HP, a Silicon Valley icon, is ready for its break-up

1 Nov 2015 | Author: | No comments yet »

HP Inc. and Hewlett Packard Enterprise Seek Relevance Through Spinoff.

SAN FRANCISCO (CBS/AP) — One of the nation’s most storied tech companies will split in two this weekend, another casualty of seismic shifts in the way people use technology — and big-company sluggishness in responding.Hewlett-Packard Co (HP) was an early pioneer of what became the model for Silicon Valley start-ups: Founded in 1939 by two Stanford graduates in a Palo Alto, California, garage, HP was long celebrated for its engineering know-how and laid-back corporate culture.On Monday morning, Meg Whitman will ring the bell at the New York Stock Exchange as the brand-new company she will lead, Hewlett Packard Enterprise Co. However, after struggling to keep pace with recent trends like the rise of smartphones and cloud computing, HP’s board decided last year to create two smaller companies, each with a narrower focus.

However, skeptics say neither will have the clout of the old HP, which became a leading consumer brand while using its vast size to negotiate volume discounts with suppliers and big contracts with business customers. “They won’t have the impact that HP once had, now that they don’t have the depth of portfolio they once had,” said Rob Enderle, a longtime industry analyst. “It’s not clear what HP is anymore.” Each of the spin-offs will face significant challenges: Demand for PCs and printers is continuing to decline, as more people use mobile devices and store their documents and photos online in the cloud. Each will be independent, with “flexibility to respond to a constantly evolving market,” Whitman told an investor conference last month. “With less to focus on,” she added, “each company will do core things better.” By dividing HP into roughly equal halves, analysts estimate, each spinoff should produce more than $50 billion in sales next year.

And in the commercial computing sector, more businesses are using online software instead of buying servers and other hardware from companies like HP. He plans to use his newfound freedom to increase the percentage of revenue devoted to research and development beyond the 3.1% level that the old H-P achieved last year. “We generate an enormous amount of cash inside the printing and personal systems franchises,” said Mr. Weisler. “Those investments weren’t always channeled back into these businesses.” HP Inc. will return a lot of its profits to investors as dividends, but Mr. HP recently said it’s giving up on competing directly in cloud computing, a growing business in which companies large and small run software in remote data centers operated by Amazon and others.

Bernstein & Co. “A big part of the market is moving in a single direction, and H-P arguably doesn’t have offerings to cater to those [customers],” Mr. Sacconaghi said. “Traditional vendors have challenges in terms of that migration, but you could argue that others have at least taken more visible, positive steps in that direction.” H-P cloud guru Bill Hilf said in an interview last month that the majority of corporate spending would continue to be made on systems in corporate data centers, and that H-P would partner with companies such as Amazon and Microsoft to sell cloud services to customers that demand them. Along with external pressures, HP has struggled with internal problems — a series of controversial CEOs, botched acquisitions and scandals involving top executives and directors. As for the new spinoffs, Forrester’s Burris said he’s not ready to count them out. “It’s reasonable to think both can be thriving companies, but a lot will come down to the quality of their management.”

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