The news that HP plans to split itself into two separate companies, broadly speaking one to cover the enterprise space (servers, software, and services) and one focusing on devices (PCs and printers), comes as no real surprise. Actually, it’s only a surprise that this development has taken quite so long because the stress lines between the different HP business units have existed for a long time.
Looking back on the recent history of HP, different attitudes to business. Innovation, sales, and R&D has always been in place. Remember, today’s HP is the result of many acquisitions, and although 12 years have passed since the headline acquisition of Compaq in 2002, things have never quite settled down inside the company as it has gone through CEOs, more acquisitions, upheavals, and rapid change in their businesses.
The lack of stability has affected R&D. Under Mark Hurd, R&D budgets were steadily squeezed and it became more difficult to find investment funding to pursue pure innovation. It’s true that the R&D that was spent was more focused and some notable successes occurred. For example, the PC business unit had considerable success in 2004-2006 after refocusing on laptops and taking investment funds away from desktops, which had become a “me too” game. Miniaturization and packaging of components into attractive and functional factors made PC laptops a pretty good buy then.
Much around the same time, a decision to focus on server blades rather than the traditional towers accelerated progress in airflow dynamics, cooling, power consumption, and cabling, all of which is seen in the massed racks of blades that power today’s modern datacenters.
Yet the squeeze on R&D funds handicapped HP in so many ways. Mobile devices are one example. The PC business unit design studios in Cupertino produced plans and working prototypes for many devices that I thought were good looking and highly functional, even if they ran an under-performing and at times awful Windows Mobile operating system. But funds were not available to bring these devices to market, so HP stayed with the iPAQ not-so-smartphones for too long.
The lack of investment led to other consequences. I imagine that the Palm acquisition was an attempt to kick-start HP in the mobile world and we all know how well that turned out. The Autonomy acquisition tried to help HP Software grow to a point where it was a meaningful contributor to corporate profits, but that hasn’t been a good experience either. And the EDS acquisition was to help HP Services get into more accounts, but I’m not sure that has worked as planned. In all cases HP overpaid in an attempt to achieve non-organic growth. One wonders what would have happened had a fraction of the money squandered on acquisitions had been used for internal R&D.
Don’t get me wrong. HP still invests a substantial amount on R&D. A recent ZDNet analysis estimates that it has crept back up to $3.45 billion in 2014). A lot of that money is spent pursuing incremental improvement in existing products, but some of it shines through in projects such as the “Moonshot” servers and CTO Martin Fink’s crusade to develop “The Machine”, a next-generation approach to IT.
Splitting HP into two will take a lot of effort and might have major knock-on effects on things like its supply chain. HP buys an enormous amount of memory, CPUs, disks, and other components and as such, it exerts a huge influence over its suppliers. Both HP companies will attempt to maintain their leverage over suppliers, who will see opportunity in the gap between the two.
Since the Compaq merger, HP has focused on optimizing and rationalizing many corporate functions to eliminate waste. The split will tax these systems and create a certain amount of duplication and cost.
And then there's the people. Most HP employees are aligned to a business unit and will therefore know where they will land up after the split, but it seems like more layoffs are on the way with the new goal being around 55,000 because "incremental opportunities for reductions have been identified." How sad for those affected.
Overall, despite the pain that will exist for some, I actually think that the split will a good thing in the long run. Printing might not be the cash cow it was in the past, but it’s a good companion for PCs. And the enterprise collection has sufficient assets to make an impact on its own. I guess we’ll just have to wait and see how this story develops.
Follow Tony @12Knocksinna