Hewlett-Packard is reportedly breaking off its PC and printer businesses from its enterprise unit and the move — arguably overdue — is likely to benefit both independent companies in the future.
According to the Wall Street Journal, HP is planning to break into two companies and announce a deal as soon as Monday. The move isn't surprising, but does raise a "why now?" question. In 2011, HP evaluated a PC business split, but kept the division in part because it needed the supply chain scale for servers. Then CEO Leo Apotheker floated the PC spin-off without much of a plan and hurt the unit by putting it in limbo.
Update:HP confirmed the split. HP CEO Meg 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.
In 2012, Whitman merged the PC and printer businesses. Given HP's structure, breaking into two shouldn't be that difficult.
Overall, the split could turn out to be a good thing.
Patrick Moorhead, president of Moor Insights & Strategy, said a split makes sense on many fronts and could be a good move for HP:
"The PC and printer business could focus on their product life cycles, sales cycles and distribution channels which are different from the enterprise hardware, software, and services businesses. The unknown is what it would mean to HP’s massive supply chain, which gives them a cost advantage in many areas today."
Here's why an HP split makes sense:
Focus. It's not clear that HP in its current state can focus on all the required areas needed to win. HP has been late to the 3D printing party and its PC unit lost the No. 1 market share spot to Lenovo. In contrast, the enterprise unit has some promising efforts. HP's Moonshot servers are interesting and the company has put together some big data products and software that are growing quickly. But that far-from-complete list of HP moving parts illustrates the company's problem: There isn't enough focus on any one area to really dominate.
Research and development spending. Whitman is reversing HP's R&D investment slide. But HP as currently constitute has a printer and PC division fighting for innovation spending with the enterprise side of the house. That's a lot of hands in an R&D pie that equates to about 3 percent of revenue.
One unit has the option to go private. HP's printing unit is a total cash cow that has all the makings of a private company. As one mammoth company, it would be almost impossible for HP to go private. Now each side of the company can realistically weigh its options. Going private, which is certainly popular with the likes of Dell, Tibco and BMC Software all ducking out of the public markets, can lead to more strategic long-term moves.
HP needs more software and cloud. The weakest part of HP is its software unit, which should be a larger part of sales. The issue for HP is that the software unit needs massive numbers to really move the revenue needle overall. As part of a smaller enterprise unit, HP Enterprise could plot a merger with an enterprise juggernaut like Red Hat or pick up SaaS companies.
HP Enterprise is easier to swallow for a larger player. HP has reportedly had talks with EMC, but the price tag and business structure complicated a deal. What would EMC want with a PC business? Printers?!? Should HP ditch the PC and printing unit and EMC-HP Enterprise deal looks much more interesting.