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Hewlett-Packard to split into two companies

October 6, 2014 02:59 PM
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Hewlett-Packard will spin off its software and services business from its personal computer and printer business to create two separate, publicly traded companies, the company said today.  The split is expected to be finalized by the end of next year HP said. HP will also be shedding 5,000 jobs, it confirmed on a call today.

The move comes three years into a five-year turnaround plan. HP CEO Meg Whitman said it was done with an eye on the future.

“Fiscal 2015 calls for accelerated progress,” she said. “Given the hard work and success of the past three years, I believe we’re in a position to accelerate our performance and growth.”

The two separate companies will be called Hewlett Packard Enterprise and HP Inc. Whitman will helm Hewlett Packard Enterprise, which will focus on servers, services and software. Dion Weisler, currently the executive vice president of HP’s printing and personal services businesses, will take over as CEO of HP Inc.

Weisler joined HP in December 2011 as the company’s senior vice president and managing director of printing and personal systems for Asia Pacific and Japan from Lenovo, where he had been a vice president. Weisler has been in his current role since last July. HP Home & Home Office Store, which sells HP printers and computers on store.HP.com, will apparently fall under the HP Inc. umbrella, but HP has not confirmed it. The company ranks No. 35 on the Internet Retailer Top 500.

Analysts say the move makes sense for HP.

“The complexities and dynamics of trying to serve customers as they try to serve customers requires some new thinking,” says Peter Burris, vice president and research director of the chief information officer practice at Forrester Research. “A lot of the old models aren’t going to cut it. HP is trying to modernize itself to more effectively compete in the tech industry that is evolving rapidly.”

The move comes amid a global decline in sales of personal computers as consumers increasingly connect to the Internet via smartphones and tablets. Research firm Gartner Inc. says global worldwide shipments of PCs declined 10.0% in 2013 compared with 2012. In response to this shift, Companies such as PCM Inc., formerly PCMall, are phasing out their consumer electronics businesses in an effort to focus more on services and infrastructure.

According to Internet Retailer data, Dell Inc., No. 10 in the Internet Retailer Top 500, has seen web sales drop from $4.8 billion in 2010 to $3.55 billion in 2013. HP’s online retail sales declined 8.3% to $1.1 billion in 2013 versus the year before. The company reported a 10.2% decrease in net revenue in its personal systems business unit in 2013 according to a 10-K report filed last year for the fiscal year ending October 31, 2013.

In that report, the company stated the business “continues to experience significant challenges due to the overall PC market contraction as a result of a customer shift, particularly consumers, to tablet products.”

Weisler remained optimistic in a statement released by HP.

“As the market leader in printing and personal systems, an independent HP Inc. will be extremely well positioned to deliver that innovation across our traditional markets as well as extend our leadership into new markets like 3-D printing and new computing experiences—inventing technology that empowers people to create, interact and inspire like never before,” he says.

Burris says while the industry is changing, he doesn’t see demand for personal computers going away entirely.

“There’s still a fair amount of demand for computing,” he said. “The question is are the dynamics of that market going to change in ways that favor a few suppliers or not. I think that’s the big test.”

The split transaction will be tax-free to company shareholders, HP says.

 

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