Meg Whitman Seeks Reinvention for HP as It Prepares for Split
Meg Whitman Bets Smaller HP Will Be Agile Enough to Take on Dell.
Meg Whitman long resisted a breakup of Hewlett-Packard Co., saying that selling computers to consumers and businesses was the best way to keep the Silicon Valley pioneer alive.
— 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. Now, with personal-computer demand in decline and companies flocking to the cloud to run their operations, she’s on board with a split taking place next week. The chief executive’s biggest job: proving to customers, investors and employees that a smaller, enterprise-focused HP will be faster and more nimble against competitors. 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.
Whitman’s plan stands in stark contrast to Michael Dell’s $67 billion deal to combine Dell Inc. with storage-maker EMC Corp. in the largest-ever technology merger. He’s betting that a single provider of enterprise computing technology will be stronger because it can offer everything a company might need to run its business under a single roof. “It’s quite unusual that you end up with companies that have taken such different approaches,” Whitman said in a recent interview. “Given the market, given the changes that are afoot here, you’re better off being smaller, more nimble.” Ever since she took over as Hewlett-Packard’s CEO, Whitman has had to come to grips with a company whose size was out of sync with demand for its products. Much of her four-year tenure has been spent scaling back investor expectations, cutting more than 140,000 jobs and, ultimately, turning the company founded in a Palo Alto, California, garage into two smaller versions of its former self.
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. When HP splits in two on 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. The other, HP Enterprise, or HPE, will sell the computer servers, data storage, networking, software and consulting services that run a modern company. To justify the split, Whitman will have to deliver cutting-edge technologies that will drive demand for the company’s core products, find smart, small, acquisitions to bring new technologies to a wider swath of customers and take full advantage of the disruption caused by the Dell-EMC merger.
HP Inc. will have the more difficult task of selling products to consumers who are embracing mobile devices as the hub of their digital lives. “The window of opportunity is closing,” said Daniel Ives, an analyst at FBR Capital Markets. “This is a pivotal period of time over the next six to nine months for these companies to get their act together and show that there’s a pulse.” Already, investors are giving early signals on prospects for both new companies, based on “when issued” shares that have been trading in advance of the split. Preparations for the transition have been under way for several months — ensuring everything from office space to internal technology systems were separated in time. Last week, Whitman said she did something that hasn’t happened before: She spent an entire day on a three-year plan for its key server business, without any talk about inkjet printers or what should be done to sell more PCs. 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.
If Dell’s strategy works, Hewlett Packard Enterprise will just continue the former HP’s fate, where sales have declined for 15 of the past 16 quarters. HP Inc., 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. Amazon.com Inc. and more recently Microsoft Corp. have become market leaders in letting corporations access computer and storage services over the Internet. Still, HP said it’s investing in other ways to provide cloud services through a hybrid approach. “I think that game has played out,” Whitman said, referring to Microsoft and Amazon. “I think those are going to be the two winners in the public cloud.” The cloud shutdown was a “telling moment,” said Todd Lowenstein, director of research at Highmark Capital Management, which has HP shares among its holdings. “They have some catch-up to do.” Acquisitions will probably be part of any effort to expand the product line.
When asked about what size they may be, Whitman pointed to companies Hewlett-Packard has bought for around $2 billion to $3 billion, including 3Par, 3Com, and Aruba Networks. Whitman announced the split, a 500-person team inside HP has done over 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. Whitman showed less appetite for deals in the tens of billions. “It’s just hard to imagine you would do a transformation acquisition” of tens of billions of dollars, after de-leveraging the company’s debt in the past few years, she said. 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. Whitman, who for years ran the auction site eBay. “This is crazy — Carly, Mark, Léo, 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, Ms.
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.
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