best name for the new companies

Walt Underwood, a long-time observer, sent this over:

One of Tina’s co-workers suggested a way to fix the naming. Give the HP name back to Agilent/Keysight and name the two new companies “Compaq” and “Digital”.

wunder

PC World has a pertinent view

Don't know how I managed to miss this input.  PC World is the prominent rag in the PC space; they don't mention printers in this assessment, but then they still call them 'peripheral'

HP split will force PC group to learn discipline or face irrelevance

Jared Newman @onejarednewman      Oct 6, 2014 10:12 AM

If you want to know how HP’s split into two companies will affect the PC and consumer business, don’t ask HP.

The company has offered only vague statements,  promising more “focus, financial resources and flexibility” for each entity, and “a strong roadmap into the most exciting new technologies like 3D printing and new computing experiences.”

So for now, here’s a proposal: Let’s see HP walk the talk with fewer dead-end experiments, and more products that actually matter.

In the last five years, the boldest thing HP did was acquire Palm and its WebOS operating system. The attempt to entwine hardware and software better was a good idea in theory, but the plan failed miserably as HP struggled with identity crises and management foibles. When current CEO Meg Whitman took over, she turned WebOS into an open-source project and eventually sold it to LG.  (Capsizing WebOS was a far bigger mistake by HP leadership than the Autonomy fiasco; which never gets the prominence it should have.)

Since then, HP’s personal computing division has been floating with the breeze. In addition to pumping out the usual laptops and desktops, the company—like most other hardware makers—has dabbled in 2-in-1 Windows PCs, Chromebooks, Android tablets, and Android laptops, and is now part of the first wave of dirt-cheap Windows PCs.

But none of those efforts have produced anything that HP’s PC-making rivals have been eager to follow. HP has simply ridden the wave of the broader PC market, which declined in recent years but is now starting to stabilize (this ‘stabilization’ is mentioned in passing, but never analyzed very deeply.  There is a message buried in here, that may play well to HP).

Making waves versus riding the wave

Maybe HP should look to rival Lenovo—now the world’s largest PC maker—as an example of how to stay relevant. The company’s PC sales have grown consistently even as the rest of the market faltered. (We could mention that the iMac line has grown consistently, at far higher rates, for nine years, not nine quarters.  Apple still knows even in computing how to stay relevant to its faithful).  
Its (Lenovo's) popular Yoga convertible PC has been imitated by other PC makers (including HP). At the same time, Lenovo has made big gains in smartphone sales overseas, and a purchase of Motorola, whose latest Android phones have received critical acclaim, gives it entree into the U.S. market. HP has avoided the smartphone market entirely.  (the big news here for me is that Dion Weisler was one of the key leaders at Lenovo; that’s why he emerged as the CEO of the new spin-out)

Stephen Baker, an analyst for The NPD Group, doesn’t expect major changes from a split HP. “I think the future of the market is lots and lots of different form factors and this doesn’t really impact that,” he said.

HP's record with diversifying its product line, however, is full of one-off experiments that were abandoned when they didn’t immediately click with customers. For instance, instead of iterating on ideas like the Slatebook X2—an Android hybrid that was promising despite problems—HP simply walked away from the concept. (The original TouchPad was actually very promising also, but the misguided marketing pitch and the iPad alacrity hurt, and by then, HP had learned how to screw up like Intel—try something once, never do the classic three tries that HP did so well for years).  We’ll never know whether HP really believed in the idea or was just throwing spaghetti at the wall.

The new HP Inc. needs to tell customers what it believes in and how it can make a difference. The passing mention of 3D printing isn't much to go on—and NPD's Baker is skeptical, saying that “you’re going to need a microscope to find sales of 3D printers” in a company of HP’s size.  (I couldn’t agree more, but there is a big latent market, for HP at least, for industrial printing that no one seems ever to discuss).

Perhaps HP has a grand plan that it has yet to reveal. But if all the talk of focus and flexibility translates to more unambitious floating with the current, it’ll be a disappointment.

One more Forbes article

HP Splitting Itself In Two: Which Garbage Truck Do You Want To Own?

Chuck Jones, contributor

Irony: Chuck, a long-time IBM employee, was my neighbor in Menlo Park for five years recently.  He never worked for HP; I never worked for IBM.  His investment commentary is usually about consumer products, something IBM struggled with too.  His numbers cited below are accurate, if a bit dry.

