HP to break into two focusing on computers and networking

HP CEO Meg Whitman is likely to announce the split of the company into two – one for computers and printers and second for enterprise networking and IT services — on Monday.

Wall Street Journal reports that CEO Meg Whitman, who has led a multiyear restructuring, would serve as chairman of the PC and printer business and CEO of the separate company, which would be chaired by HP’s current lead independent director Patricia Russo.

The Journal said the breakup is expected to occur as a tax-free distribution of shares to the company’s stockholders next year.

Revenue analysis of major HP businesses

ALSO READ: HP Q3 revenue up 1% to $27.6 bn, net income dips 29%

HP in the third quarter regained its revenue stream, but profitability of its businesses is a major concern. In Q3 of fiscal 2014, HP revenue rose 1 percent to $27.6 billion, while net income dropped 29 percent to $1 billion.

It’s not clear whether the split would bring more buyers to both companies’ products. Analysts are still cagey about HP strategy for improving profitability.

Q3 growth drivers were Personal Systems and Industry Standard Servers and Networking. HP performance in Printing, Enterprise Services and Software was mixed with good profitability but weaker top line results. This indicates that split is important for survival in future.

HP Personal Systems revenue rose 12 percent to $8.6 billion.

Printing revenue decreased 4 percent to $5.6 billion.

Enterprise Group revenue rose 2 percent to $6.9 billion, with growth in Industry Standard Servers and Networking partially offset by declines in Storage, Technology Services and Business Critical Systems.

ALSO READ: Lenovo: $2.1 bn deal for IBM x86 server business to begin closing

Enterprise Services revenue decreased 6 percent to $5.6 billion.

Software revenue declined 5 percent. HP earlier said it is working to simplify portfolio of offerings, streamline its go-to-market and accelerate web selling capability.

HP earlier said it will be introducing new products and services in personal systems, servers, cloud and printing in coming months. But the IT industry did not significant innovation in its latest offerings.

ALSO READ: HP to slash 50,000 jobs after Q2 FY 2014 revenue declines

In May 2014, HP said it would eliminate around 50,000 jobs as per its multi-year restructuring plan against the earlier planned 34,000 positions. The decision to cut around additional 11,000 to 16,000 jobs follows HP’s poor performance in the second quarter of fiscal 2014. HP revenue fell 1 percent to $27.3 billion, while net income dipped 18 percent to $1.3 billion.

HP CEO Meg Whitman

HP has been trying to reverse declining sales as it faces competition from tech rivals such as Oracle and IBM, according to several media reports published today.

Unable to catch up with Lenovo

Lenovo revenues, in the first fiscal quarter ended June 30, 2014, rose 18 percent to $10.4 billion, while pre-tax income increased 22 percent to $264 million. Earnings grew 23 percent to $214 million.

Lenovo gross profit for the first fiscal quarter increased 13 percent to $1.3 billion, with gross margin at 13 percent. Operating profit for the quarter grew 40 percent to $283 million.

“The major benefit I see in the move is that the enterprise business will have a singular focus on the data center, and the PC and printer business can be a lot speedier and agile,” said Patrick Moorhead, president of Moor Insights & Strategy, a tech analyst firm.

He said HP will need to ensure its PC and printer business has enough cash to compete in both the consumer PC and emerging smart home markets. Dell and Lenovo are its main rivals in the PC market.

Last year, HP held talks to merge with data-storage giant EMC and others, but the Journal said those negotiations recently ended because of lack of shareholder support.

Meg Whitman took the helm in 2011 and unveiled a five-year restructuring plan. That included a major overhaul of the printer and PC business in 2012. Layoffs then and since have totaled at least 45,000, and HP projected savings of $4.5 billion per year.

Her predecessor, Leo Apotheker, considered a corporate split similar to the one the Journal reported, but he left the company after only 11 months.

Baburajan K
[email protected]

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