An H and a P

6 October 2014 By Rob Cox

Hewlett and Packard are finally going their separate ways. Not literally, of course, as the founders of the Silicon Valley technology conglomerate that bears their names have long shuffled off this mortal coil. But the company now led by Meg Whitman is breaking in two.

HP, which had a market value of $66 billion before the announcement, plans to separate its business manufacturing laptops, computers and printers, HP Inc, from the one that serves large corporate and government customers with hardware and services, to be called Hewlett-Packard Enterprise.

While a big move for a slow-moving company founded in 1939, it’s actually a bit behind the curve as far as shareholders are concerned. They have been expecting just such a split for some time. Whitman’s predecessor proposed a similar measure back before he was shown the door. And it was one of the options that Ralph Whitworth, the activist shareholder at Relational Investors who became HP’s chairman until taking a leave in July, wanted HP to consider. He praised the breakup in a statement.

Breakingviews argued nearly two years ago that the company’s assets would be worth almost double its then-market capitalization in a breakup. Investors appear to have agreed, sending HP shares up from about $13 in December 2012 to $35 before today’s announcement.

Whitman could have continued to argue that there were synergies in duct-taping a consumer hardware business endangered by the age of mobile computing with a potentially more stable operation focused on solving the complicated problems of large enterprises. The printing and personal systems unit saw sales slip some 7 percent last year.

Using the recent revival in its stock-market fortunes to perform surgery, rather than go with the flow, is a smart move by HP’s board. Better to perform the operation voluntarily than be forced into it by disappointing earnings or a crack in the market. It also allows Whitman to hedge her bets. She will be CEO of the corporate IT business and chair the hardware unit. In all other respects, however, Hewlett and Packard are finally parting company.

This column has been updated throughout following Hewlett-Packard’s announcement on Oct. 6.


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