Channel Takeaways from the HP Split

The rumors over the weekend were correct, and Hewlett-Packard revealed Monday morning that it will split into two roughly equal-sized entities -- Hewlett-Packard Enterprise and HP Inc.

The move creates two massive new, if familiar, players in the tech industry -- Hewlett-Packard Enterprise's annual revenues for a recently concluded period would have been $58 billion, HP Inc.'s $57 billion. The new arrangement has implications across the IT industry, including for the many Microsoft partners who are also HP partners. Here are a few of the main takeaways that are visible at first blush.

A New Poster Child for Spinoffs
The IT industry commonly veers between two business poles -- mergers and acquisitions or spinoffs and sell-offs. Big events give us a shorthand to understand trends and HP's new decision is one of the biggest. As a symbol of old Silicon Valley, the PC industry, the printer industry or the new cloud+services world, HP's decision will become a major data point in all kinds of discussions about whether spinning off business divisions makes sense.

HP Chairman, CEO and President Meg Whitman was touting a strategy of "One HP" -- in other words, not splitting up -- recently enough that she needed to do some tap dancing about it on Monday morning in a call for investment analysts.

"Let me be clear, One HP was the right approach. During the fix-and-rebuild phase of our turnaround plan, we used the strength found in being together to become stronger throughout. But of course, the marketplace never stands still, and in our industry today more than ever, you have to compete harder and faster every single day. Being nimble is the only path to winning," Whitman said.

Already, HP's move is resparking conversations about EMC and VMware, as well as renewing calls for Microsoft to look into breaking up. Whether HP's spinoff is a success or a failure, it is high-profile enough that it will become shorthand for the one or the other.

A Star Is Born
Dion Weisler earned a level of industry renown with his elevation to the position of HP's executive vice president of Printing and Personal Systems Group in the summer of 2013. But the Australian-born tech industry veteran, who joined HP in January 2012, goes from being well-known by tech industry insiders to the type of business superstar who appears on CNBC with his elevation to CEO of the newly formed independent company, HP Inc.

According to Weisler's bio from the HP site, prior to his EVP role, he was senior vice president and managing director of Printing and Personal Systems for the Asia Pacific and Japan regions. He came to HP from Lenovo, where his top role was vice president and COO of Lenovo's Product and Mobile Internet Digital Home groups. He also worked at Telstra Corp., an Australian telecommunications company, and spent 11 years at Acer.

In a statement, Whitman gave this assessment of Weisler's performance as EVP, a job that precisely parallels what he'll be working on as CEO of HP Inc.: "Since assuming responsibility for the Printing and Personal Systems Group, Dion and his leadership team have done an excellent job of building our relationships with customers and channel partners, segmenting the market and driving product innovation."

Whitman Bets on Hewlett-Packard Enterprise?
Is Meg Whitman tipping her hand as to which of the two businesses has more potential?

"The board and the management are convinced that by separating HP into two new, independent companies, we will be able to accelerate the performance of both more rapidly than we could as currently configured," Whitman explained on the investor call.

Whitman will serve as CEO of Hewlett-Packard Enterprise, while serving as non-executive chairman for HP Inc.

She's chosen to focus her day-to-day attention on the business that moves forward with HP's lines of servers, storage, networking, services, software, cloud and converged systems. That's as opposed to the business built on notebooks, desktops, mobility, printing, managed print services and graphics.

Whitman will be the executive on the side of the business with larger expected profit margins and the side that includes the booming cloud market. That said, both businesses currently carry similar operating margins, according to a slide deck for investment analysts (10.2 percent for Hewlett-Packard Enterprise and 9.4 percent for HP Inc.).

More Layoffs Coming
HP has always done things in a big way because of its scale. While Microsoft makes headlines for layoffs in the 18,000-employee range, HP was already committed to laying off between 45,000 and 50,000 people.

During the call about the spinoff, an HP slide revealed that "incremental opportunities for reductions have been identified...independent of the separation transaction." The latest figure is that the entity once known as HP has need of 55,000 fewer employees. The elimination of 5,000 or 10,000 people from the payroll beyond the company's previous guidance means additional money for R&D and sales, according to an HP slide.

The layoffs and other job eliminations are proceeding, with about 36,000 jobs already eliminated. Expect uncertainty and trepidation from HP contacts until they're certain what the other 19,000 eliminated jobs will be.

Spotlight on Future Products
HP executives provided hints on Monday about what product lines they're most excited about for future growth.

On the Hewlett-Packard Enterprise side, it's Apollo, Gen 9 and Moonshot servers, the 3PAR storage platform, the HP OneView management platform and the HP Helion Cloud. For HP Inc., mobility is an area where the company is looking to gain traction, while the spinoff is also looking to build a business in 3-D printing.

HP Financial Services
There wasn't a lot of detail about partners on Monday, but one area where channel partners did get mentioned involved financing. Going forward, both companies appear to view HP Financial Services as a strategic capability for partners and customers.

"By leveraging its HP Financial Services capability, the company will be well positioned to create unique technology deployment models for customers and partner partners based on their specific business needs," the company said in a statement about the Hewlett-Packard Enterprise side. "Additionally, the company intends for HP Financial Services to continue to provide financing and business model innovation for customers and partners of HP Inc."

Posted by Scott Bekker on October 06, 2014