The title is borrowing a quote from Scott McNealy, Sun’s ex-CEO. When HP and Compaq were merging he described it as ‘two garbage trucks colliding’. This sounds like the reverse which is ‘which garbage truck do you want to be hitched to’?

The Wall Street Journal reports that HP is going to split itself into two companies: one focused on PCs and Printers and the other on corporate hardware, software and services.  This sounds like the same plan that Meg Whitman’s predecessor, Leo Apotheker, proposed along with the ill-fated Autonomy acquisition. HP’s Board, including Whitman, killed the split three years ago when she became CEO but now feels like its time to do it. We may find out if it is official on Monday morning (Jones penned this Sunday afternoon; it became available after the story was confirmed Monday).

Which garbage truck would you want to own?

While this is a harsh statement lets look at some of the numbers. For Fiscal 2013:

•   Total revenue of $112.3 billion was down 7% year over year (still, except for Apple, the biggest company around in high-tech.  Cisco is down the same percentage, IBM nearly so)

•   Enterprise business

•   Enterprise systems revenue of $28.2 billion fell 5% year over year

•   Its operating margin increased from 13.9% to 15.3%

•   Enterprise services revenue of $23.5 billion was down 8% year over year

•   Its operating margin fell from 6.9% to 2.9% 

•   Printer and PC business

•   Printing revenue of $23.9 billion fell 3% year over year

•   Its operating margins increases from 14.6% to 16.3%

•   Personal systems revenue of $32 billion fell 10% year over year

•   Its operating margin fell from 4.7% to 3.0% 

It got better for the first three quarters of fiscal 2014 but not exciting (ended in July)

•   Total revenue of $83 billion was essentially flat year over year

•   Enterprise business

•   Enterprise systems revenue of $20.5 billion was flat year over year

•   Its margin has declined from 15.5% for the first three quarters of fiscal 2013 to 14.3% in fiscal 2014

•   Enterprise services revenue of $16.9 billion was down 7% year over year

•   Its operating margin was about 2.4% for both nine month periods 

•   Printer and PC business

•   Printer revenue of $17.2 billion was down 3% year over year

•   Its operating margins increased to 18.2% for the first nine months

•   Personal systems revenue of $25.4 billion increased 8% year over year

•   Its operating margin increased to 3.6% for the first nine months 

HP also has about $20 billion in debt and over $14 billion in cash and investments. It will be interesting to see how management splits those between the two companies.

At least HP has two segments with strong margins, Enterprise systems and Printers, even though their revenues have been declining over a few years. Unfortunately it has a very competitive, always going to be low margin PC business and a Services business that is still struggling to generate even mid-single digit operating margins (of the three M and A disasters, this EDA acq is the biggest, by Hurd.  Compaq merger, by Carly, widely assailed, still makes money; Autonomy, by Apotheker, never had a chance, just a dumb move with a dumb company.  The current work may resurrect this, though, which will be the surprise for everyone when it happens).

Ten years behind IBM

In December 2004 IBM announced that it was selling its PC business to Lenovo for $1.75 billion, which was completed in 2005. More recently in January this year IBM announced it wanted to sell its x86 server business to Lenovo for $2.3 billion and seems to be close to finalizing the sale. (So, lessee here, HP's PC unit did $32 Billion last year in a shrinking business, and IBM's pair of units are worth $4.05 Billion.  Good thing they sold 'em, huh?  The facts are, IBM never could do low-margin business well, any more than HP could do M and A.  So they had to bail ten years ago, they were badly beaten even by Acer, let alone HP and Dell.  Check the margins for Microsoft and Intel and Lenovo.  There still is a modest PC business of $100B+).    

Over the past ten years IBM has been selling off its low margin hardware businesses and focusing on services and software so it looks like HP is trying to look more like IBM. However its not as if IBM is tearing up competition with revenue declining 1% in the first half of 2014 (adjusted for divested Customer Care business) and its only been able to keep revenue from declining even more by being a serial acquirer, not something in HP’s power alley.

Hard to disagree with this glum analysis, but it doesn't measure either heart or passion, nor for that matter innovation.  All qualities that the 'old HP' had in quantity.  And has been in modest supply for two decades.  Is there a chance to rekindle it?  We'll see....

