Hewlett-Packard Co. (NYSE: HPQ) is splitting itself into two companies, one focused on its personal computer and printing business and another on technology services, such as data storage, servers and software, as it aims to drive stronger profitability.
HP CEO Meg Whitman will lead the Enterprise business. HP PC and printer chief Dion Weisler will be CEO of HP Inc. (Weisler is a former senior executive at Lenovo.)
HP said that the PC and printer business will use the name HP Inc. The services business will be called Hewlett-Packard Enterprise.
“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,” said Meg Whitman, Chairman, President and Chief Executive Officer of HP, in a statement early Monday confirming the split.
“The decision to separate into two market-leading companies underscores our commitment to the turnaround plan. It will provide each new company with the independence, focus, financial resources, and flexibility they need to adapt quickly to market and customer dynamics, while generating long-term value for shareholders. In short, 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.”
The Wall Street Journal reported the story on Sunday.
According to the Journal, HP’s decision comes after discussions about a possible merger with EMC fell through.
The decision is “the latest attempt by the technology company to improve its fortunes by breaking itself in two,” the newspaper said.
HP competes fiercely with Lenovo in the PC industry, where Lenovo, which operates its global executive headquarters in Morrisville, is the global leader. The companies also now compete strongly head-to-head in servers following Lenovo’s acquisition of IBM’s x86 server business, a $2.1 billion deal that close last week.
The Palo Alto, California-based company has laid off tens of thousands of employees in recent years due to flagging sales as customers turn to mobile devices to perform basic computing chores. The shift has curbed demand for HP’s desktop and laptop computers, as well as its printers.
Cantor Fitzgerald’s Brian White said that there are numerous reasons why HP would want to split the businesses, including the slowdown of the PC market since the iPad debuted in April 2010. While the PC market has shown some improving trends this year, White said in a client note that separating into two companies gives HP the option to sell off one or both businesses if an attractive offer is made.
The split, if approved by the company board, is expected to close by the end of fiscal 2015. Once complete, HP stockholders will own shares of both companies.
During its most recent quarter HP reported revenue of $27.6 billion, a 1 percent annual gain. It marked HP’s first year-over-year increase in quarterly revenue since late 2011. Printers and computers contributed 51 percent of the company’s quarterly revenue, with the rest coming from technology services like consulting, software and financial programs.
HP is expected to complete the latest round of layoffs, between 11,000 to 16,000 people, this month. That is on top of the 34,000 people it had already jettisoned from its payroll.
Jim Suva of Citi Investment Research said that HP’s announcement may be coming now partly because the stock market has been supportive of spinoffs of late. The analyst also believes the company’s stronger balance sheet, stable PC margins, improving services margins, better financials and completion of the more difficult parts of its restructuring efforts played a role in its decision to act now.
HP maintained its guidance for fiscal 2014 adjusted earnings between $3.70 and $3.74 per share. Analysts polled by FactSet predict earnings of $3.73 per share.
For fiscal 2015, the company anticipates adjusted earnings in a range of $3.83 to $4.03 per share. Wall Street is looking for $3.96 per share.