HP to Split into Two Companies, One Dedicated to Enterprise Solutions, One to Personal Computing and Printing

HP Enterprise OfficeThis morning, Hewlett-Packard announced that it will be splitting into two new publicly traded Fortune 50 companies. One of the companies will consist of HP’s enterprise-technology infrastructure, software, and services businesses, which will do business as Hewlett-Packard Enterprise, while the other company will consist of HP’s personal-systems PC and printing businesses, which will do business as HP Inc. and retain the current logo.

HP says its decision to separate into two companies will provide each new company with better independence, focus, financial resources, and the ability to adapt more quickly to market needs..

More Details

Current HP Chairman, President and CEO Meg Whitman will be president and CEO of Hewlett-Packard Enterprise, and Pat Russo will be chairman of the Hewlett-Packard Enterprise Board.

Meanwhile, HP says the new PC and printer company, HP Inc., will expand into new technologies such as 3D printing and new computing experiences. Dion Weisler – a former executive at PC maker Lenovo – will be president and CEO of HP Inc. while Meg Whitman will be chairman of the HP Inc. Board.

HP expects the split to be completed by the end of 2015. HP shareholders will own shares of both Hewlett-Packard Enterprise and HP Inc. The transaction is intended to be tax-free for HP’s shareholders for federal income-tax purposes. HP must obtain final approval from the HP Board of Directors, receipt of a favorable opinion and/or rulings with respect to the tax-free nature of the transaction for federal income-tax purposes, and the effectiveness of a Form 10 filing with the United States Securities and Exchange Commission.

Today’s announcement comes as HP approaches the fourth year of its five-year turnaround plan. Over this time, HP says it’s successfully executed its turnaround objectives, having “reignited its innovation pipeline, strengthened its go-to-market capabilities, rebuilt its balance sheet, and inspired its workforce and management teams.”

“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,” said HP’s Whitman. “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.”

HP says both companies will be well-capitalized and expect to have investment-grade credit ratings and capital structures optimized to reflect their distinct growth opportunities and cash-flow profiles.

Hewlett-Packard Enterprise

HP says Hewlett-Packard Enterprise will have a unique portfolio and strong multi-year roadmap across technology infrastructure, software, and services to allow customers to take full advantage of the opportunities presented by cloud, big data, security, and mobility. By leveraging its HP Financial Services capability, HP says the company will be well-positioned to create unique technology deployment models for customers and partners based on their specific business needs. The company also intends for HP Financial Services to continue to provide financing and business model innovation for customers and partners of HP Inc.

Customers will have the same choice of how to deploy and consume technology, but, HP says, with a simpler, more nimble partner. The separation will provide additional resources, and a reduction of debt at the operating company level, to support investments across key areas of the portfolio. The separation will also allow for greater flexibility in completing the turnaround of Enterprise Services and strengthening the company’s go-to-market capabilities.

“Over the past three years, we have reignited our innovation engine with breakthrough offerings for the enterprise like Apollo, Gen 9 and Moonshot servers, our 3PAR storage platform, our HP OneView management platform, our HP Helion Cloud and a host of software and services offerings in security, analytics and application transformation,” said Whitman. “Hewlett-Packard Enterprise will accelerate innovation across key next-generation areas of the portfolio.”

HP Inc.

HP Inc. will be designed to be a “proven leader” in the personal systems (notebooks, tablets, and desktop PCs) and printing markets with new technologies on the horizon. HP says the new company’s strong profitability and free cash flow will enable investments in growth markets such as 3D printing and new computing experiences.

“Since assuming responsibility for the Printing and Personal Systems Group, Dion and his leadership team have done an excellent job of building our relationships with customers and channel partners, segmenting the market and driving product innovation,” said Whitman. “The creation of HP Inc. will only accelerate the progress the team has made.”

“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,” said Weisler. “As the market leader in printing and personal systems, an independent 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 3D printing and new computing experiences – inventing technology that empowers people to create, interact and inspire like never before.”

HP also reiterated its fiscal 2014 earnings per share outlook of $2.60 to $2.64. For fiscal 2015 it’s projecting net EPS of $3.23 to $3.43.

Our Take

In this case, the old cliche – “Only time will tell” – applies to how this division will affect HP’s printing group.  We can however look to the past at another IT company that had spun off its printer group – IBM.  In 1991, IBM spun off its printer group, which became Lexmark International. Since its inception, Lexmark has gone from marketing small desktop laser printers to a company that is “focused on connecting unstructured print and digital” information across the enterprise, and recorded $3.8 billion in revenue in 2012 – so that all-in-all, we can see that the printer-group spin off turned out well for Lexmark. HP executive vice president for its PC and printing business, Dion Weisler – who is the new CEO and president of the HP Inc. PC and printing company, and a former executive at PC makers Lenovo and Acer – also promisingly told CRN that he will continue R&D investment, “To take away from R&D is to cut your leg off.” HP is also promising to expand into  3D printing – an important announcement for 3D printing is scheduled for this fall – which is also promising.

More Resources

%d bloggers like this: