Meg Whitman bets that a smaller HP will be able to beat Dell
Meg Whitman long resisted a breakup of Hewlett-Packard, saying that selling computers to consumers and businesses was the best way to keep the Silicon Valley pioneer alive.
Now, with personal computer demand in decline and companies flocking to the cloud to run their operations, she is on board with the company’s split, which is effective Sunday. The chief executive’s biggest job is proving to customers, investors and employees that a smaller, enterprise-focused HP will be faster and more nimble against competitors.
Whitman’s plan stands in stark contrast to Michael Dell’s $67 billion deal to combine Dell with storage maker EMC in the largest-ever technology merger. He’s betting that a single provider of enterprise computing technology will be stronger because it can offer everything a company might need to run its business under a single roof.
“It’s quite unusual that you end up with companies that have taken such different approaches,” Whitman said in a recent interview. “Given the market, given the changes that are afoot here, you’re better off being smaller, more nimble.”
Ever since she took over as Hewlett-Packard’s CEO, Whitman has had to come to grips with a company whose size was out of sync with demand for its products. Much of her four-year tenure has been spent scaling back investor expectations, cutting more than 80,000 jobs and ultimately turning the company founded in a Palo Alto, Calif., garage into two smaller versions of its former self.
On one side will be HP, which will largely consist of personal computers and printers. The other, Hewlett Packard Enterprise, or HPE, will sell the computer servers, data storage, networking, software and consulting services that run a modern company.
Each company is expected to have annual revenue of about $50 billion and will be among America’s 500 largest public companies. Both will start trading separately Monday.
To justify the split, Whitman will have to deliver cutting-edge technologies that will drive demand for the company’s core products, find smart and small acquisitions to bring new technologies to a wider swath of customers and take full advantage of the disruption caused by the Dell-EMC merger. HP will have the more difficult task of selling products to consumers who are embracing mobile devices as the hub of their digital lives.
“The window of opportunity is closing,” said Daniel Ives, an analyst at FBR Capital Markets. “This is a pivotal period of time over the next six to nine months for these companies to get their act together and show that there’s a pulse.”
Already, investors are giving early signals on prospects for both new companies, based on “when issued” shares that have been trading in advance of the split. Hewlett Packard Enterprise traded at $15.95 at the end of Thursday, topping HP, which stood at $11.75, according to data compiled by Bloomberg. When a large company splits up, exchanges usually authorize preliminary trading to determine pricing and limit volatility.
Preparations for the transition have been under way for several months — ensuring everything from office space to internal technology systems were separated in time. The separation is a complicated task involving more than 300,000 employees, offices across the globe and a network of partnerships forged since the company was founded in 1939.
Last week, Whitman said she did something that hasn’t happened before: She spent an entire day on a three-year plan for its key server business without any talk about inkjet printers or what should be done to sell more PCs.
“There’s a great deal to be said for focus,” Whitman said. “You’ve got to be on it. You’ve got to be working on the product road map.”
But in the server space, Dell is waiting. With EMC, it gets the No. 1 provider of storage gear, making it a one-stop shop for corporate customers. If Dell’s strategy works, Hewlett Packard Enterprise will just continue the former HP’s fate, where sales have declined for 15 of the past 16 quarters. PC shipments, where HP is No. 2, fell 7.7 percent in the third quarter, according to Gartner. For servers, where Hewlett-Packard is the market leader, second-quarter shipments slowed to 8 percent from 13 percent in the prior period.
A key challenge for HP has been the rise of cloud computing services. Amazon.com and more recently Microsoft have become market leaders in letting corporations access computer and storage services over the Internet. While Hewlett-Packard had its own public cloud service, it never got enough traction — and last week the company said it would shut it down. Still, HP said it’s investing in other ways to provide cloud services through a hybrid approach.
“I think that game has played out,” Whitman said, referring to Microsoft and Amazon. “I think those are going to be the two winners in the public cloud.”
The cloud shutdown was a “telling moment,” said Todd Lowenstein, director of research at Highmark Capital Management, which has HP shares among its holdings. “They have some catch-up to do.”
Acquisitions will probably be part of any effort to expand the product line. When asked about what size they may be, Whitman pointed to companies Hewlett-Packard has bought for around $2 billion to $3 billion, including 3Par, 3Com and Aruba Networks. Whitman showed less appetite for deals in the tens of billions.
Dion Weisler, who will run consumer-focused HP, is also open to acquisitions, although he predicted there would be fewer of those compared with Hewlett Packard Enterprise. He said he is looking forward to investing in the consumer business.
“This was a natural, logical separation,” he said. “There is opportunity for growth.”
This story was originally published October 30, 2015 at 3:00 PM with the headline "Meg Whitman bets that a smaller HP will be able to beat Dell."