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Calls For an HP Split Grow Louder

Critics say the time is ripe for HP to split up its businesses now that CEO Carly Fiorina is leaving the company. For months, analysts cited Fiorina’s “New HP” failure to deliver on its promises to compete with Dell’s leading sales position and IBM’s worldwide reach, as a reason to divide the company up into […]

Written By

Michael Singer

Feb 10, 2005

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Critics say the time is ripe for HP to split up its
businesses now that CEO Carly Fiorina is leaving the company.

For months, analysts cited Fiorina’s “New HP” failure to deliver on
its promises to compete with Dell’s leading sales
position and IBM’s worldwide reach, as a reason to
divide the company up into its various components.

Carly Fiorina
Source: HP

Currently, HP is divided into imaging and personal systems,
technology solutions group, enterprise storage and servers, financial
services and HP services.

Spokesman Bob Sherbin confirmed reports to internetnews.com
that HP’s board of directors considered breaking the company apart three
separate times.

Even with Fiorina’s departure, the board remains “unanimously
committed to keeping the company as is constructed,” Sherbin said.

Forrester Research analyst Ted Schadler is recommending HP’s
customers and partners should hold on to their assets, as any new
management changes will be beneficial to the customer.

“Whether it is consumer, printing or enterprise, each one of those
buyers will be able to take advantage of any changes that HP makes going
forward,” Schadler said.

HP’s Sherbin said that no major changes are expected to some of HP’s
current product plans, including a mobility push to usurp Dell as the No.
1 notebook maker.

Still, Merrill Lynch analyst Steve Milunovich is one of those
sounding a call to split
the company up.

“We believe the long-term probability of a breakup of the company is
rising, despite indications from the board that no such move is
currently planned,” Milunovich said in a newsletter to investors. “New
chairman Patricia Dunn mentioned the need for better ‘hands-on’
management in describing the change, so the problem is execution more
than strategy. We do believe there is sufficient room for improvement
to make the stock work.

“For example, we think the shift in sales
compensation to emphasize margin will be helpful,” he continued. “The key swing
business is enterprise computing, where better execution could boost
profits despite HP’s strategic problems.”

Analysts at Yankee Group mirrored Merrill’s sentiment saying HP needs
to reconsider its product roadmap. Phil Fersht and Andy Efstathiou said
the management change should give the company an “opportunity to regain
momentum as a technology and business integration pioneer.”

“We believe HP will have to aggressively consider a split-up,” the
Yankee Group analysts said in a statement. “The split-up, if it occurs,
needs to segregate peripherals and the data center environment. If it
cannot achieve client buy-in (i.e. volume) for its platforms such as
Itanium, it will continue to struggle.”

Yankee Group said HP also needs to focus its services on product-attached and integration services.

“Large-scale outsourcing carries too much risk, and at this point is a
diversion to their core business,” the analysts said.

Fiorina was both lauded and criticized during her tenure — most
notably for her handling of the Compaq merger.

At the time, HP was
decidedly divided between those who felt that HP was good at printers
and cameras and should not waste its money on Compaq, and those that
tried to rationalize an outdated set of computer offerings (servers and
desktop).

“The merger was a mistake — period. There were not sufficient
synergies to make that deal worthwhile,” Yankee Group said.

HP has also had difficulty attracting support for its new product
lines, Yankee Group said. For example, the Itanium chip set has had
difficulty achieving volumes or attracting software developers to
support it.

Fiorina was also criticized for an apparent lack of execution,
including a management shakeup last year that saw Mike Winkler, executive vice
president of global business units, take over for Peter Blackmore.

Last
December, HP announced an anticipated 8 percent workforce layoff, which
further reduced overall morale.