HP CEO Whitman: Turnaround Efforts Made Split Possible

By Jeffrey Burt  |  Posted 2014-10-06 Print this article Print

A problem for the company has been that "fundamentally, they have two gears at HP. One is really, really big and works slower than the other gear … and those gears have been gnashing against each other," Moorhead said.

The development, sales and distribution cycles in the PC/printer and enterprise IT industries are vastly different, making it more difficult for the company in such areas as administration, sales and innovation. In addition, it could make it harder for, say, the PC group to go in directions it may have wanted because it was tied so closely to a slower-moving IT enterprise business, he said. HP's size was making it unwieldy.

"Splitting the two allows them to become more nimble," Moorhead said.

Roger Kay, principal analyst with Endpoint Technologies Associates, isn't so sure.

"The ostensible reasons for dividing the company are twofold: smoothing operations and 'unlocking value,'" Kay said in a column on Forbes.com. "It's true, HP is a large, difficult-to-wield company, but the philosophy of  'better together'—espoused by Carly Fiorina, HP's CEO in 2001 when the company picked up the former Compaq to form what became the industry's largest PC company—has held until now. One of the key reasons for 'better together' was component costs, which decline with volume. By spreading purchasing across both PCs and servers, costs for the most expensive parts—displays, processors, memories and disk drives—can be kept to a minimum. HP will lose these synergies in a spinout."

He also questioned whether it is easier having two CEOs running different companies rather than two division heads running separate businesses within the same company. In addition, customers that now have to deal with sales representatives from a single company will now have to work with people from two different companies.

In addition, Kay said the idea of unlocking value is more about stock price than anything else, including better operations.

HP's decision mirrors a growing trend in the tech industry toward smaller, more narrowly focused companies over huge IT behemoths. Other major vendors also are spinning off parts of their business—auction site eBay is making its PayPal online payments business a separate company, IBM continues to shed businesses (most recently, its $2.1 billion deal to sell its x86 server business to Lenovo), Juniper Networks sold its Junos Pulse mobile security operation to private equity firm Siris Capital. In addition, storage giant EMC is under pressure to sell off the 80 percent stake it has in virtualization pioneer VMware. Recent reports indicated that EMC and HP over the past year had discussed merging the companies.

Whitman said the rapidly changing enterprise IT environment played a role in the decision. Trends like mobile computing, security, big data and the cloud are changing how businesses are buying and using hardware and software, and HP—like most major IT companies—is working to keep up with the pace of the change. That includes new products—like the hyper-efficient Moonshot servers—to cloud efforts to services aimed at helping businesses not only better run their current IT infrastructures but also to migrate to this new way of computing, she said.



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