Hewlett-Packard Inc. is officially spinning out its personal computer and printer operations into a free-standing company from its enterprise software systems and consulting business on Monday, creating two companies with market capitalizations of about $25 billion each.
According to CEO Meg Whitman, dividing up Silicon Valley’s biggest and most diverse conglomerate will allow both companies to better focus on management and investment decisions.
When Whitman announced a company-wide restructuring plan in May 2012 that would run through the end of 2014, the analyst community had little faith that a Silicon Valley behemoth with $127 billion in revenue from wilting technology would make the breadth of gut-wrenching financial and human changes necessary to revive the company.
Hewlett Packard’s 10K financial statement for 2013 mentioned the word “restructuring” 83 times, as Whitman slashed 34,000 positions and dumped $10 billion of unprofitable revenue to increase annual cash flow by over $3 billion. HP’s stock tripled from 2011 to mid-2014 under the former eBay CEO’s turnaround plan.
Despite Whitman slashing another 20,000 employees and buying back $3.8 billion of stock, she has been hammered by analysts over the last fifteen months for HP’s failure to embrace the consumer shift towards mobile smartphones and tablets and away from PCs and printers. With a 10 percent fall in enterprise software sales, flat PC sales, and the closure of HP Helion Public Cloud, the stock plunged by over 50 percent, while most Silicon Valley companies enjoyed red-hot tech stock performance.
When Whitman was challenged by the Financial Times on the merits of the bust-up, she tersely defended the move. “It is not Plan B.” Adding, “It is just classic reinvention that has allowed us to be around for 75 years. There are a lot of tech companies that have gone by the wayside.” Whitman pointed out that HP radically transitioned the company in 1999 by spinning-off its Agilent test and measurement equipment business at the top of the dot.com bubble, despite the unit being the founding business of the company.
Whitman announced in September that the spin–off will result in another 10 percent companywide layoff. Hewlett Packard Enterprise will cut 25,000 to 30,000 jobs, and 3,300 positions will be cut at HP Inc.
Whitman will continue as the CEO of Hewlett-Packard Enterprise (HPE-NYSE). Dion Weisler, Executive Vice President of HP’s Printing and Personal Systems, will become CEO of HP Inc.
Hewlett Packard raised $14.6 billion from the bond market in September to provide enough cash to redeem $8.85 billion of the company’s debt and provide HP Inc. with the war chest to weather virtually any downturn in the PC business.