HP’s parting a long time coming
So, three years and two months after former CEO Leo Apothekar threw HP into disarray on 18 August 2011 by raising the prospect of spinning off or selling the PC business, the company has announced plans to split into two separate companies. HP Inc will consist of the PC and print business while HP Enterprise will encompass servers, storage, networking, software and services. The plan is expected to take effect by the end of October next year, almost four years to the day after HP announced its intention to keep the PC business after all.
The move comes four months after senior executives made a big play of HP’s presence in so many technology spaces (servers, storage, networking, PCs and printing) at HP Discover 2014 in Las Vegas. Executive vice president of the HP enterprise group John Veghte told attendees: “Unlike some companies that are confused, we are not exiting those businesses, we are doubling down on them.”
While four months is a long time in the IT industry, it does seem strange that something Veghte said in June could become obsolete so quickly. And while the idea of splitting PCs and printers off from the rest of the HP operation isn’t that radical from a strategic point of view, it feels more of a surprise because it didn’t appear to be part of CEO Meg Whitman’s five-year plan for turning the company around.
Of course, if it was part of that plan, the circumstances of Whitman’s elevation to CEO and the very public disavowal of her predecessor’s suggestion of disposing of the PC business, made it highly unlikely to be made public until such time as it absolutely had to be. The fact that reaction to HP’s plan to split into two has, for the most part, been positive from analysts, shareholders and partners, far removed from the rebellious and fractious atmosphere of August 2011, demonstrates that there was an underlying merit in Apothekar’s original suggestion after all. If there was an issue with it, it was over the ‘when’ rather than the ‘if’ or ‘why’.
Back in December last year, I wrote in TechTrade that HP “could do worse than follow what’s left of the Apothekar blueprint which was, to a large extent, based on IBM’s strategy for when it got out by selling its PC business to Lenovo. And look how that turned out. While Wall Street, HP shareholders and the board may have balked at what they perceived to be Apothekar’s drastic attempt to overhaul the vendor’s business in a dramatic and potentially disruptive fashion, I wonder if they really think the path forward he outlined is so wrong? Perhaps the real difficulty they had was over the speed of that transition”.
Time well spent
As in comedy, so in business, the secret to success is timing. The question is whether HP had always planned to split into two or has been compelled to by the way the market is evolving. In HP’s announcement of the split, Whitman argued the decision “underscores our commitment to the turnaround plan”, adding that “by transitioning now from one HP to two new companies, created out of our successful turnaround efforts, we will be in an even better position to compete in the market, support our customers and partners, and deliver maximum value to our shareholders”.
Possibly. But it doesn’t seem to quite fit with what she told analysts in October 2012: “The core of the company is infrastructure and hardware. They represent 70% of revenue, and it’s something we do better than anyone else, and it’s the DNA of the company. We need to stand up and be proud of it. People say it will be a commodity business. I say, not if we can help it.”
And it’s definitely not quite in line with what she said in August 2013 when responding to a question on CNBC’s Squawk on the Street over whether HP would consider a break-up to create value.
“Not at this time,” Whitman replied. “I believe firmly that HP has a set of assets that is unique in the big cap technology sector today. We are the only company who can go from devices to infrastructure to services and software and this is a huge point of difference as we can bring a series of assets to bear on some of the big shifts in the market. We have a unique and differentiated cloud strategy because we have this breadth of assets at HP.”
She also highlighted the benefits of scale. “When you can make it work for you [scale] is a huge advantage. No one has greater reach and scale than HP does, no one has the ability to bring products to market as fast as we do when we work really well together.”
Whitman added: “There’s a lot to be said for HP as it is today and we aim to prove that out. Obviously in five years if we haven’t proved that out, maybe there’ll be a different answer but I feel really strongly that this is better together and you’re going to see us get stronger with cross BU offerings that I think will be very differentiated in the market place”.
Given that she said those things a year ago, not five years ago, it does make you wonder at the strength of all those assets Whitman listed. And it does suggest that HP, in her own words, failed to “prove out” that there was a lot to be said for it “as it is today”. The question now is whether it prove out that there is a lot to said for it as it is tomorrow.