On Monday Silicon Valley stalwart Hewlett-Packard announced its splitting itself into half in order to stay competitive. The 75-year-old Palo Alto firm has decided to split its enterprise arm which includes servers & storage equipment from its business selling personal computers & desktops.
The business services company will be called Hewlett-Packard Enterprise & the printer business will be called HP Inc. The breakup comes after a botched attempt at a split in 2011. HP will also be laying off close to 5000 employees in its new & slim avatar.
HP was born in the late 1930’s in a garage in Palo Alto, California. Bill Hewlett & Dave Packard became friends while studying Engineering at Stanford University. The duo formed their own technology company HP, which became a tech giant over the course of time.
Commenting on the split CEO Meg Whitman said the split would make the company more nimble & help make better acquisitions. HP has had it’s fair share of stumbles with acquisitions. In 2010 the firm paid $1.8 bn to buy smartphone pioneer Palm Inc to cash in on consumers switching to smartphones over PCs. However HP couldn’t turn around the technology to spin out smart devices & exactly a year later shut down the business.
HP paid $10 bn for British business software maker Autonomy only to write off a majority of the purchasing price a year later. HP alleged misrepresentation in the true value during negotiations which was vehemently denied by Autonomy.
The firm also had its share of top management level exits. In 2010 CEO Mark Hurd had to step down on sexual harassment allegations. His successor Leo Apotheker was given the boot in less than a year for his disappointing performance.
Commenting further on the split CEO Whitman said the company currently had enough financial resources to brace up for the split. While analysts have welcomed the long-awaited move they have expressed caution over the future. The Enterprise division will need more cash to invest in new technologies which won’t be financed by the printer arm’s steady revenues. The firm may also lose pricing power & clout with suppliers.
Compared to its peers HP has been slow in expanding into cloud computing & mobile technology. The firm is a reputed name to reckon with it in the computer servers segment. However sluggish sales, greater competition & lower margins are hurting the firm.
HP has long been engaged in an unsuccessful ‘asset optimization’ drive in order to sell different parts of its business. With the printer & PC business no longer witnessing double-digit growth the company is on a consolidation mode.
However it remains to be seen whether this new split can save the company. Three years into Whitman’s tenure the firm is yet to witness a concrete turnaround with constant layoffs being more in the news. The future looks tough for HP with consumers flocking to buy more of smartphones & tablets over personal desktops.
The printing business is also stagnation with printing ink sales dipping. People are opting to store photos & view file online on their phone rather than print them. PCs aren’t going off the shelves completely anytime soon since many workplaces still use them but PC sales globally fell by 13% last year & are expected to dip by a further 3% this year according to research firm IDC.
The future lies in 3D Printing & aligning it with smartphones. The firm can also tie-up its printer business with large corporations using desktops.
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