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HP splits into two companies

HP was started by Bill Hewett and Dave Packard in 1939 in a Palo Alto garage in California, hence the name Hewlett-Packard (HP). The stock of HP peaked during the 1990s’ tech bubble burst. The shares of the company have tripled since November 2012, when it had experienced an all time low. In the past decade, HP has made many acquisitions and changes in leadership inspite of which its numero-uno position in the pc market has been snatched. And now, earlier this month, the current CEO of HP Co., Meg Whitman has announced a split in the company which means HP will split into computer and printing businesses (HP Inc.) and hardware and networking services (HP Enterprise). HP’s lead independent director, Pat Russo, will be chairman at the new enterprise company while Dion Weisler, executive vice president of HP’s printing and computers business will be HP Inc.’s president and CEO. Whitman will be the non-executive chairman of HP Inc.’s board.

This splitting of a major powerhouse is nothing new as E-bay has announced its split recently while Oracle’s Larry Ellison has handed the reins of the company to former HP CEO, Mark Herd and Safra Cruz. Even Michael Dell has taken Dell computers private. According to Silicon Valley investor and entrepreneur, Marc Andreessen, companies which have spent more than 20 years in the industry will split up soon to achieve profits. This may include giants like Microsoft and Apple   among many others.The first time HP split came in 1999 when it separated the test and measurement equipment division as Agilent. HP is splitting to invest in M&A and R&D and separate its printing enterprise from its networking services . The objective of this is to focus on each of the entity separately and attain profitability.

But, this split has not been a sudden panic decision but one that has been in the offing for a decade. HP bought Compaq computers in 2001to strengthen itself and compete with then competitors, Dell computers and IBM. And then after nearly a decade, it acquired Palm, a nearly bankrupt software company, to compensate for missing the mobile computing ship. Its acquisition of British software company, Autonomy, for an exorbitant amount ($10.3 billion) annoyed the stakeholders resulting in a lawsuit for the company. This acquisition pitted them against, Oracle and IBM. Before announcing about the split, HP was trying to make a merger with EMC which is facing a leadership crisis as their long-term CEO, Joe Tucci, is retiring.

But these acquisitions were accompanied by flawed decisions and its resultant change in leadership. Although the changes in leadership were brought in time to make changes in the system, there was never a significant transformation at HP Co. Firings of CEOs Carly Fiorina, Mark Hurd and Apotheker signaled a sense of intent in the boardroom. But, the controversy involving spying on board members and reporters gave HP a lot of negative publicity. Plus, Apotheker’s time as the CEO was short and stormy.

IBM and HP have both missed the mobile computing bandwagon by focusing on PC devices. The fact that they didn’t outsource manufacturing/designing/marketing part of their company strategy while still not making any noteworthy innovation is one of the things that has kept them behind in technological advances in the past decade. HP has been leading in providing printing and networking services and can continue to do so if focus and financial services meets flexibility.

Chinese PC and Smartphone manufacturing company, Lenovo Group Ltd., recently overtook HP as the world’s largest PC maker. It made this possible by developing smarter devices like the Yoga convertible PC which many companies including HP have imitated. After this, Lenovo acquired Motorola  from Google thereby expanding their mobile computing domain by entering into the U.S markets. In short, they banked on innovations and made the right acquisitions, something HP clearly failed to do. HP’s market value of $66 billion is dwarfed by Apple’s market value of $596 billion and Microsoft’s market value of $380 billion. HP, being older than both the companies, needs to reinvent itself to stay competitive.

And this need has been recognized by the current CEO, Meg Whitman. She said recently that the decision to separate into two market-leading companies underscores their 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 their successful turnaround efforts, they will be in an even better position to compete in the market, support their customers and partners, and deliver maximum value to their shareholders. It has also decided to cut 5000 more jobs after already having laid off 50,000 people this year.

Whitman also seeks to increase the market share of the company’s storage and networking business. Their networking business every year gains a little bit more share. HP should make necessary arrangements to directly compete with Lenovo.HP’s record with diversifying its product line, however, is full of one-off experiments that were chucked when they didn’t immediately connect with customers. For example, the Slatebook X2 was an Android hybrid that was promising despite problems but HP threw that concept away. The new HP Inc. needs to tell customers about its beliefs through innovations and offer them a choice besides Lenovo. HP’s foray into 3D-printing may be a right step forward although the value of the supposed breakthrough is still doubtful. Will the split combined with increased market share and renewed objectives of focus and flexibility achieve the desired success? Only time will tell.


Author: Vivek Subramanian

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