It is hard to explain the Hewlett-Packard split to anyone outside of the computer business. The huge but struggling computer conglomerate now says it will devolve into two companies, one focused on enterprise services and the other on laptops. This is essentially the split that the company considered last year and rejected then because it didn’t make any sense. Now they are proceeding with a plan revised so that it makes sense to the board, though we don’t yet know what those revisions are. Here’s what makes this split so inherently confusing:
- We don’t know the names or any other identifying details of the two new companies. At this point, they are both known as “Hewlett-Packard” or “HP.” If there were any practicality in this plan, one of the new companies would be known as “Hewlett” and the other as “Packard,” but that is too simple and obvious for it to actually happen. For the purposes of discussion, it may help to assign names arbitrarily from HP’s history. Think of the laptop company as “Compaq,” the laptop company that Hewlett-Packard merged with many years ago, and the enterprise services company as “Autonomy,” the enterprise services company that HP acquired more recently. The way the announcement was worded, it appears more likely that “Autonomy” will keep the Hewlett-Packard name, though that detail actually may not have been decided yet.
- Both of the new companies will be computer companies selling almost entirely to large businesses. (For an important update, see “HP: the New Gateway?”) It is not as if there are two distinct businesses that will be separating with each other, as in the case of eBay and PayPal. It is more of an arbitrary split.
- Both of the new companies are backward-looking in their business strategy. Sometimes you get a company that wants to separate its hot new product line from its stodgy old product line, but there is none of that at HP. “Compaq” is oriented toward the 1990s idea of the business office, complete with personal computers and, yes, plenty of ink for printing those mountains of paper documents that the personal computers will generate. “Autonomy” is focused on the corporate sector that so dominated the economy before the “downsizing” era of the 1980s, but that has been declining in its share of economic activity ever since.
- Both new companies face financial uncertainty. “Compaq” barely breaks even on the computers it sells and loses money on the printers, but hopes to cover its overhead by selling lots of high-priced ink. That’s a business model that worked a lot better ten years ago than it did last year, and it may not have a long future as businesses continue to reduce the mass of paper documents they generate. “Autonomy” makes most of its gains on sweetheart deals it negotiates with a short list of major corporations. Every time the corporate sector catches a cold, “Autonomy” will sneeze.
- The management of the new companies is an open question. The current Hewlett-Packard often looks as if there is no one in charge, so it is hard to imagine where the management for two new companies will come from. In reality, of course, Hewlett-Packard has plenty of people on board who are more than capable of running the two new companies, assuming they can break free from the board and executive leadership of the current Hewlett-Packard.
- Maybe there is no plan. When Plan A failed and Plan B isn’t working, eventually you get to the “try something” stage, and this move has some of that feeling about it. HP’s closest competitor, Dell, already tried going private, and now that that’s done, it doesn’t exactly look like a brilliant move worth imitating. HP doesn’t have the free cash flow for a major acquisition, and it already tried restructuring five different ways. If you look at the “Bold Moves” chapter in Corporate Leadership for Dummies, a spinoff or split is the next option on the list.
Fortunately, the bottom line is not nearly so complicated. If you own an HP printer, by the time you need your next supply of ink next year, you’ll be getting the ink from a new company, and I suppose there is a slight chance that you’ll need to buy a new printer to go with the ink. Check your favorite online supplier for details when that time comes.
