Meg Whitman, chief executive of Hewlett-Packard Co. announced on Monday that HP, the computer industry giant, will split into two: a company will run the personal computer and printer business while the other will be in charge of enterprise computing operations. Whitman believes that after the split, each new company will gain independence, financial resources, flexibility and focus so that they can generate long-term shareholder value.
However, industry analysts didn’t seem as enthusiastic as Whitman, in spite of the standing ovation that they offered EBay’s announcement of a similar action: they would be carving out PayPal into a separate company.
“Although we are less bullish on this split than on the EBay/PayPal split announced a week ago, we still think that this development is a small net positive for the stock. The split creates more focused companies that can arguably become more nimble vs. the competition.”
FBN Securities analyst Shebly Seyrafi wrote.
The two distinct companies will run separately now, so as to offer a chance for Hewlett-Packard to continue competing for customers after its revenue practically flat-lined for the past five years.
Whitman will take over the business services company (which will be dubbed Hewlett-Packard Enterprise) while the other company will be named HP Inc. and will compete in the low-margin business of printers and PC’s- desktops, laptops, tablets and similar products. Dion Weisler will become chief executive while Whitman will observe from the shadows as non-executive chairman.
Whitman took charge in September 2011 and since then, HP’s stock price has appreciated 62%. However, it was largely because of cost-cuts and stock buybacks. Moreover, in 2011, HP employed 349,600 workers, but by 2013, this number was down to 317,500, and more layoffs are programmed.
Despite these numbers, Ben Reitzes, analyst at Ben Reitzes believes that HP shares are undervalued and noted that the PC business run by HP has been stabilizing and has reached a healthy cash flow. Short of a market crash, analysts believe that HP stock isn’t in for a dramatic drop and although its business isn’t growing at the moment, it still has annual revenue of $112 billion.
Whitman hopes that the two distinct companies will provide bold new services and products. For instance, HP Inc. might be looking at 3D printing as an area for innovation, the company noted in a statement. In the meantime, Hewlett-Packard Enterprise will be looking at products and services that will define the “new style of IT”.
Despite all these changes, Hewlett-Packard stock rose on Monday 4.74% to $36,87.