HP Split the Right Move
We believe Hewlett-Packard's decision to split the enterprise and PC/printing businesses is the right move strategically, but there are still several moving parts and details to be finalized.
We believe Hewlett-Packard's decision to split the enterprise and PC/printing businesses is the right move strategically, but there are still several moving parts and details to be finalized.
On Monday, Hewlett-Packard (HPQ) officially announced that it will split into two distinct publicly traded companies. Discussions of separating the enterprise and PC/printing businesses have swirled for some time but intensified late last week as the firm prepared for its now-postponed analyst meeting (which was originally to be held Oct. 8).
While we believe this is strategically the right move, there are still several moving parts and details to be finalized, which could materially alter the look of the two organizations a year from now, when the tax-free split is expected to close. We are placing our fair value estimate under review while we make adjustments to our financial model.
Timing is everything. The tagline from the investment community conference call was that today's move will create two more focused and nimble organizations that will be able to serve customers, partners, and shareholders more efficiently. CEO and chairman Meg Whitman was quick to point out that a move of this magnitude would not have been possible three years ago, and we wholeheartedly agree. Since Whitman joined HP, the company has taken several steps to fix its balance sheet (though more work is still needed, in our view), created a more cohesive leadership team, developed and introduced a more compelling product portfolio today, and reached existing and new customers with a more effective go-to-market strategy.
We will review our financial model to incorporate management's fiscal 2015 outlook and the expected increase in head count reduction (now slated to be 55,000, up from a range of 45,000-50,000), but we will also look more closely at the firm's competitive position and think about each business' strategic growth prospects.
While management didn't offer much detail on some sensitive areas, such as financial leverage, the willingness (and ability) to enter into other transformative deals, and the competitive environment, we expect a steady flow of additional disclosures and announcements from the firm as it takes the necessary steps to split the businesses.
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