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HP Officially Splits into 2 Companies

Today marks the first day of business for two new companies spawned from the divestiture of one of the most storied and oldest technology companies in Silicon Valley. Hewlett Packard Co. completed its Nov. 1 split to form HP Inc., the former company's PC and printer business, and Hewlett Packard Enterprise (HPE), which provides IT infrastructure and services.

The official split caps the company's shift in strategy announced a year ago. To mark the occasion, HP CEO Meg Whitman, who now takes on that role for HPE while serving as HP Inc.'s chairman, rang the opening bell of the New York Stock Exchange. Combined, the companies recorded more than $110 billion in revenues for its most recent fiscal year. By splitting into two companies, HPE accounted for $53 billion and HP Inc. $57 billion. Wall Street analysts have broached the idea of the original HP splitting into two companies for more than a decade after many questioned the wisdom of its merger with Compaq Computer. When Whitman took over as HP's CEO four years ago, she overturned a hastily announced plan to sell off HP's PC business, arguing that having PCs and enterprise hardware offerings gave the company greater scale than its rivals, notably Dell, IBM and Lenovo.

Last year, Whitman reversed course, saying that two companies would be more competitive than one. Apparently Michael Dell and his investors see things quite differently, with last month's deal by Dell to acquire EMC and its stake in VMware for $67 billion, making it the largest IT industry acquisition.

"They are two diametrically opposed strategies," Whitman told CNBC's David Faber in an interview from the NYSE this morning. "It's quite interesting that we have chosen to deleverage our balance sheet to get smaller [and] to be more nimble and lean into new technology like our 3PAR all flash storage array, like the next generation of networking and servers and our software business, while Dell has chosen to get much bigger, lever way up and really consolidate and make a cost play around older technology. We looked at Hewlett Packard's strengths and we said being smaller and more nimble in this market is a huge advantage."

Some question whether that's the case including the outspoken analyst Toni Sacconaghi, of Sanford C. Bernstein & Co., who told The Wall Street Journal "a big part of the market is moving in a single direction, and [HPE] arguably doesn't have offerings to cater to those [customers]. Traditional vendors have challenges in terms of that migration, but you could argue that others have at least taken more visible, positive steps in that direction."

Those "traditional" vendors he identified were IBM and Oracle, which Sacconaghi argues has a better-articulated hybrid cloud strategy than HPE. Last month, HP said it was shutting down its public cloud, opting to resell cloud services from Amazon Web Services and Microsoft.

"The truth is that Amazon and Azure are way out in front in the public cloud, and our view was is there a way to partner with them while we provide the hybrid environment," Whitman told CNBC's Faber. "It's the classic where to play, and how to win, and we decided we have a better chance of being the leader in private cloud and virtual private cloud, managed private cloud and then of course our Cloud System Automation that helps you orchestrate your cloud in a multi cloud environment."

Now that the two companies have split there are a number of outcomes that need to be considered:

  • Will the new HP Inc. become a more innovative and competitive provider of PCs and printers and will it be able to compete on price as it has in the past?
  • Despite a huge portfolio of storage, server and networking hardware, how will the new HPE stack up against Cisco, Oracle, IBM and of course a combined Dell-EMC?
  • What alliances will HPE make that were never under consideration in year's past?
  • Does HPE become an aggressive acquirer or itself an acquisition target?

"You never know what's going to happen," Whitman said. "This is a very dynamic environment which is one of the reasons we thought it was important to be smaller, so we could be more agile in an environment that requires that."

What's your take on HP's split and the pending combination of Dell and EMC?

Posted by Jeffrey Schwartz on 11/02/2015 at 9:14 AM


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