Hewlett Packard CEO Meg Whitman's three-year turnaround project may have undertaken its most radical move yet: An audacious decision to split the 75-year-old company in half, to spur innovation and add shareholder value.
HP confirmed Monday it will split into two companies — the latest gambit by HP executives to jump-start a push into fast-growing tech segments in the face of withering competition.
Whitman, whose plan has had mixed results, will lead the new Hewlett Packard Enterprise. It will sell computer servers, data-storage gear, software and other services to corporations. Hardware chieftain Dion Weisler will be CEO of HP Inc., which consists of the PC and printer businesses.
Patricia Russo, current lead independent director, will be chairman of the Enterprise unit.
The long-rumored move, designed to make HP more nimble, resonated with shareholders. HP's stock is up nearly 6% in afternoon trading. HP shares have risen sharply this year, but are still well short of their highs in recent years.
HP's split, however, raised red flags among long-time company watchers, who pointed out even more layoffs as part of the plan and no guarantee of its success in an increasingly fast-paced, evolving tech landscape.
Asked by CNBC if the split is proof that the company's turnaround efforts have failed, Whitman said, "Today is only possible because the turnaround has succeeded."
"Think about what we have accomplished over the last three years," she said. "A rebuilt balance sheet, an innovation pipeline that is significantly improved over three years ago. ... An inspired workforce, a new leadership team, renewed confidence of our partners, our customers, frankly, our shareholders as well."
The move is expected to be completed by the end of fiscal year 2015. Both companies, each with about $50 billion in annual revenue, will be publicly traded.
Carving HP in half gives the new companies "the independence, focus, financial resources and flexibility they need to adapt quickly to market and customer dynamics," Whitman said.
"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.
By splitting itself, HP follows an increasingly popular playbook in Silicon Valley and beyond: Breaking off or spinning off a portion of the business so that it is more focused. Such actions are typically met with a stock boost.
Last week, eBay said it would spin off its mobile-payment service PayPal into a separate company.
"HP, as we know it, is a company of the past," says Jerry Reisman, senior partner at a Garden City, N.Y., law firm that specializes in tech mergers and acquisitions. "The only way for it to be a company of the future is to create an energetic, growth company through this move."
HP, founded in a garage in Palo Alto, Calif., where it is currently based, has been trying to reverse sagging sales as it faces tough competition from Oracle, IBM and Lenovo, among others. In 2012, under Whitman's leadership, it merged its PC business with its more lucrative printer one.
It has also been cutting costs and laying off tens of thousands of employees. And as more computing moves to mobile devices, Whitman has tried to steer HP's business into the growing demand for cloud-computing systems. HP on Monday boosted the number of expected layoffs it has planned by 5,000 to 55,000. The company previously projected job cuts of 45,000 to 50,000.
In August, HP reported good news: a sales uptick. It said a resurgence in PC shipments helped boost its year-over-year revenue 1% to $27.6 billion. Its Personal Systems group, which includes PCs and notebooks, grew 12% in that time.
Still, HP last year lost its place as the largest PC maker by shipments, slipping behind China's Lenovo Group, according to industry research firm IDC.
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