After years of a slow-going turnaround, HP CEO Meg Whitman is clearly ready to do something big.
On Monday, she’s expected to announce that she’s spinning off HP’s largest business unit, its $US55.9 billion PC and printer division, sources have told the Wall Street Journal.
The Printing and Personal Systems (PPS) unit represents half of the company’s revenue. The new company would reportedly be run by the unit’s current leader, Dion Weisler with Whitman as chairman.
Whitman would become the CEO of the new enterprise company, with independent director Patricia Russo as chairman.
Without PPS, Whitman’s new company would presumably include all of the remaining groups:
- Enterprise Group, which sells products like servers, networking hardware and storage. In the first nine months of its fiscal 2014, this unit earned $US20.5 billion with a 14% margin;
- Enterprise Services, which sells consulting services and outsourcing and one of the most troubled units at HP. In 2014, it brought in $US16.9 billion with a 2.5% margin.
- Software, which has struggled so far but is one of the strategic areas full of potential. In 2014 so far, it brought in $US2.9 billion with 19% margins.
- HP also has a financial services group, which helps with financing, etc. Presumably this would remain part of Whitman’s enterprise company.
HP has been known to successfully spin-out companies before. It did it way back in 1999 with Agilent Technologies. Agilent came from the unit that was, arguably, the “original HP” makers of electronics testing gear, the stuff Bill Hewlett and Dave Packard invented in that famous garage.
Unlike Agilent, which had a successful IPO, it’s not clear how investors will respond to a company composed of PCs and printers in the “post-PC era.” Whitman created the huge Printing and Personal Systems (PPS) unit in 2012, shortly after she joined the company. It was an idea that had been tried before. Previous CEO Carly Fiorina had combined these units. The next CEO Mark Hurd had unbundled them, sources close to HP told us.
And the next HP CEO, Leo Apotheker, caused pandemonium when he publicly floated the idea of selling off the PC business. One of the first things Whitman did when she took on the CEO role was to announce that HP was not getting rid of PCs.
She had a good reason to keep them. HP is not only one of the world’s biggest maker of PCs, but also of enterprise servers, the same suppliers that make the parts for PCs also make them for servers: disk drives, memory, motherboards. HP gets a good deal from them because of the volume it buys. And on the sales side, the same corporate customers that buy servers, buy Windows PCs.
2013 was a horrible year for the entire PC industry and HP had its share of the pain. In June 2013, Whitman replaced the man running it, Todd Bradley, with Weisler. HP had hired Weisler away from Lenovo in 2012.
Whitman’s management style is low-key but unforgiving, we’ve heard from people who know her. She gives her top bosses leeway and resources to make changes. But if they don’t deliver as promised, they’re out.
Under Weisler in 2014, HP’s PC business has been growing again. It has grown each of the last three quarters, including a healthy 12% year-over-year revenue growth last quarter. Thanks to that HP reported its first quarter of overall revenue growth in three years. It’s not a highly profitable business, though. Margins for PCs are slim, only about 4%.
The printer business is far more profitable, with about an 18% profit margin, but it just keeps shrinking: a 4% decline in revenue last quarter, another 4% the quarter before and so on. Thanks to email and smartphones, people just aren’t printing as much as they used to.
And all of this follows news that Whitman’s months-long talk to buy another huge enterprise tech player, EMC, had just fallen through. Some sources say that the EMC deal could be revived if the two could agree on the price.
Without the PC and printer business, we’ll see if HP’s deal with EMC could rematerialized, and if HP’s shareholders could stomach so many huge changes.
HP declined comment.