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

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HP execs have long argued that the two businesses are complementary, that getting the foot in the door with one product leads to sales of other products and services. Not so, says George: "The characteristics of these businesses are entirely different." Here's how:

  • The commodity business requires low costs and aggressive distribution through multiple channels combined with rapid new product introductions -- qualities incompatible with the company's historically high cost structure and cumbersome organization.
  • The enterprise systems business requires heavy investments in research and development, including very sophisticated software (an area where HP sorely lags behind IBM, Oracle, and SAP), high-touch customer service, and an expensive support structure to meet its customers' complex needs.

The time is ripe to split the company into two businesses -- enterprise systems and computer hardware -- each with roughly $60 billion in revenue, positive cash flow, and solid profitability.

George would give Whitman the job of running the enterprise business and hand the PC/printer business to Todd Bradley, who runs that division now and was the CEO of Palm before HP acquired it.

Milunovich believes that Whitman deserves more time to turn the company around because yet another change at the top would be destructive. I agree. But at whatever point a split becomes indisputably necessary (to me, sooner is better), I'm not so sure Bradley, who has yet to find a mobile strategy that works, is a good choice to run a spun-off personal division. That's a quibble. I believe George's proposal makes a good deal of sense.

The other option: A smaller, more focused HP could thrive
Chowdhry envisions an HP that is radically smaller than it is today but would still be one company. He says it must "stop dragging along the past and focus on the future," which means focusing on growing, potentially high-margin businesses such as data analytics and the cloud.

Both Chowdhry and Milunovich would sell off the Infrastructure Technology Outsourcing BPO group, possibly to companies in Asia. Milunovich estimates that the move would net about $1 billion.

Chowdhry would look at service contracts and sell off any that carry a margin of less than about 10 percent. But would anyone want them? Likely, yes: "IBM and others can thrive on low-margin contracts."

But selling off the PC and printer businesses would be a mistake, Chowdhry argues, because they are used in the enterprise. Instead, he would radically reduce the number of product lines, consider moving manufacturing to California to shorten and simplify the supply chain, and most important focuses on highly customizable products instead of the commodity boxes it now sells. "No more Tom, Dick, and Harry printers," he jokes.

As to software, "there is so much junk floating around that company." He would get rid of about 60 percent of it, but he'd keep at least part of Autonomy.

Where to start: A new board
In the short run, HP needs a new board and must stop pouring money into more poorly considered acquisitions: The purchase of EDS under former CEO Mark Hurd led to an $8 billion write-down, while Autonomy cost $10 billion, a deal that might have been reasonable at half that price.

HP can't be IBM, and it certainly can't be SAP. But it can't remain the HP of today. Only a radically rethought and reshaped company would have a chance to thrive.  

I welcome your comments, tips, and suggestions. Post them here (Add a comment) so that all our readers can share them, or reach me at bill@billsnyder.biz. Follow me on Twitter at BSnyderSF.

This article, "Break up HP -- it's the only way to save it," was originally published by InfoWorld.com. Read more of Bill Snyder's Tech's Bottom Line blog and follow the latest technology business developments at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.

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