Evan Vitale Consulting: Silicon Valley giant Hewlett-Packard to split in two: WSJ

Sunday, October 5, 2014

Silicon Valley giant Hewlett-Packard to split in two: WSJ – Reuters

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A Hewlett-Packard logo is seen at the company’s Executive Briefing Center in Palo Alto, California January 16, 2013.

Credit: Reuters/Stephen Lam

(Reuters) – Silicon Valley stalwart Hewlett-Packard Co, which has struggled to adapt to the new era of mobile and online computing, plans to split into two companies as it looks to put more focus on the faster-growing corporate services market, according to a Wall Street Journal report on Sunday.

The move, which could be announced as early as Monday, would be a monumental reshaping of one of technology’s most important pioneers, which still has more than 300,000 employees and is on track to book $112 billion in revenue this fiscal year.

Under the reported plan, HP will separate its computer and printer businesses from its corporate hardware and services operations, and spin the unit off through a tax-free distribution of shares to stockholders next year.

A company spokeswoman declined to comment on the report.

HP’s printing and personal computing business accounts for about half its revenue and profit, according to last quarter’s financial results. It is not clear how many of HP’s more than 300,000 staff work in each of the planned businesses.

Founded by Bill Hewlett and Dave Packard in a Palo Alto, California garage in 1939, HP was one of the companies that shaped Silicon Valley and the PC revolution. Lately, however, it has struggled to adapt to the shift towards mobile computing, and it has been overshadowed by younger rivals.

HP’s market value of $66 billion is dwarfed by Apple Inc’s $596 billion and Microsoft Corp’s $380 billion.

It has also been overtaken by aggressive Chinese PC maker Lenovo, which is now the world’s No. 1 PC maker by shipments. Dell, which is HP’s closest U.S. competitor and facing similar pressure, was taken private by founder Michael Dell last year.

SPIN-OFF TREND

HP is the latest in a line of companies, often under shareholder pressure, to spin off operations in an attempt to become more agile and to capitalize on faster-growing businesses. Last week online auction company eBay Inc said it would spin off electronic payment service PayPal.

HP and some of its investors have long considered such a move, the Journal report noted. As one of the older big computer companies, for several years HP directors have discussed ways to restructure to keep up with technology upstarts.

A source familiar with the matter said HP had held merger talks with storage and cloud-computing firm EMC recently, as a way of moving more forcefully into online services.

Many investors and analysts have called for a break-up of the company, or a sale of the personal computer business, so that HP could focus on the more profitable operations of providing computer servers, networking and data storage to businesses.

Company executives have said in the past that personal computers underpin and support the company as a whole. HP did consider spinning off its PC division in 2011 under then-CEO Leo Apotheker, but ultimately decided against the idea.

The PC business has shown signs of life in recent quarters, growing broadly geographically as businesses replace aging machines. Even so, the report of the plan to split off that business surprised some on Wall Street.

“I wonder what would have changed in the board’s thinking that previously they thought they needed computers together with services to properly serve large enterprises to now,” said Hudson Square Research analyst Daniel Ernst.

“PCs and printing remain in long-term secular decline, and while HP has managed that business well, the challenges for that portion of the split company will only grow as the demand continues to erode, and commoditization forces prices down further.”

The Journal, citing one of its sources, said the plans call for current HP CEO Meg Whitman to become CEO of the new so-called enterprise company and also be chairman of the PC and printer company.

Current HP lead independent director Patricia Russo would be chairman of the enterprise company. The CEO of the PC and printer company would be Dion Weisler, who is currently an executive in that division, the report said.

(Reporting by David Henry in New York, Edwin Chan in San Francisco and Bill Rigby in Seattle; Editing by Chizu Nomiyama)

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