HP is right where many investors have wanted them to be for years, ready to spin off its consumer hardware division, but industry analysts and competitors are starting to express pessimism over the move.
At the start of 2015, HP will split into two companies: Hewlett-Packard Enterprise and HP Inc. The enterprise company will tighten its focus on delivering solutions for large organizations, while the HP, the consumer hardware company dealing in printers and PCs, will square off against the likes of Lenovo without the might that was once behind it.
HP CEO Meg Whitman says the two companies will be more agile and better-suited to address their respective markets, and the move is part of the company's five-year plan to turn things around. Indicating that HP's strategy remains uncertain, Marius Haas, Dell's chief commercial officer and president of enterprise solutions, said the splitting company will face years of "distraction" as it works to untangle its operations.
"History has proven that spinning off a PC division from a broader IT solution provider has had material negative impact on the remaining lines of business," stated Haas to Dell channel partners, adding "[Our] customers and partners should be assured that working with Dell will remain streamlined and require a single interaction, and you will not have to navigate two companies with different compensation structures and channel offerings."
Tech analysts have indicated that it's a bad time to push the PC side into the market on its own and Gartner reported on Oct. 8 that PC sales stagnated for another quarter, after two years of significantly declining sales. Ranjit Atwal, a PC analyst at the firm, said he doesn't see how spinning off HP's PC operations will help the already troubled division.
"There's no real upside in terms of the PC side," says Atwal. "Along with printers, it's a commoditized business that doesn't feature in HP's 'solution-based' approach."
J. Randall Woolridge, a Pennsylvania State University professor, is a bit more optimistic for the sustained successes of both halves of HP. Woolridge, along with James Miles, stated they witnessed, on average, a 76 percent rise in stock prices in five years in their analysis of 174 spun-off companies.
"Different businesses may need different capital structures and more entrepreneurial management," Woolridge said. "The spun-off company will often be totally different from a culture standpoint. It can get a better board that understands the business and can get the capital structure right. We found that the spun-off companies tend to grow revenues and profits faster."
