Last week, Silicon Valley tech magnate Hewlett-Packard (HPQ) announced it would split into two companies focused on computing (B2C) and enterprise (B2B) operations. According to company sources, the prospect of splitting the technology giant into two separate entities has been under discussions for months. HP is currently divided into multiple sectors, including: PC and printer development, server/routers (enterprise) solutions, and big data analytics software/hardware. According to reports, the personal computing and printing group will comprise one HP company, while the enterprise solutions and big data construction group will form the other.
Current CEO Meg Whitman took control over HP back in 2011, in an effort to restructure HP’s struggling business operations. While the tech company was once at the forefront of Silicon Valley innovation, it has been marred by a series of setbacks since the tech bubble burst. Many of HP’s problems began back in 2010 when it bought Palm, for $1.2 billion, in an effort to enter the mobile device market. At the time, Palm was nearing bankruptcy and the purchase ultimately failed to produce any revolutionary mobile phones. As if this blunder wasn’t large enough, HP also pursued a company by the name of Autonomy. After many negotiations, shareholder scrutiny, and activist outrage, HP acquired the data analytics company in 2011 for $10.3 billion; this acquisition is regarded as the most flawed business deal to date. In paying slightly over $10 billion for Autonomy, HP reached an unfathomable internal valuation of $11.7 billion for the company. However, Autonomy’s market performance in no way justified this figure, and shareholder concerns ultimately proved warranted. In 2012, HP announced an $8.8 billion accounting “write-off” after revealing it had been “misled” by Autonomy officials, resulting in lawsuits that continue to this day. This revelation suggests that HP paid a 587% premium for Autonomy, if the company is indeed, in actuality, valued at $1.5 billion. Thus, in the span of two years, HP executives wasted $10 billion (Palm and Autonomy).
In light of management’s inconceivable incompetence, HP has recently attempted to reignite its R&D pursuits. Not surprisingly, HP’s innovational efforts have failed, with the exception of a tablet (which HP illogically killed). Furthermore, attempts to redirect HP have led to thousands of “lay-offs;” a tactic to buy more time for the managerial team. Unfortunately, HP’s new grand divisional scheme cost the company an excess of $10 billion, 29,000 layoffs, and volatile stock performance. Arguably, none of these factors were necessary. A consulting firm, or team of toddlers, could’ve easily come to the conclusion that the company should split (without such high costs).
With that said, the splitting of HP into two companies is indeed a sound move. Presently, HP is trying to innovate in so many divisions that it is effectively a disorganized mess. HP continues to fail in its production of cornerstone products, which is magnified by consumer disinterest in the company. HP recently lost its #1 ranking for PC market share to Lenovo, while other metrics continue to display HP’s struggles.
In the face of declining PC sales, Whitman claims that the company is still devoted to computing development. In fact, Whitman declared that she will oversee the new PC/printer (B2C) HP company. Nevertheless, Whitman understands that personal computing is a seemingly profitless business, since margins are incredibly low for every producer except Apple (AAPL); mobile computing is the next big market. Whitman and her developers will undoubtedly focus on creating new tablets, mobile computing solutions, and maybe even smartphones. Additionally, HP will inevitably set a new precedent for consumer 3-D printing; much like it did with personal printers. As for the B2B enterprise solutions firm, HP has recently released a well-regarded Moonshot server system that should help management with its two-company transition. Its corporate big data solutions also continue to impress in a market that is increasingly saturated.
HP’s attempt to split the company relates to efficiency, something it has long failed to exemplify. By dividing into two smaller companies, HP will streamline its large, clunky and disorganized structure. Represented by separate B2B and B2C firms, HP will be able to effectively allocate resources and increase flexibility; moreover, this split will allow either company to more easily be taken private (HP recently exited failed merger talks with EMC).