Hewlett-Packard executives are pulling together myriad internal teams that will be needed over the next several months as the giant tech vendor splits into two separate companies.
Speaking with analysts and journalists Nov. 26 about HP’s latest quarterly financial numbers, CEO Meg Whitman gave more details about the work under way to break apart a massive $111 billion company, which has about 275,000 employees, by this time next year. This would create what she has said will be two Fortune 50 companies, each with revenues north of $55 billion.
HP officials already have released some information about the controversial undertaking—last week the company unveiled the executive teams that will oversee the breakup—and Whitman promised more information as the months go on. During the earnings call, in response to an analyst’s question, the CEO outlined some of the steps being taken now by multiple teams and more than 400 employees.
That includes creating a corporation separation management office, which is charged with developing three years’ worth of historic financial details for many businesses within HP. This is new information that the company hasn’t generated in the past as a single company, Whitman said. Other officials are being asked to deal with “a very detailed analysis of tax and legal separation,” she said. “We have over 786 legal entities at this company, all of which have to be looked at and rationalized.”
The CEO also spoke more of the separation management offices that will oversee the strategies and cost structures for what will become the two new businesses: Hewlett-Packard Enterprise, which will sell commercial products, including servers, storage appliances, networking gear, enterprise software and services; and HP Inc., which will focus on PCs and printers.
In addition, there are other challenges being addressed, she said.
“There is also obviously the separation of IT that needs to take place,” Whitman said. “That will give us an opportunity to create an IT infrastructure for each company that isn’t based on our legacy IT system and isn’t based on a [legacy] manufacturing system, which for so many years it has been.”
The teams have monthly deadlines to meet, she said.
Whitman, who assumed the top post in 2011, and other HP executives in recent years had resisted pressure from some analysts and shareholders to shed HP’s PC business, which many had seen as a drag on the rest of the company. However, Whitman had pushed back at the idea, saying PCs were an important part of the overall business. In addition, her predecessor, Leo Apotheker, had suggested selling or spinning out the PC business, an announcement that was met with negative reactions and helped hasten the end of his 11-month tenure at HP.
That’s why it was surprising to many when Whitman in September announced plans to split HP in two, creating what she has said will be two more nimble, agile and customer-focused companies.
“It’s big and it is complex, but we’ve got the right people on it,” Whitman said. “I’m really heartened by how we have approached this. This is HP at its best, [being an] execution machine on the separation.”
For HP, the breakup process will give the company the chance to reassess everything it has and does, from go-to-market strategies to the supply chain, customer support, IT equipment and people, a sort of corporate housecleaning before a big move.
“It’s remarkable how it focuses the mind around overhead, around do we need exactly what we have today,” Whitman said. “What we are not doing is separating the company into two pieces exactly as it is today. We are using this opportunity to really think through how we will start, knowing what we know now. If you had a chance to restart these two Fortune 50 companies, how would you organize? That has been really interesting and will be really good for both these companies.”
HP Has 400-Plus Employees Working on Split
Chief Financial Officer Cathie Lesjak said during the conference call that the separation will be “as close as you can get to zero-base budgeting for two Fortune 50 companies, because every line item needs to be reviewed [and] every balance sheet item needs to be reviewed to do this split. It’s a huge opportunity for us to really take a different perspective with our cost structure.”
What this means for employees is unclear. Since Whitman announced a multi-year restructuring effort in 2012, the company has shed more than 41,000 jobs and plans to cut up to 50,000 to 55,000 once the reductions are complete. Whether more workers will lose their jobs after the company breaks in two is unclear. Savings derived by the job cuts already are being reinvested in the company, in such areas as R&D, Lesjak said.
The CEO talked about going on the road to meeting with investors and already is speaking with other parties. In the first 18 hours after the announcement, HP officials spoke with more than 38,000 customers and 69,000 partners.
“I would have to say that almost universally they are enthusiastic about this,” Whitman said. “They think it’s going to be good for them and good for their business, because we’ll have two more focused companies that have the ability to react faster to the marketplace and meet their customer needs in a more focused way.”
Some analysts have questioned the wisdom of the move, arguing that what will be created are two weaker companies. In addition, rivals like Dell and Lenovo already are looking to use the distraction and disruption caused by the split to lure away HP PC and data center hardware customers.
Whitman said a key to the success of the strategy is ensuring that HP as a single company meets its business targets in the coming fiscal year.
“The most important thing we can do to get these two companies off on their own is deliver this year while we execute the separation,” she said. “This is a big and complicated separation. It is the biggest separation that’s ever been done. It’s not a typical spin-off where you’ve got one big company spinning off a little part of the company.”