HP Splits… Meg Whitman Throws Its Cybersecurity Business Under The Bus?
As HP does the corporate splits, a look back at 10 years of ineptitude and lowlights.
The new HP Inc. will consist of personal computers and printers businesses. Former Hewlett-Packard chief executive Carly Fiorina has repeatedly said that her time spent running a huge company makes her a viable candidate to run the nation.PALO ALTO, CALIFORNIA: When Meg Whitman, Hewlett-Packard’s chief executive, was preparing to cleave her company in two, she feared reliving a shoe disaster from early in her career.So much has gone so wrong so often for Hewlett-Packard over the past 10 years, it’s amazing that the company which birthed Silicon Valley still exists.
One of the nation’s most storied tech companies will split in two, another casualty of seismic shifts in the way people use technology—and big-company sluggishness in responding.• The IT giant is being divided into HP Enterprise, focusing on software and business services, and HP Inc, which will keep the PC and printer operations SAN FRANCISCO: Seventy-seven years after Bill Hewlett and Dave Packard began tinkering in a Palo Alto garage, the company that became the foundation for Silicon Valley is breaking up. Whitman was an executive in charge of the Keds brand at Stride Rite a few decades ago as the company was making a transition to a new “high-tech” warehouse. The server, storage, networking, services, software, and cloud businesses will live under the HP Enterprise umbrella with Meg Whitman—who led legacy HP—as president and CEO. The aim is to develop a sharper focus both for the enterprise unit and the PC-printer division that made it a household name but has become fiercely competitive and less lucrative in recent years. “The market right now needs to move in this kind of direction, more focused, and more nimble, than in Carly Fiorina era, when competing with IBM, not Amazon, was critical,” Bittman told AFP.
The two executives have many similarities: Whitman ran as the Republican candidate for governor of California in 2010, losing to current governor Jerry Brown. Whitman worried so much about a similar hiccup that during planning meetings for the HP breakup, “Can we ship Keds?” became a sort of shorthand for worrying about bungling.
It remains to be seen whether the breakup will revitalize a company that has been in a defensive, restructuring mode for several years as it lost ground to rivals like Chinese PC maker Lenovo, and as tech sector leadership was taken over by mobile-focused Apple and Google. When HP splits in two Sunday after a year of planning, what is left will bear little resemblance to the engineering-driven company founded more than 75 years ago in a garage not far from Stanford University. With both businesses sliding toward the abyss, this is known in investment banking jargon as: The Short End Of The Stick. “We approach this challenge with the heart and energy of a startup coupled with the brain, muscle and determination of a Fortune 100 corporation,” said Dion Weisler, president and chief executive officer of HP, in a press release. Fortune‘s Barb Darrow summarized the company’s struggles this way: Exactly when things went off the rails is subject to debate, but many point to the controversial acquisition of Compaq Computer in 2001 by HP’s then-CEO Carly Fiorina as the start of the decline. Since then, the company’s had to weather such self-inflicted wounds as a pretexting scandal in which a board member, an executive and HP-paid investigators faced criminal charges for spying on journalists; the $1 billion acquisition of Palm Computing in 2010 to beef up HP’s mobile capabilities; then the sale of Palm’s intellectual property.
The other, Hewlett Packard Enterprise, or HPE, will sell the computer servers, data storage, networking, software and consulting services that run a modern company. Founded by two Stanford University graduates, the company has been a major benefactor to the school seen a source of many innovative startups, including Google. There was also the ill-fated purchase of computer services giant EDS in 2008 and HP’s $11 billion bet on software company Autonomy, not to mention the dismal year-long tenure of Leo Apotheker.
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. The market value of HP today is roughly $50 billion — less than half of its annual revenues — compared with nearly $300 billion for Facebook, $500 billion for Alphabet and almost $700 billion for Apple. But 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,” predicted 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. The breakup into two separate companies “will unlock value for shareholders, as it allows each separate company to better focus on their core markets,” said Deutsche Bank analyst Sherri Scribner in a research note. And in the commercial computing sector, more businesses are using online software instead of buying servers and other hardware from companies like HP.
The question is whether Wall Street believes the two companies will benefit from the separation. “Anytime you make a change, you make a claim,” said Toni Sacconaghi, an analyst with Sanford C Bernstein. “They say, ‘We’re on the front edge, everyone will have to catch up to us.’ But both new companies aren’t that wildly different. 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. HP, the less technically ambitious of the two new companies, will largely occupy the building that used to house HP’s famed research and development division. The offices of William Hewlett and David Packard, kept intact after they left more than 20 years ago, are being sealed off with a separate entrance so that employees of both companies can come by for visits. Her legacy (unless she becomes president!): Strong-arming the deal to buy Compaq for $25 billion to double down on the printing-PC bet. 2010: HP parts way with CEO Mark Hurd (Fiorina’s successor) in midst of investigation of sexual harassment (later determined to be unfounded).
Along with external pressures, HP has struggled with internal problems — a series of controversial CEOs, botched acquisitions and scandals involving top executives and directors. Since October 6, 2014, the day Whitman announced the split, a 500-person team inside HP has done more than 300,000 tests of its systems to see if they work right, built 75,000 new ways to interface with its computers and cloned 2,800 applications to use in one company or another. Carly Fiorina, now a Republican presidential candidate, wanted customers to learn from the way HP consolidated operations after it bought Compaq for about $25 billion in 2002. 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.”
Like Whitman, Fiorina and Hurd both took over HP with little previous experience of HP and had built careers largely on their skills in sales and marketing. This is another thing that has to change, said Whitman, who for years ran the auction site eBay. “This is crazy — Carly, Mark, Leo, me — the learning curve is too steep, the technology is too complex for an outsider to have to learn it all.” One year into the job, Whitman gave a devastating report on the company’s health, sending the stock sharply lower before it gradually recovered. And one year ago, she concluded that HP needed radical change. “She had in strategic folks from Goldman Sachs and McKinsey,” said Chris Hsu, HPE’s chief operating officer. His financially oriented metrics have become common standards among Whitman’s top executives, who had used a wide variety of measurements to gauge the performance of their business units.
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