HP – Where is it headed?

HP (Hewlett Packard) is in the news today. The company (HPQ) is splitting itself into two separate companies on Nov 1st. – HP Enterprise (HPE) and HP Inc.(HPI). The first one will include the server line, consulting, and related software whereas the second entity will have the PC and printer business. In the process, 33,000 employees will be laid off (10% of its current workforce of 300,000). This will be on top of 55,000 earlier lay-offs under the current CEO Meg Whitman. The lay-offs will be carried out over next 3 years, mostly from the HP Enterprise. The restructuring will result in pretax charges of about $2.7 billion at HPE and $300 million at HP Inc, which has been hit hard by a relentless decline in sales of PCs.

HP has had a checkered history of many mis-steps. When the company’s growth stalled in the late 1990’s, then-CEO Lew Platt also opted for a split, spinning off HP’s original medical products and test and measurement devices unit. The next decade would bring a string of mega-mergers under a long line of various CEOs, starting with now-Presidential-hopeful Carly Fiorina and her $19 billion Compaq acquisition in 2002, then the $13.9 billion purchase of IT services company EDS under CEO Mark Hurd and finally the $11.1 billion acquisition of Autonomy under Leo Apotheker. The Compaq acquisition saw a lot of drama in the board room and arguably it did not yield the results HP had hoped. Fiorina was fired by the board at the end, but walked away with almost $100m in severance. It seems this will be brought to the debate by the GOP hopefuls.  Mark Hurd resigned unceremoniously and is now co-CEO at Oracle. Leo Apotheker did not last even for a year and was fired by the board. The subsequent acquisition of Autonomy was a disaster. Meg Whitman took over in 2011 as CEO and this major split is happening under her watch.

Whitman hopes with her latest move to make HPE  a leading player in cloud services. Still, that path is a challenging one: Rivals like Amazon, Microsoft, Google and IBM are already dominating the cloud market, and it won’t be easy for HP to break through. Given the poor state of the PC market, HPI will continue to face big challenges in terms of revenue and earnings. “HP Software” has always been an oxymoron with hardly any worthwhile product to mention. Openview was a success in the systems management arena. Now they are focusing on big data and analytics with acquisitions like Vertica, but it is yet to make a big impact in the market.

We will wait and see.

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