An advisory firm believes the two new companies could see acquisitions in their futures.
The Recycler reported in March on HP’s plan to split into two separate companies – HP Enterprise and HP Inc. – having announced the split last October. The PC and printing side, HP Inc., will be run by Dion Weisler as President and CEO, whilst Meg Whitman will be President and CEO of Hewlett-Packard Enterprise, the software and services side.
The split is on course to take place in November this year, and HP Inc. will aim to deliver “innovations that will empower people to create, interact and inspire”, whilst Hewlett-Packard Enterprise will “define the next generation of technology infrastructure, software and services for the new style of IT”.
Amid much speculation about the split and the after-effects – including whether 3D printing could help HP Inc. “overshadow” HP, IT Business Edge hosted the perspective of Rob Enderle, President and Principal Analyst of advisory firm Enderle Group, on the split. He believes that “the increased financial stress” from the split, along with both companies’ “distinctly different weaknesses”, mean there is a real sense of “what happens next?”.
HP Enterprise’s “razor slim profits […] will likely drop into losses” after the split, while HP Inc. will “have debt at about 50 percent of revenue, which should more than consume its initially higher margins”, with cartridges previously providing the “biggest margins” but set to be “in accelerating decline”. Enderle believes both companies will have “less complexity [and] greater financial distress”, but notes that with “no-one want[ing] its PC and printer business”, HP Enterprise “becomes an acquisition target”.
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He believes that Oracle “would typically be the most likely HP buyer”, as it “doesn’t seem to have a problem acquiring troubled properties”, and the two companies have an “animosity [that] may actually increase its incentive”. Former HP CEO Mark Hurd is now co-CEO of Oracle, and Enderle believes he will be “very attracted to the idea of having a lot of the folks that bad-mouthed him when he left once again under his authority”.
Chinese companies aren’t likely to get involved due to “hostility between the US and China” making “regulatory approval unlikely” for any deal, though Lenovo – and Samsung in Korea – are named as potential buyers. An acquisition would be “by far the more likely outcome” for HP Enterprise, while HP Inc. will need to “dramatically restructure the printing unit” and no non-founder will “go private” with the company because of “personal financial costs”.
Enderle does believe however that the PC and printer units would need to be kept together if HP Inc. were acquired, and adds that “due diligence will prevent an acquisition unless the printer unit can be revitalised or the PC unit can demonstrate that it can stand alone”. He notes that Dion Weisler is “well-regarded” as a CEO of HP Inc, and contends that it could go the route of Apple with “sharp execution” and “turn[ing] the printing unit from a cash cow to a more strategic growing asset”.
He concludes by predicting both businesses “will go through massive staffing changes”, adding that HP Enterprise is “most likely to be acquired”, while HP Inc. “should remain independent”, particularly if its 3D printing arm takes off. The split is “highly unusual” in his view “during a time of market consolidation”, and Enderle states that “it is likely this will be named ‘Whitman’s Folly’”.