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Hewlett-Packard splits

Oct 6, 2014

Hewlett-Packard is splitting in two, the company confirmed this morning.  The printing and computer side of the business will go in one direction, and in the other direction will go… everything else, under the name HP Enterprise. 

Hewlett-Packard Enterprise is a software and services business. It does advanced analytics, enterprise development and a number of other consulting services. 

The computer printer side is still grappling with the age of the tablet and smartphone, which hit the computer sector hard.

“Not only were consumers purchasing fewer desktops and laptops where HP was strong,” says Ross Rubin, principal analyst with Reticle Research, “but on the smartphones and tablets consumers were doing less printing because tablets can be taken with you and you can view the documents on the tablet itself instead of having to print it.”

The printer and computer side has stabilized over the past few years, and paid down some of its debt. Even so, the Enterprise group had higher margins, says Rubin.

“HP is splitting because there are two different directions and two segments of the business,” he says. “They have different market dynamics, different margin structures, different distribution systems.” HP Inc. (the computer-printer people) has a much bigger consumer-facing marketing component, whereas the Enterprise group is more consulting- and services-focused. 

Generally speaking, “independent companies can pursue what’s best for them rather than what a board of directors looking at various subsidiaries would be doing, and Wall Street tends to value that highly,” says Bill Caffee, a securities lawyer with White Summers Caffee and James. 

Investors who might’ve liked one side of HP but not the other will be free to invest in just the side they want, another reason why splitting can help valuations. Consumers won’t see much difference; computers and printers will keep the high-powered HP brand.  

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