HP will soon split itself in two

Hewlett-Packard has confirmed reports that it plans to break itself into two companies.

One of the companies, comprising HP's enterprise hardware, software and services businesses, will be known as Hewlett-Packard Enterprise, the company announced Monday. The other, made up of its PC and printing businesses, will be called simply HP Inc., and will keep the HP logo.

Both of the new companies will be publically traded, and HP shareholders will be given shares in both firms. HP expects to complete the break-up by the end of its 2015 fiscal year, which ends on Oct. 31 next year.

President and CEO Meg Whitman, who's been fighting to get HP back on track after years of missteps under previous management, will retain those roles at Hewlett-Packard Enterprise. Dion Weisler, who heads HP's Printing and Personal Systems business, will be president and CEO of HP Inc., while Whitman will be its chairman, HP said

For customers of HP's PC and printer business, the split simply changes the kind of uncertainty they face, said Ranjit Atwal, a research director at Gartner.

"Creating a separate company introduces uncertainty about its future -- but there was already uncertainty about what HP wanted to do with the PC and printing business," he said.

One thing to watch will be whether this frees the two halves of HP to create enterprise solutions with other vendors, he said -- either allowing Hewlett-Packard Enterprise to offer other vendors' PCs and printers, or encouraging other integrators to choose HP.

In a statement, Whitman painted the move as positive for the company, even though she originally vowed to keep HP whole when she took on the top job.

"The decision to separate into two market-leading companies underscores our commitment to the turnaround plan," she said.

"It will provide each new company with the independence, focus, financial resources, and flexibility they need to adapt quickly to market and customer dynamics, while generating long-term value for shareholders," Whitman said.

In the short term, HP said the financial outlook was bleaker. On Monday it revised downward its full-year forecast for net earnings per share (EPS) according to generally accepted accounting principles. It now expects to report net EPS in the range of US$2.60 to $2.64, down from the $2.75 to $2.79 it forecast in late August.

More heads will roll as part of the HP's restructuring plan, which has already seen 36,000 employees leave. The company now expects to lay off a total of 55,000 staff under the plan, it said Monday, up from its late August estimate of 45,000 to 50,000. The increase is unrelated to the separation announcement.

The PC industry has seen upheaval over the last few years, with IBM selling its PC business, and later its server division, to Lenovo, while Dell sold itself to private investors. Atwal speculated that HP had found no one to buy its PC business, however, prompting it to pursue a tax-free stock split instead.

The question of whether the stock split will be taxed is one of the few obstacles HP sees to the deal. Among the principal closing conditions it cited were approval from the board of directors, and the receipt of favorable rulings with respect to the tax-free nature of the transaction. HP plans to give its stockholders one share in each of the new companies for each share they hold in the old one.