It looks like the "HP Way" is about to split into the "HP Ways."
Hewlett-Packard, one of the stronger American business juggernauts for 61 years of the 20th century, simply hasn't found the beginning of the next millennium all to its liking. The venerable Palo Alto, Calif.-based IT giant indicated Oct. 6 that, in order to survive in the new-gen economy following about 15 years of stumblebum business decisions made by turnstile C-level leadership, it will break into two separate, publicly traded companies.
One, currently based in Houston—the former location of Compaq, which HP bought a decade ago—will be called HP Inc. and will continue to make PCs and printers. It remains to be seen as to whether that entity will continue to be based in Texas. The second company, which will be dubbed Hewlett-Packard Enterprise and will keep the corporate logo, will do what HP has always done: develop enterprise software, put together various solution packages and support both with specialized services.
Whitman to Remain in Charge
CEO Meg Whitman, starting her fourth year in the job, will remain the top executive at Hewlett-Packard Enterprise and will also become chairman of the board of HP Inc.
The transaction is expected to be completed by October 2015, the end of HP's fiscal year, the company said.
HP becomes the largest currently operating major all-purpose IT provider to make such a radical split. Old-line competitors Cisco Systems, Oracle and EMC—also suffering through making the transition to the mobile, cloud and on-demand IT economy—are no doubt taking notes. IBM and Xerox have been there, done that.
The irony here is palpable. Somewhere, former CEO Leo Apotheker, resting on his $14 million golden parachute, is saying, "I told you so."
CEO Wanted to Do This Three Years Ago
During his tempestuous 11-month reign as Whitman's predecessor in 2010-2011, the former SAP chief executive turned in a long-range plan to do exactly what HP decided to do three years later. His suggestion was, to say the least, not welcomed by the board of directors, who looked at the $41 billion in revenue the PC division banked in 2010 and said, "Um, no way."
It didn't take long after that for the board to run him out of the CEO office.
After three years of flat and unpromising financial results, that attitude obviously has changed. But is it the right move for the long term? The debate is just starting on that point. If one looks for a precedent, there are two: IBM has sold off virtually all of its hardware businesses (PCs, servers, storage), and the jury is still out as to whether that was the right road to take, since that huge company is also treading water.
Xerox broke out its Xerox PARC research division into a separate entity in 2011.
During a conference call early on Oct. 6, Whitman explained why the company will break the PC/printer business out now rather than several years ago. She said in essence that the strength of the company's turnaround efforts over the past couple of years is what has allowed it to make the split now; that it is a different, stronger company now than it was then; and that three years ago, it made sense to keep it together as a single company.
Split Would Have Be More Expensive in 2011, Whitman Says
In addition, Whitman noted that if the company had spun off PCs and printers as Apotheker wanted three years ago, it would have cost an estimated $1 billion in incremental costs to build a new brand around the company, which hadn't yet been merged into a single business unit. There hasn't yet been an estimate of how much this transition will now cost HP, and it certainly won't be cheap.
The PC and printer businesses were merged into a single business unit in 2013, and the new company will be helped by keeping the HP brand and the blue logo. "We really solved the brand issue," Whitman said.
Whitman also pointed out the value of the continuity of leadership, such as her remaining as CEO of Hewlett-Packard Enterprise while serving as chairman of the HP Inc. board.
Analysts were beginning to formulate opinions early on Oct. 6. Rest assured, this is a topic that will be common in boardrooms and cocktail parties for a long while to come.
HP, despite its troubles, has always been a company IT people respect. When it makes a move like this, the repercussions go far and wide.
"Customers have had a love-hate relationship with HP software for eons," Forrester Vice President and Research Director Glenn O'Donnell said in a media advisory. "There are great ideas there, but a failure to execute. However, there is hope. The Autonomy acquisition ($11 billion in 2011) is starting to give the software portfolio value—slowly.
"Still, many stalwarts of the software unit have languished, including its once premier operations and application performance families. HP needs to fix its software business, or it is toast. Too much of this unit is still aimed at an IT agenda, rather than the business technology agenda. It needs both. It lacks products that are appealing to the business side," O'Donnell said.
HP's data center hardware is excellent, O'Donnell said. "The software to drive it is good, however [it is] still somewhat fragmented and convoluted. Hardware is important, but without the software and attention to a broader technology ecosystem, hardware alone is not going to win."
Key Questions Remaining
It's debatable as to whether HP has solved its "brand issue," but the questions are these:
- How much has the brand been hurt by the last 15 years?
- By splitting into two companies, does that really solve the problems—or does it just distribute them onto different corporate charts?
- And, the most pertinent questions of all, if Bill Hewlett and David Packard were alive today, would they believe what all has happened? What decisions would they have made? Who would they have hired to run the company?
One thing's pretty clear: Those two visionary gentlemen who wrote the book, "The HP Way," were clear on the path they were taking. If they were alive today, they'd be quite dismayed by the fork in the road that HP Way has taken.
eWEEK Senior Editor Jeff Burt contributed to this report.