HP Breakup Confirmed: Remind Me, Where's the Growth?

Hewlett-Packard (HPQ) plans to break up into two companies -- one focused on enterprise IT solutions, the other focused on PCs and printers, HP confirmed today. Deeper details are expected Wed., Oct. 8. Even after the breakup, the key question for Current CEO Meg Whitman remains: Where's the growth?

This isn't the first time HP has explored a PC business spin-off. The company previously floated the idea in 2011, amid the ill-fated Autonomy acquisition. HP ultimately abandoned the spin-off plan, fired CEO Leo Apotheker, and named Meg Whitman to lead the company.

Whitman has since stabilized HP. For its Q3 results announced in August 2014, HP said net revenue actually rose 1 percent to $27.6 billion. Those results hinted at a PC business recovery.

Renewed HP Breakup Plan?

Now, The Wall Street Journal reported first, HP will break into two. The breakup will be organized as follows:

  • Company A, containing HP's PCs and printers: Featuring personal systems (where revenue was up 12% year over year in Q3 with a 4.0% operating margin) and printing (where revenue was down 4% year over year with an 18.4% operating margin.
  • Company B, containing HP's enterprise assets: This would feature the Enterprise Group (Q3 revenue was up 2% year over year with a 14.0% operating margin across industry standard servers, storage and networking); Enterprise Services (Q3 revenue was down 6% year over year with a 4.1% operating margin); Software (Q3 revenue was down 5% year over year with a 21.2% operating margin; and Financial Services (revenue was down 3% year over year; with an operating margin of 9.2%).

Meg Whitman will remain CEO of the enterprise business; Dion Weisler, an executive in the PC and printer operation, is to be CEO of that business, the Journal reported.

HP Enterprise vs IBM

HP's enterprise company would somewhat resemble IBM in terms of offerings -- though IBM has a stronger portfolio of cloud (SoftLayer) and mission critical software (DB2) offerings. HP's enterprise business, on the flip side, apparently would retain HP's x86 server business -- a market segment that IBM exited via sale to Lenovo recently.

The HP Enterprise business would also continue to compete fiercely against Oracle, Cisco, and Dell.

HP PC and Printers vs Lenovo

On the flip side, the HP printer and PC business would compete mostly closely vs. Lenovo, Dell and Apple, among others.

Where's the Growth?

When HP does break into two companies, the key question remains: Where are HP's growth opportunities in each of those two new businesses?

  • On the PC and printer fronts, HP has tried to differentiate beyond Windows-based systems but HP has not emerged as a de facto standard for Google Chromebook and Android systems. On the printer front, HP is not a leader in the hugely hyped 3D printer market.
  • In HP's enterprise business, the company's public cloud strategy is an also-ran vs IBM (SoftLayer), Microsoft (Azure) and Amazon Web Services. HP's IT services arm is an also ran vs. IBM Global Services. And in converged data center products, competition remains fierce vs. Cisco, Oracle, and IBM.

Time to Call EMC?

Still, HP CEO Meg Whitman deserves serious credit for stabilizing the company over the past two years. And HP has spent the past year or so having off-and-on M&A conversations with EMC Corp. If HP truly spins off its PC and printer operations, I wonder if Whitman will give EMC CEO Joe Tucci a new phone call...

Oh, and one more thing: Keep an eye on websites like The VAR Guy (my former stomping ground). There, you'll likely see whether HP's so-called channel partners favor or reject the  company breakup.

Updated Oct. 6, 8:26 a.m. ET: Story revised to reflect HP confirmation.

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