HP confirms plans to split in two: Being nimble is the only path to winning

Updated: Hewlett-Packard Enterprise will target business customers, HP Inc will sell printers and PCs, but another 5,000 jobs go.
Written by Steve Ranger, Global News Director
HP is to split into two companies. Image: HP

HP has confirmed its plans to split into two separate companies, one focusing on enterprise IT, the other on PCs and printers.

It's a major reshaping of one of the biggest names in the technology world. One company will do business as Hewlett-Packard Enterprise, and will be made up of HP's enterprise technology, software, and services businesses. The other company, made up of HP's PC and printing businesses, will be called HP Inc. and will retain the current logo. Because of the scale of HP, both businesses will be Fortune 50 companies, the company said.

The process is expected to be completed by the end of HP's 2015 financial year; HP shareholders will own shares of both Hewlett-Packard Enterprise and HP Inc.

According to HP, Hewlett-Packard Enterprise will be a $58.4bn revenue company, with $6bn of profit giving it a 10.2 percent margin. It will be made up of HP's enterprise group (48 percent) its enterprise services (39 percent) and its software and financial services business (seven and six percent).

HP Inc will be a $57.2bn company with a $5.4bn profit and a slightly lower 9.4 percent margin. It is made up of two business – the personal systems group (59 percent) and printers (41 percent).

The decision to separate into two companies will give each the independence, focus, financial resources, and flexibility it needs to adapt quickly to market and customer dynamics, according to HP's CEO Meg Whitman.

The announcement comes as HP approaches the fourth year of a five-year turnaround plan. "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," she said.

HP previously considered spinning off the PC business in 2011 under former CEO Léo Apotheker, but the idea was shelved under Whitman who said "together we are stronger".

In 2011 the company said it had analysed "the significant extent" of the contribution its PC business made to HP' portfolio and overall brand value, which "showed that the cost to recreate these in a standalone company outweighed any benefits of separation".

But the company argues that the work it has done on restructuring since then makes a split possible, and on the conference call Whitman said: "Being nimble is the only path to winning."

The company also said on the call that 5,000 additional jobs will also be lost at the company — but said that this is separate to the plans to split into two.

Whitman will become president and CEO of Hewlett-Packard Enterprise while Dion Weisler, executive vice president of HP's Printing and Personal Systems business, will become president and CEO of HP Inc. Whitman will serve as non-executive chairman of HP Inc.'s board of directors. Pat Russo will move from lead independent director of HP to chairman of Hewlett-Packard Enterprise.

HP said that HP Enterprise will focus on "organic investments" plus some targeted M&A — in contrast, with its strong cash flows HP Inc. will aim at organic investments in key technologies across printing and personal systems and maintaining return of capital to shareholders.

The company said Hewlett-Packard Enterprise would benefit from the separation because a reduction of debt "at the operating company level" would allow it to invest in key areas. Whitman pointed to HP's Moonshot servers, 3PAR storage and HP Helion Cloud as particular areas of innovation. On the HP Inc. side 3D printing is likely to be an area of big investment.

As Larry Dignan points out, splitting into two companies ought to give the new businesses a chance to focus and prioritise in a way that has been hard until now.

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