Break up HP -- it's the only way to save it

The time is right to split up Hewlett-Packard. The company can't survive in its current state

Maybe Léo Apotheker wasn't so crazy after all. The former Hewlett-Packard CEO was fired 16 months ago after a mercifully brief reign for a multitude of sins, including what seemed like the worst idea of all: spinning off the company's PC division.

Times have changed, and the idea of divesting parts of the struggling company is back on the agenda, HP informed investors in an SEC filing earlier this month. The filing offered no details of which parts might or might not go overboard. But that hasn't stopped Wall Street, industry analysts, and academics from offering unpaid advice to current CEO Meg Whitman, who despite her huge salary, has one of the most thankless jobs in Silicon Valley.

[ Bill Snyder cuts to the heart of the issue in "HP's big problem isn't Autonomy: It's HP." | Get a digest of the key stories each day in the InfoWorld Daily newsletter. ]

What might a new HP look like? Break it in half, says Bill George, the former CEO of medical devices maker Medtronics and a professor at the Harvard School of Business. He envisions two HPs, one centered on the Personal Systems Group, which includes PCs and printers, and a company focused on enterprise systems, services, and software.

Other analysts believe HP should remain one redesigned, radically smaller company that focuses only on higher-margin businesses and the cloud. "There is no time to wait. There are issues in almost every division, meaning that the company needs radical surgery," says Trip Chowdhry, principal analyst of Global Equities Research.

Radical as these proposals may sound, they are essentially optimistic in the sense that they see a road to recovery. By contrast, UBS analyst Steve Milunovich says the company has so much debt (more than $18 billion, he estimates) that nothing major could happen before 2014.

Why a once-crazy notion is now seen as rational
Why was Apotheker pilloried in summer 2011 for floating the spin-off idea, while George's ideas now get prominent play on CNBC and the New York Times? In a word: disaster. "Things have gotten so bad at HP that something that was crazy in 2011 is worth discussing" today, says veteran IDC analyst Bob O'Donnell.

It would take far more than one post to discuss all of the missteps of the past few years, including a revolving door in the corner office (four CEOs in five years), the collapse of the company's mobile strategy, and the misguided, hugely expensive acquisition of Autonomy. But one statistic sums it all up: In early February 2011, HP was trading at just under $49 a share. Two years later, the stock is trading at around $15 a share, a decline of more than 65 percent -- which means tens of billions of dollars of value has been vaporized.

The reaming of HP's shareholders is bad enough, but even worse is the decimation of HP's workforce. Tens of thousands (I'm not exaggerating) of jobs have disappeared since Carly Fiorina bet -- and lost -- the farm buying Compaq Computer in 2002. What's more, the job losses are not going to stop. I hate to say it, but there is no credible scenario for recovery that does not include a further, radical reduction in the size of the workforce.

How to break HP in two to save it
Despite the losses, HP is still a huge company: "With 330,000 employees and $120 billion in revenue, HP has become too big to manage," wrote George. It is, in fact, two businesses: one a commodity personal computer and printer business, and the other an enterprise systems, services, and software businesses, he says.

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