Hewlett-Packard split: Meg Whitman divides HPQ's PC and enterprise businesses.

Hewlett-Packard Is Giving Up on “Better Together.” Will Other Tech Stalwarts Follow?

Hewlett-Packard Is Giving Up on “Better Together.” Will Other Tech Stalwarts Follow?

Moneybox
A blog about business and economics.
Oct. 6 2014 2:29 PM

Hewlett-Packard Is Giving Up on “Better Together.” Will Other Tech Stalwarts Follow?

hp
Or not.

Screenshot from YouTube

Hewlett-Packard, the multinational sellers of PCs, printers, and enterprise software, said Monday that it is splitting its business down the middle. HP's information technology operations—software, data storage, computer services—will be bundled into Hewlett-Packard Enterprise and keep current HP CEO Meg Whitman at its helm. Its PC arm will spin off as HP Inc. and hang onto the current HP logo, with Whitman as chairman of the board and Dion Weisler as chief executive. In the previous year, revenues in the to-be-separated components of HP were so great that each one alone would have ranked among Fortune's 50 largest U.S. companies.

The transaction, which is expected to be completed by October 2015, is being billed as a key part of the five-year turnaround plan Whitman unveiled in 2012. "The decision to separate into two market-leading companies underscores our commitment to the turnaround plan," Whitman said in a statement. "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."

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While that may be true, it's a remarkable change—or you could say turnaround—in stance for Whitman, who had previously insisted that the various components of HP were "better together." The decision to break up the company comes one week after eBay had a similar change of heart and said it would spin off its payments arm, PayPal, into a separate publicly traded company. Both Whitman and eBay CEO John Donahoe cited fast-paced change as chief among the reasons to split. HP is one of several technology veterans that has struggled to keep up as customers turn from personal computers to mobile devices and cloud computing systems.

Analysts are split on whether HP's decision is the right move. Several told Reuters that the separation process could be disruptive and seemed to come from "weakness, not strength." At investment firm Morningstar, analyst Peter Wahlstrom wrote that "we believe this is strategically the right move." As part of the split, HP will lay off 5,000 people. Shares of Hewlett-Packard were up around 5 percent to just over $37 on the news as of early afternoon.

Could HP's split signal the end of an era for tech stalwarts? Jim Kelleher, director of research at Argus Research, wrote in an analyst note that HP's announcement "will ripple through the industry" and "may sound the death knell for the 'one-stop shop' technology model." He also expects pressure will increase on IBM to divide into a services business and a software and hardware one. "Even if IBM does not act immediately to change its structure, calls for a shake-up will not go away," Kelleher wrote. "There are more and more activist investors anxious to shake up even companies formerly seen as sacrosanct."

On the other hand, this is not the first time that HP has spun off part of its business. In 1999, it released the division that became Agilent to better keep pace with the Internet boom. Considering how many people think we're now living through a second tech bubble, the spinoff timing might not be so surprising.

Alison Griswold is a Slate staff writer covering business and economics.