HP Split: Double the Trouble

Hewlett-Packard Development Co LP (HP) announced on Monday (6 October) that it plans to separate into two new public companies: Hewlett-Packard Enterprise and HP Inc.

The only choice

HP has been struggling to achieve revenue and profit growth since 2010, and its constant leadership changes have also affected its long-term strategies. The company was thus only left with two choices: either split into smaller companies or go private (like Dell). HP is too big a company to undergo mergers and acquisitions, and Dell had its founder (Michael Dell) to raise funds and make the company private. Splitting the company seems to be the only option.

Declining market

Laptop sales are projected to decline at a 2% CAGR (2013-2018) at constant 2013 prices, whilst desktops looks set to decline at a 10% CAGR and printers is expected to see a 5% CAGR decline in value sales over 2013-2018. Tablets, the only exception to the declining trend, is dominated by Apple’s iPad. The new entity (HP Inc) will struggle to make inroads into the highly competitive tablets category, which is crowded with low-cost alternatives.

Problem unresolved

On the enterprise front, Hewlett-Packard Enterprise, the new entity, will also be under pressure from traditional foes like Oracle and IBM and newer and aggressive entrants like Google, Amazon and Lenovo (after acquiring IBM servers business). We do not expect to see any significant reverse in HP’s fortune. Splitting HP does not resolve the fundamental issue that is plaguing the company: loss of competitiveness.