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Summary:

A UBS analyst is calling for the breakup of Hewlett-Packard arguing that the separate parts are way more valuable than the whole. Ironically, that’s the kind of thinking that got former CEO Leo Apotheker booted last year.

HP Logo

Poor HP. For the past year, Hewlett-Packard’s slogan under CEO Meg Whitman has been “better together.” Now at least one Wall Street analyst is calling for HP to break itself apart, arguing that the parts are more valuable than the whole and that HP would be better off separating its consumer and enterprise IT businesses.

UBS Analyst Steven Milunovich initiated his coverage on HP with a sell rating and a strong recommendation that it remake itself. He wrote:

HP has made the case it can succeed as both a corporate and consumer computing company. We question whether HP is “better together” and that it might be “smart to be apart,” specifically spinning off printers and PCs. HP lacks the pure enterprise focus of IBM and EMC yet will have trouble competing for consumers without strong tablet and phone businesses like Apple and Samsung.

HP CEO Meg Whitman

This is ironic given that one big reason HP’s board tossed former CEO Leo Apotheker last year was that he talked openly of selling off or spinning off the company’s $40 billion PC business.  Up to that point, Apotheker’s predecessor Mark Hurd had argued that keeping the margin-challenged PC business meant that HP got the best possible prices on various components not only for PCs, but for servers as well. It was hard for HP watchers to see how that dynamic had changed in a matter of months.

HP has a big enterprise services business — courtesy of its acquisition of EDS — and big enterprise technology plays in servers, storage, and networking. It also makes PCs and printers for consumers. It’s pretty much dumped the tablet and smart phone business it bought with Palm Computing and open sourced the underlying WebOS, although it will likely make Windows 8 tablets. That profusion of products, to some, means a lack of focus.

This call comes as HP while trying to sustain its traditional hardware business  is also  building out massive cloud infrastructure with which it hopes to compete with Amazon Web Services and struggles to make its $10.2 billion acquisition of Autonomy,  executed under Apotheker, pay off.

Whether whole or in parts, HP has its work cut out for it.

Feature photo courtesy of Flickr user marianodm

  1. Caroline Olsen Tuesday, August 7, 2012

    “First they ignore you. Then they ridicule you. And then they attack you and want to burn you. And then they build monuments to you.” -Nicholas Klein (Looking Backwards from Leo Apotheker | My Life

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  2. I completely agree with this hypothesis.
    People may argue about advantages of sourcing components at a better price when keeping the PC business together but that is hardly any evidence to back up that claim. HP’s Enterprise Hardware business does worse then IBM when you look at the Net Margins.
    Also as a frontline Sales Manager in HP Enterprise Services, I hardly find any advantage that I can bring to the table vis-a-vis a pure play system integrator and outsourcer like Accenture or TCS even though I have a larger portfolio to play with.
    Chasing a power of portfolio is a mirage, because very often it gets trumped by the “Best-of-Breed” philosophy that a pure play system integrator brings.
    The first step obviously in that direction is to hive off the PC and Printer business….make HP a narrowly focused company in the Enterprise focus….re-balance its enterprise portfolio….and streamline the various divisions within the company, get rid of that little bureaucracy…
    All this is painfully obvious to the lower rungs in the organization….The leadership has to step out of its Ivory Tower to listen to it…..
    For the past few years, it has been one CEO taking a direction, the other undoing it all and hoping all the ills would go away…..

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  3. Interesting thoughts on the worlds #1 IT company. Now lets hear something from the less successful – what about UBS itself, Mr. Milunovich?

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  4. This is similar to to the analyst comments that led to HP spinning-off Agilent Technologies 12 years ago. “The analysts don’t understand what we do.” It sounds like we need to finder smarter analysts, not part-out Hewlett-Packard.

    The analysts function is to provide short-term gains with no consideration for the long-term health of any company. Do we really want to take business advice from analysts employed by banks that survice only due to taxpayer funded bailouts?

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    1. Thanks for your comment HP guy. I would love to know — do you think the Agilent spinoff worked out or not. I have no idea….bear looking into.

