HP Decides the Future isn't Better Together

20
Oct
Philip Magson

Written by Philip Magson, 20 October 2014

The story of Hewlett Packard reminds me of Abraham Lincoln's axe, which famously had its component parts replaced so many times that it arguably ceased to be the tool it originally was. Since Hewlett Packard's founding in 1939, like Abe's axe, the company has been the subject of countless high profile mergers and disposals, culminating in the announcement, earlier in October, that it would be splitting to form two separate entities: 'HP Enterprise' and 'HP Inc'. The move is being framed as a way for the two new organisations to focus on the things they do best: HP Enterprise on the cloud and big business services - and HP Inc on PCs and printers.

But, after other high profile splits, like the sale of Nokia's mobile phone division to Microsoft in 2013, does this move finally signal the end for the HP we've come to know and love? 

Gains and losses

I've always found the history of Hewlett Packard inspirational, which is what makes the news of the split all the more significant. HP was the original 'tech start-up', and paved the way for the rise of Silicon Valley and its catalogue of legendary success stories. Electrical engineers, Bill Hewlett and Dave Packard started the company in a humble garage in Palo Alto and, after working in a range of fields (oscilloscopes, voltmeters, wave analysers - to name a few) began to specialise in digital equipment from the 1960s, entering business computing in the 70s and printing in the 80s.

H&P's historic ambitions across the industry landscape are undeniably impressive - especially to tech-minded fans like me - but its recent past is a tapestry of useful, not-so-useful, and downright disastrous acquisitions and disposals. While HP has made several high profile, successful mergers over its lifespan, including Apollo Computers, Convex Computers and, in 2001, Compaq computers, for every positive, there seemed to be an equal negative - the most infamous of which was the acquisition of British software firm, Autonomy, in 2011. The Autonomy purchase came at a 79% premium - amounting to $11.1 billion - much to the astonishment of industry observers. The move was billed as an attempt to reposition H&P as a software company but, as quickly became evident, was more a symptom of a brand struggling to adapt to a crowded and unstable marketplace.

The Autonomy acquisition is still stinging HP in the form of costly legal wrangling: HP shareholders are suing the HP board over a lack of fiduciary duty and, in turn, the board is blaming Autonomy's execs for misrepresenting the value of their company. Meanwhile, Autonomy's execs allege mismanagement on the part of... you get the idea. Needless to say, the deal has ended up costing HP a further $8.8 billion.

We have watched HP struggle for some time now due to a variety of factors: the increasing commoditisation of PCs has made the market climate more competitive than ever, cloud storage and computing continues to chip away at existing revenue streams and demand for traditional HP products and services, particularly in Asia, continues to be tepid at best. HP's decline has been felt personally in Scotland: the company's spin-off Agilent research and development facility in South Queensferry, Edinburgh, was demolished recently after over 40 years of business. . In yet another local twist - a further consequence of the acquisition of Autonomy - HP unexpectedly found itself a significant shareholder of a web development agency in Edinburgh - a shareholding since sold. 

Divided we stand

HP's split represents a fresh start for the tech giant (I guess that should that be "giants"). A struggling company becomes two sleeker, more efficient new organisations with enhanced focus on their separate territories: one personal computing and printing, the other, services for enterprise - but where will this lead the two new HPs?

As we've mentioned previously, cloud services are a rapidly evolving battleground- which tech companies are racing to take advantage of. HP Enterprise will undoubtedly join that fight and bring its considerable expertise and experience to bear as it attempts to succeed. The fate of HP Inc however,  seems much more uncertain: people just aren't buying PCs anymore and while Inc may initially be able to match Enterprise's revenue streams, prospects for growth are limited. That said, HP Inc does have an ace up its sleeve in the printing side of its business, which is going to push forward into uncharted 3D printing territory. 

End of an era

Whatever the future holds for the two newly-minted HPs, the split is going to send a shockwave through the industry. While it marks the end of an era for one of Silicon Valley's greatest success stories, it might also signal the beginning of a new one, in which one-stop, do-everything tech-giants and commercial organisations become a thing of the past. Microsoft has already begun to take its own steps to streamline, Ebay recently split with Paypal, and rumours are swirling that Symantec is exploring a split between its security and storage wings. The fun isn't over for HP and its shareholders either, as reports of a coming merger between HP Inc and storage giant EMC are starting to multiply...

Bill Hewlett and Dave Packard's Palo Alto garage was designated a California historical landmark in 1987 -  and it seems safe to say their original legacy is secure, no matter how the split pans out. While the HP of the 20th century is gone, HP Inc and HP Enterprise now have a fight on their hands to win and keep a new generation of consumers by recreating the desire and innovation that made them so successful for so many years.

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