HP: Post-2011 turnaround makes split possible

announces plans to separate its Enterprise and PPS groups, but says this time around is different from the last time a potential split was discussed.

says its announcement Monday that it will split itself into two pieces – an enterprise-focused company and a consumer-focused company – is not a replay of the 2011 “will they or won’t they” drama surrounding the then-possible selloff of its PC business.

In fact, executives said on a Monday morning conference call, the decision to split the company into two standalone companies – with a server, storage, software, cloud and services focus, and the continuing HP Inc., which will focus on PCs and printers – is only possible because of the turnaround efforts in the three years that have ensued.

It won’t be an overnight change – HP says it expects to have the split done by the end of its fiscal 2015, which ends on Oct. 31, 2015 – but when it’s complete, HP says it will have split itself entirely into two independent Fortune 50 companies with very different structures, and the ability to move more quickly in their areas of focus.

“The speed of the market is moving extremely rapidly, and nimbleness may well be the defining quality for technology companies over the next few years,” said HP CEO (for now) Meg Whitman on the Monday-morning conference call. “We’ll be able to tie rewards more closely to results, and optimize the financial situation for both companies.”

The move is a dramatic split from the “better together” mantra which has been Whitman’s platform in the aftermath of the 2011 PC business debacle that ultimately cost her predecessor his job. But the decision to make the split, she said, was made possible by the company’s moves since that.

“Today was made possible by our turnaround, by the work we’ve done in terms of fixing our balance sheet, igniting sales momentum, and changing our leadership,” she said. “Three years ago, we were in a difficult situation, and we needed to rebuild as one HP.”

Whitman added that one of the major challenges of the proposed 2011 selloff of the PC business was one of brand, and that the company has solved that problem by keeping the familiar HP name, logo, and colours associated with the consumer-facing brand. The work done over the past three years in putting, as Whitman puts it “small boxes [PCs] together with big boxes [printers]” in one business unit has helped pave the way for the split, since much of the internal organization has been switched to being aligned with either the PCs and printers side of the business or the enterprise side of the business.

Hewlett-Packard Enterprise will debut as a separate entity into a market where it’s in somewhat unfamiliar territory – a company that’s smaller than many of its competitors. Of course, its market share will likely remain the same, and the competitors remain the same. Whitman acknowledged the new company will have “somewhat reduced cash flow” compared to its position as part of a unified HP, but “that will be made up for by increased nimbleness and the ability to rev the innovation engine faster.” The enterprise business will be “relatively debt-free” as it debuts with most of its debt being held in its leasing business, and the company pursuing “lots of opportunities for acquisition and partnership” following its debut as an independent company.

Also, by creating two organizations that are about the same size, rather than a much larger enterprise and printers company and a much smaller PCs company, the company hopes to be able still get “big company” scale from both sides of the business. Where needed, there will be operational agreements between the two companies with major suppliers to help keep advantages of purchase size, the company said.

Whitman will remain with both companies to a degree, with plans for the current CEO to serve as president and CEO of Hewlett-Packard Enterprise as well as non-executive chairman of HP Inc.’s board of directors. Current PPS chief will take over as president and CEO of HP Inc., while current HP lead independent director Pat Russo will become chairman of Hewlett-Packard Enterprise.

The decision to split the company comes at an interesting time, creating some disruption and the opportunity for uncertainty just as HP has spent much of this year repositioning itself from the disrupted to the disruptor, seeking to benefit from market uncertainty around the Lenovo/IBM server deal, for example. But now there are likely to be renewed questions among customers and partners about the direction and future of HP as two distinct companies.

While partners will have to wait some time for complete clarity on what the deal will mean for their business with the vendor, there were at least some signs that Whitman, who has been a very channel-friendly CEO to date, is keeping the fate of the company’s partnerships and in mind. During the call, while discussing shared resources, services and infrastructure between the two companies, Whitman mentioned the company’s recently introduced Unison partner portal that underpins as an area that would clearly be shared between HP and Hewlett-Packard Enterprise.

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