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HP’s Sort-Of Breakup: Good And Bad Outcomes For A Vendor In Transition

by Ezra Gottheil, principal analyst at Technology Business Research

hewlett-packard-logo

HP announced today its plans to break its company in half over the course of the next year. The two halves — Hewlett-Packard Enterprise and HP Inc. — will be separate business with separate financials and stock, but both overseen by Meg Whitman as CEO and Chairman, respectively. Hewlett-Packard Enterprise comprises the Enterprise Group, Enterprise Services, Software and Financial Services. HP Inc. consists of Personal Systems and Printing.

Based on performance over the last year, the two halves are approximately equal in revenue and operating profit.

TBR believes there are both positive and negative consequences to the separation. HP’s task for the year is to mitigate the downside and magnify the upside.

The bad news (for HP) first:

– Confusion and uncertainty among many of HP’s channel partners and customers. HP will reassure both groups, but some will take this occasion to reevaluate their partners or vendors, to the benefit of HP’s competition, notably Lenovo and Dell. This is more a matter of perception than reality; HP currently deals separately with customers and channel partners through its business units.

– Potential loss of some real synergies in the supply chain and sales process

– Potential division of key assets, especially HP Labs

The good news:

– Cleaner and more beneficial alliances; HP Inc. works closely with Google, and will be separate from Hewlett Packard Enterprise, which competes with Google on cloud services. HP Enterprise works closely with Microsoft, which is not likely pleased about HP Inc.’s dealings with Google.

– More focused marketing and overall GTM; HP Enterprise will focus on businesses, especially large enterprise. HP Inc. will market and sell to business, but also to consumers.

– Each company will have more flexibility in investing its resources where there are opportunities, without taking into account the concerns, issues or competition for resources of the other company.

– Each company will have more freedom to restructure as it sees fit. One or the other company may move toward a merger or privatization, something that would be more difficult for the larger combination.

– The separation of the two companies will give each one more time to “turn around” or redefine itself, in the eyes of financial markets and analysts. TBR believes HP is running well in mature market segments faced with disruption, but the financial markets are showing impatience with the company.

HP plans to take one year to execute the separation of the two companies, and in the end they will not be completely separate, having common top leadership. In many cases the relationships between the two companies will be almost identical to the relationships among the separate business units of HP prior to the split. There will be partnerships, handoffs and financial arrangements between the two companies similar to the current ones inside HP.

At the same time, HP’s business units will also be doing what they are doing now — refining their business models and working on improving their execution. The question isn’t whether HP will be further along in a year; it will. The question is whether the company will be further along than it would have been without the division.

 

ezra gottheil

Ezra Gottheil is a principal analyst in TBR’s Computing Practice, for which he is team lead on coverage of Apple, Asus, Acer, Dell hardware, Google devices and platforms, HP hardware, Lenovo, Microsoft devices and platforms, Samsung, Sony, and Toshiba. Ezra is also a principal researcher on projects including consumer and business tablets, PC warranties, PC supply chains, Device as a Service (DaaS), ChromeOS, BYOD, mobile device strategies, app stores, and social networking.

 

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