The Big Split: HP to Separate Its PC/Printer and Enterprise Businesses

by Robert Palmer | 10/7/14

On Monday, Hewlett-Packard announced sweeping changes that promise to radically alter the course of the company’s future, as well as the landscape for IT products and services. After years of speculation and rumor, the firm has decided to split its enterprise services business from its PC and printer operations. The result will be two separate and publicly traded companies roughly equal in size, both of which will be Fortune 50 businesses. The transaction is expected to be complete by the end of fiscal 2015.

The move comes at the end of a five-year turnaround plan, ironically dubbed “One HP,” that resulted in numerous layoffs and a complete restructuring aimed at strengthening the firm’s competitive position and bottom line. HP has come under constant scrutiny and pressure from the financial community and investors alike to divest certain parts of its business — particularly the printing business — to focus R&D spending and respond more quickly to faster growing segments of the market. CEO Meg Whitman, however, has consistently dispelled such comments by pointing to the combined strengths of HP’s assets, products, and resources as necessary to drive the business forward. 

Now, however, it appears that two HPs are better than one. In a press release issued on October 6, Chairman and CEO Meg Whitman explained the change in strategic direction. “Our work during the past three years has significantly strengthened our core businesses to the point where we can more aggressively go after the opportunities created by a rapidly changing market,” she said. “The decision to separate into two market-leading companies underscores our commitment to the turnaround plan.”

As a result, HP will split into two independent businesses: Hewlett-Packard Enterprise (HPE) and HP Inc. With current revenue of $58.4B and operating profit of $6.0B, HPE will assume responsibility for HP’s enterprise group, which includes servers, storage, cloud, mobility, and other enterprise infrastructure services and solutions. Whitman will remain as CEO of the newly formed Hewlett-Packard Enterprise and will also serve on the board of directors of Hewlett-Packard Enterprise, while Pat Russo will move from lead independent director of HP to chairman of Hewlett-Packard Enterprise.

HP Inc. will become the new organization responsible for HP’s printing and personal systems business, which includes PCs, notebooks, desktops, mobile computing, laser and inkjet printing, and managed print services (MPS). HP Inc. becomes a $57.2B business with operating profit of $5.4B. Dion Weisler, executive vice president of HP’s Printing and Personal Systems business, will lead HP Inc. as president and chief executive officer. Interestingly, Whitman’s services will be shared across both of the new businesses, as she will also serve as non-executive chairman of HP Inc.’s board of directors.

For more details on HP’s plans, see the press release.

Our take

Naturally, HP’s announcement has set off a veritable firestorm of speculation and discussion. The move certainly raises a lot of questions: What does this mean for HP? How will the move impact HP resellers and development partners? Can a divided HP attack new market opportunities in ways that the combined behemoth might not have been able to? What does it say about the future of printing in general?

Just as expected, conjecture regarding these questions has been boisterous and unrelenting. A common point of view is that HP is positioning one or both companies for eventual acquisition. The notion that HP could sell off its PC, printing, or enterprise services business is not new, so spinning off into two different companies certainly adds fuel to that conversation. Already, there is plenty of discussion about potential suitors for HP’s enterprise services business, and similar speculation regarding HP’s print business is being bantered about. One thing is for sure: if either transaction were to come about it would not be a simple process. There could only be a handful of firms willing and able to embark on the acquisition of a $58B company. HP could, of course, sell off individual pieces of the independent companies.

Many are also speculating that this move signals the death knell for HP’s printing business. Indeed, some are suggesting that the market leader’s decision to spin off its printing business is proof positive that printing itself is on its last legs. Of course, HP disagrees with that notion, stating that that move is designed to provide both companies with the level of independence needed to address current market conditions. The move could serve to provide HP Inc. the ability to focus more acutely on those issues that would allow it to be more competitive and grow its printing and PC business, something that has proven challenging with the enterprise segment ruling the roost.

HP’s printing business has been fighting for a larger piece of the overall R&D pie for quite some time. In recent years, HP’s imaging and printing group has basically been managed as a cash cow business within the larger HP, with a focus on shoring up core market segments while throwing limited resources and money at new technology, at least relatively speaking. While printing can certainly be viewed as a declining market, there are still opportunities for growth, especially in areas of the market where HP is showing significant strength: production print, industrial packaging, wide-format, graphic arts, and office ink, for example.

In theory, spinning PCs and printers into a separate business should allow HP’s printing business to gain greater access to R&D spend and other resources, with the additional ability to respond more quickly to new market opportunities. Meanwhile, it will be interesting to see how well HP’s new enterprise business can perform without the cash cow printing business funding its future.

There is the broader question as to what this move might mean to HP’s other document-related businesses and solutions, such as MPS, workflow, and process optimization. There are many different levels of MPS, but there is no doubt that HP and its competitors are rapidly moving from basic MPS programs to a broader portfolio of solutions aimed at driving process efficiencies, reducing dependence on print, and automating workflow. This is a strategy that hardware OEMs are pursuing not only for their own businesses but for channel partners as well.

Finally, there is also the ongoing issue of workflow transformation driven by the shift to mobility and the cloud. This intersection between IT infrastructure, managed services, document services, and enterprise solutions could be an area where the separation of HPE and HP Inc. could prove problematic. Is it possible that HP might eventually be competing with itself in future IT customer engagements? Time will tell, but one would have to presume that HP has various strategies in place for dealing with those issues. The other question is: does this move strengthen or weaken HP’s position in the MPS space? Hard to say, but much of HP’s strength in the past was tied to its IT expertise and broad portfolio of enterprise services and solutions.

In many ways, it is difficult to say today what this move means to the future of HP, and likewise to the future of the markets in which HP plays. There are way too many unknown variables, and much will depend upon the strategies of both independent businesses. Whether or not print is dying is an issue that exists regardless of this latest move from HP. There is no doubt that print is declining, but it is still a viable market with pockets of growth. One thing is certain: HP is a now a new competitor, with what it defines as a renewed focus for both of the newly formed entities. 

 

Robert Palmer is chief analyst and a managing partner for BPO Media, which publishes The Imaging Channel and Workflow magazines. He is an independent market analyst and industry consultant with more than 25 years experience in the printing industry covering technology and business sectors for prominent market research firms such as Lyra Research and InfoTrends. In December 2012 he formed Palmer Consulting as an independent consultancy focused on transformation, mobility, MPS, and the entire imaging market. Palmer is a popular speaker and presents regularly at industry conferences and trade events in the U.S., Europe, and Japan. He is also active in a variety of imaging industry forums and currently serves on the board of directors for the Managed Print Services Association (MPSA).