashed, and free cash flow is plentiful,” he wrote. But, as Hough immediately pointed out, “There’s also much to worry about: Personal computers and printers are in long-term decline; competition in servers is fierce; and overall revenue is slipping, albeit at a slowing pace.”

Today’s announcement will “end a controversial, 13-year chapter in HP’s history that began when then-chief executive Carly Fiorina agreed to buy Compaq Computer, one of the largest U.S. PC makers,” write the Financial Times’ Richard Waters and Sarah Mishkin. “Dissent from some members of the HP founders’ families almost led to a rejection of the deal by shareholders.”

Another misstep — which was squarely blamed on Apotheker, who in turn squarely blamed the board — was the purchase of British software company Autonomy for $11.1 billion in 2011.

“A year later, HP said the firm was worth $8.8 billion less, accusing Autonomy of misleading them over the true value of the company,” the BBC reports. “HP recently called for Autonomy's founder and former boss, Michael Lynch, to ‘be held accountable for fraud.’”

The board was also squarely behind Whitman’s resolve, until now, to keep the company intact.

“I wonder what would have changed in the board's thinking that previously they thought they needed computers together with services to properly serve large enterprises to now,” said Hudson Square Research analyst Daniel Ernst in a Reuters piece reported by David Henry, Edwin Chan and Bill Rigby. 

“PCs and printing remain in long-term secular decline, and while HP has managed that business well, the challenges for that portion of the split company will only grow as the demand continues to erode, and commoditization forces prices down further.”

Ah, commoditization. The death of all things differentiating.

Next story loading loading..