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HP Split Up Could Reshape IT Landscape: Could Microsoft Follow Suit?

Hewlett Packard for decades has resisted calls by Wall Street to divest itself into multiple companies but today it has heeded the call. The company said it would split itself into two separate publicly traded businesses next year. The two companies will leverage their existing storied brand, calling its PC and printing business HP Inc. and the infrastructure and cloud businesses HP Enterprise.

Once the split is complete, Meg Whitman will lead the new HP Enterprise as CEO and serve only as chairman of HP Inc. The move comes less than a week after eBay said it would spin off its PayPal business unit into a separately traded company. Ironically, Whitman, HP's current CEO, was the longtime CEO of eBay during the peak of the dotcom bubble and it too was recently under pressure by activist investors to spin off PayPal, believing both companies would fare better apart.

HP has long resisted calls by Wall Street to split itself into two or more companies. The pressure intensified following the early 2005 departure of CEO Carly Fiorina, whose disputed move to acquire Compaq remained controversial to this day. The company had strongly considered selling off or divesting its PC and printing businesses under previous CEO Leo Apotheker. When he was abruptly dismissed after just 11 months and Whitman took over, she continued the review but ultimately decided a "One HP" would make it a stronger company.

In deciding not to divest back in 2011, Whitman argued remaining together gave it more scale and would put it in a stronger position to compete. For instance, she argued HP was the largest buyer of CPUs, memory, drives and other components.

Now she's arguing that the market has changed profoundly. "We think this is the best alternative," she told CNBC's David Faber in an interview this morning. "The market has changed dramatically in terms of speed. We are in a position to position these two companies for growth"

Even though the question of HP divesting its business has always come up over the years, today's news was unexpected and comes after the company was rumored to be looking at an acquisition of storage giant EMC and earlier cloud giant Rackspace. It's not clear how serious talks, if there were any, were.

The decision to become smaller rather than larger by HP reflects growing pressure by large companies to become more competitive against nimbler competitors. Many of the large IT giants have faced similar pressure. Wall Street has been pushing EMC to split itself from VMware and IBM last week just completed the sale of its industry standard server business to Lenovo. And Dell, led by its founder and CEO Michael Dell, has become a private company.

Microsoft has also faced pressure to split itself up over the years, dating back to the U.S. government's antitrust case. Investors have continued to push Microsoft to consider splitting off or selling its gaming and potentially its devices business off since former CEO Steve Ballmer announced he was stepping down last year. The company's now controversial move to acquire Nokia's handset business for $7.2 billion and the selection of insider Satya Nadella as its new CEO has made that appear less likely. Nadella has said that Microsoft has no plans to divest any of its businesses. But HP's move shows how things can change.

Despite its own "One Microsoft" model, analysts will surely step up the pressure for Microsoft to consider its options. Yet Microsoft may have a better argument that it should keep its businesses intact, with the exception of perhaps Nokia if it becomes a drag on the company.

But as Whitman pointed out, "before a few months ago, we weren't positioned to do this. Now the time is right." And that's why never-say-never is the operative term in the IT industry.

 

 

Posted by Jeffrey Schwartz on 10/06/2014 at 11:42 AM


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