Breaking up may be hard to do, but for Hewlett-Packard it’s apparently a necessity for the company to streamline its business.
In an earnings call for HP’s second quarter report for 2015, CEO Meg Whitman wasted no time to give analysts an update on the tech titan’s efforts to split up its business into two separate companies. One company, to be named Hewlett-Packard Enterprise, will focus on selling technology like servers and data center gear to businesses. The other, to be called HP Inc., will sell printers and personal computers.
“Today I’m more convinced than ever that this is the right thing to do,” Whitman said as she proceeded to explain that the total dis-synergies—a fancy word for costs—for the separation will equate to $400 million to $450 million “divided equally between the two companies.”
“As separate companies, we will have a sharper focus on the markets we serve,” Whitman said.
As a whole, HP (HPQ) took in $25.5 billion in revenue during the second quarter of 2015 compared to the $27.3 billion it raked in the previous year during the same time period.
Breaking it down by segment, however, it’s clear to see that HP’s enterprise business has a lot more momentum going for it rather than its PC and printer business.
While the revenue from HP’s enterprise group dropped to $6.56 billion from $6.63 the previous year partly due to a decline in the company’s storage and networking products, its industry standard servers saw $3.12 billion in revenue compared to the $2.83 billion it generated in 2014 during the same time period. HP’s lineup of industry standard servers, also known as commodity servers, promise businesses more customizable hardware that they can use in their data centers to take on specific tasks like data processing or networking.
HP’s printing and personal systems group, which includes PCs and printers, shrunk to $13.19 billion in the second quarter of 2015 from the $14.01 billion it took in 2014 during the same three-month time period. Whitman said that the PC market was weaker than she expected at the beginning of the year, so it’s hard to see that segment taking off anytime soon.
By splintering off these two different business segments, HP stands to create two different companies in which one seems to be on an upward slope, especially if the market for commodity servers continues to increase. It’s the same trend Intel (INTC) appears to be seeing, in which the demand for more customizable data center hardware is something worth betting a company’s bottom line on.
Of course, separating HP into two companies doesn’t come cheap, as shown by the $400 million to $450 million HP stands to lose during the split. But the company is hoping that its cost-cutting efforts, like the 55,000 jobs HP plans to eliminate by the end of 2015, will help offset that number.
HP executive vice president and CFO Cathie Lesjak even indicated that the creation of “two new efficient” companies will present “significant opportunities for cost reductions.” I’ll leave it up to you to decide if that translates to more layoffs.
For more on HP, check out the following video:
