Original Story: nytimes.com
Hewlett-Packard confirmed on Monday that it planned to break into two companies.
The company, considered a foundational institution of Silicon Valley, said in a news release that it intended to divide itself into a company aimed at business technology, including computer servers and data storage equipment, software and services, and a company that sells personal computers and printers.
Both companies will be publicly traded. The business-oriented company will be called Hewlett-Packard Enterprise, while the PC company will be called HP Inc. and will retain the company’s current logo. The transaction is expected to be completed by October 2015, the end of HP’s fiscal year, the company said.
In a statement, Meg Whitman, HP’s chief executive, said the company was splitting up to “more aggressively go after the opportunities created by a rapidly changing market.”
While Ms. Whitman, who became chief executive in 2011, depicted the historic decision as a natural part of her five-year turnaround plan, she had previously resisted the idea of breaking up the company. HP was one of the world’s top buyers of semiconductors and other computer parts, she had argued, giving it pricing power superior to its rivals.
Dividing in two, she said on Monday, “will provide each new company with the independence, focus, financial resources, and flexibility they need to adapt quickly to market and customer dynamics.” This will make HP more competitive, she said.
Ms. Whitman will retain much power at both companies. She will be chief executive of Hewlett-Packard Enterprise and will serve as nonexecutive chairman of HP Inc. Patricia F. Russo, currently a director of HP, will be chairwoman of Hewlett-Packard Enterprise. Dion Weisler, now head of HP’s printing business, will be president and chief executive of HP Inc.
The company also added to the number of prospective job cuts. In an earlier conference call with analysts, it said it had “identified opportunities for incremental improvements” in its plan to eliminate a total of 50,000 jobs through layoffs and retirements. It now expects the number to be 55,000.
The company said its financial analysts’ meeting, scheduled for Wednesday, had been postponed.
“HP’s board and management have made a brilliant value-enhancing move at the perfect time in the turnaround,” Ralph V. Whitworth, founder of Relational Investors and a former Hewlett chairman, said in a statement on Monday. “The new companies will be better positioned to address today’s light-speed market dynamics and customer needs, and with distinct and compelling financial profiles and strong leadership teams, accelerate growth and shareholder value creation.”
The company’s shares closed up 4.7 percent Monday at $36.87, a gain of $1.67.
In a little over a year, stalwarts like Microsoft, IBM and Dell have changed chief executives, sold big parts of their businesses or gone private. All of them, along with a host of other companies that became behemoths during a 20-year boom in personal computing and the Internet, are rushing to cope with the rise in mobile devices connected to cloud systems.
Cloud computing uses software to turn numerous computer servers, sometimes a million or more, into single entities. These flexible systems can distribute work with greater efficiency, cutting the overall need for servers, and interact easily with other computers, whether in clouds, PCs, or mobile devices.
Winners in the new landscape include Apple, the king of consumer electronics, with annual revenue of $170 billion. The company makes iPhones, iPads, and hosts through its online stores a wealth of cloud-based software applications. South Korea’s Samsung, the other big winner in smartphones, has dominated the competition, forcing onetime leader Nokia into a sale of its phone business to Microsoft.
In business computing, Amazon’s cloud-based rentals of computer power and software to businesses, Amazon Web Services, has sharply lowered the cost of starting a company and hosts businesses like Netflix, Pinterest, and Airbnb. Many established businesses also use Amazon Web Services, which is estimated to have well over a million computer servers. Google has built online word processing and spreadsheet businesses that threaten Microsoft, and is challenging Amazon Web Services for the corporate cloud business.
HP was long the world’s largest computer company, though there has been much turmoil in recent years. The two businesses resulting from the proposed split almost evenly divide HP’s fiscal 2013 revenue of $112 billion. On their own, both would easily fit in the top half of the Fortune 500.
HP’s split is not the first time the company has hewed itself in two to cope with changing times. In 1999, its test and measurement equipment division was started as a separate company, called Agilent. Shares in Agilent rose 41 percent on their first day, and the company was completely spun off HP in 2000. The stock was already declining by then, however, and today Agilent has a market capitalization about equal with its first day’s value.
Agilent, as the name suggests, was also split off in the interests of agility, at that time in the face of the first Internet boom. While HP benefited in those years from PC and server sales, management also felt the company was not moving fast enough for a changing world.