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  5. Former HP/EDS Employee Friday, August 10, 2012

    As a former HP/EDS systems engineer the message was clear right from the beginning when EDS was acquired by HP, i.e., you aren’t worth as much as EDS paid you so we’re cutting your compensation and eliminating pension contributions. In effect, they devalued the employees they had just acquired. They treated knowledge workers as if they were assembly line workers who could be easily replaced by other workers with no thought of how much of the knowledge they had acquired during the acquisition would be lost in the process. They never really understood that EDS employees often worked long hours to get the job done, and that extra effort when needed is what made their compensation what it was. The message to employees was clear and as a result, morale suffered and many were no longer willing to put in the extra effort for a company that didn’t appreciate the effort. Concentrating most of the financial rewards just at the top never really works in the long run to build a business.

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    1. I too am a former HP/EDS systems engineer, joining EDS in 1984 and work force reduced from HP in 2010. You are 100% correct and hit the proverbial nail on the head. HP proceeded to demoralize and gut EDS, losing many knowledgeable and great employees in the process…and then they say their enterprise business is failing! Duh…I knew it was going to fail before I was even let go in 2010…it was obvious that HP had no idea how to run a service company and made no effort to keep the employees that could make it work. They did everything they could do to destroy EDS, and I’d say they were mighty successful. They did it!

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      1. Same thing they do whenever they buy a company.

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  6. The Analyst may not be exposed to what are the thoughts & future plans of the CEO. Things are moving in a positive direction. Post Mortem of every decision, after a few months period will have different opinions. People can very easily say – – See i told them to spin it off and it should have been the way…then there can be the other argument, see i told it keep it and it has worked in favor. Life is always about 0 or 1. It will be true in HP’s Case too. Let us allow the CEO to settle down and allow her to go in her path. Every time a new CEO comes in, they can have their own approach. So lets give Meg some more time. To steer a ship of this size, she needs immense support. Let us not see another LEO’s story here. The decisions she takes can be hard for lot of people, her efforts may not even pay off, but then lets not arrive at a conclusion, with in a short span of time. Again for a company like HP, you need more time.

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  7. Oh PALEASE .. this company is run by a group of sociopaths ….. There are more management layers and committees for approvals than there are people who actually earn money for the company so that the sociopaths can cover there BEEHINDS.
    When you actually can see what they do to long term employees, especially those of us from EDS, it is no wonder they are going broke. Every quarter there is a mad rush to cut costs, by reducing valuable staff. Next month when the ES customer asks “where is Bill? He is my right hand guy and the only one from your company I trust” we have to tell him that Bill is redundant and has left the company…….. great way to treat your customers ey?

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  8. Current employee Tuesday, August 14, 2012

    Hi Adam,

    agree to your concern, but I would like to see it less from your point. Everybody is redundant, regardless what you currently do, it’s as simple as this. See it from the employee view and nobody is bound to one employer due to the fat the he only knows howto run a business/department, so he can freely watch the market and look for new challenges. And for the employer it’s similar.

    I definitely like the thought of being mentally “free” when making decisions, the one way or the other. I quitted with one employer because he couldn’t assign me a manager that fits my needs, I loved my job, but hated my manager at the same rate, so what?

    It’s all about take it, change it or leave it, everyone can and has to live with it.

    Cheers

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  9. At EDS we used to make a great play out the fact we were manufacturer independent. So many times I led or attended sales meetings with potential clients where we stressed this. Now we are expected to do an about turn and look like hypocrites. The trouble with HP EDS is that Morale is so low among the workers, so many are just marking time, doing just enough to avoid the axe, who badmouth the company outside the office, who wouldnt recomend the company to a friend, who attend interviews for other companies and having nothing good to say about the company. HP EDS is becoming a bad smell in the I T sector. Having HP EDS on the C V isnt a plus point anymore. To many lies about raises, bonuses etc. to many senior executives, starting from Hurd on down who abuse the company (every senior manager should have his expenses audited by an outside company, the results would be astounding), This company has far more issues than how it is organized, in fact, I would argue that a company can succeed if it not organized particularly well, as long as the employees are 100 per cent committed, which they are definitely not.

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