Here's one analyst I like

ARS Technica

The HP split: Does half a dinosaur move twice as fast?

Op-Ed: HP's split may look good on paper, but it's years behind schedule.

by Sean Gallagher - Oct 6 2014, 3:00pm PDT

        

A breakup years in the making, and possibly at least three years too late.

Three years ago, almost to the day, as Meg Whitman was taking over as Hewlett-Packard’s CEO, I offered her some unsolicited advice on what to do to save the company. Now it looks like she’s taken that advice, albeit a bit too late for the thousands of employees that will now be released into the wild to do something else with their lives. Was this trip really necessary?

As we’ve reported, HP’s executive team has decided to split the company in two, setting the PC unit free—bundled with HP’s money-printing printer unit. That’s essentially the advice I gave in October 2011, when Whitman was trying to decide what to do with the wreckage left by her predecessor, Léo Apotheker. Apotheker had blown billions on the acquisition of the “big data” software company Autonomy, only to announce that HP would spin off or sell the personal computer business because “continuing to execute in this market is no longer in the interest of HP and its shareholders.”

Since then, Whitman has been through several revisions of a new strategic vision to turn the company around. Instead of following through on Apotheker’s urge to get out of the consumer hardware business and become more like IBM—a business model that now even IBM is having a hard time with _{emphasis CH} —Whitman pulled back from throwing away the PC business. She began a long process of trying to figure out what HP wanted to be when it grew up.

Shuffling the deck chairs

One of Whitman’s early moves was the combination of the PC and printer businesses under the Printing and Personal Systems Group. That shift wasn’t just accounting magic to make the PC business sustainable—though that was certainly a side effect. It put all of HP’s products that customers regularly lay hands on into a single chain of command.

The problem is that this new organizational focus didn’t turn HP’s most customer-centric products around. HP has slipped to the No. 2 PC manufacturer in terms of units sold, now trailing Lenovo. The newly combined unit’s revenues have slipped for the past three years, though they’re starting to nose up a bit now—and ironically, HP’s PC business is now in growth mode (with a 7.6 percent jump in PC sales so far this year in comparison with the same period in 2013) while the printer business continues to decline (actually, printer ink profits are still gaining). That’s not really good news for the soon-to-be-hatched new HP Junior, as the printing business is still the unit’s cash cow. It brings in nearly three times as much in earnings as the PC business does on a bit more than half of the revenue (this is important to note—six times the leverage on the bottom line).

This is why Apotheker wanted to cut HP’s PC business loose—even though it’s been making money all this time (at least in terms of earnings before interest, taxes, depreciation, and amortization EBITDA), PCs are a business of increasingly minuscule margins for HP.

Why is that? It’s because despite some interesting, if sometimes misguided efforts to glitz up its product for consumers (an all-Gorilla Glass notebook, anyone?) and some pretty interesting engineering on the business side, HP has failed to be a leader in the industry. It is the pre-bailout General Motors of PC manufacturers, letting others lead the way on technology and innovation while trying to compete based on well-worn corporate connections and price. Instead of giving the Personal Systems business the cash and freedom to truly push forward, the reorganization has left both the PC and printer brands languishing as the rest of HP figures out what decade it’s in.

Splitting the dinosaur

Now that HP has survived its passage through the valley of massive annual losses, Whitman and the HP board have decided that it’s time to cut PCs and printers loose—cutting even more jobs in the name of funding “investment opportunities in R&D and sales.” The PC business will retain the HP name as HP Inc.; the server and service business will keep the founders' names as Hewlett-Packard Enterprise. Neither can afford to retain the old HP mindset (could we say, the intermediate mindset?).

The question is whether simply cleaving the company in two will do HP any good, as it retains essentially the same leadership. Dion Weisler, the current head of the Printing and Personal Systems Group and a former Lenovo executive, will be CEO of HP Inc. In its presentation promoting the move, HP executives said that the split would create “simpler and more nimble organizations.” That will be true at least in terms of headcount, as HP plans to shed 55,000 employees “independent of the separation transaction.”

But the new HP Inc. is going to need a lot more than just a body count to make it more nimble. Yes, Whitman has said over the past few years that HP has been making investments in R&D that wouldn’t bear fruit for two to three years. But there’s little sign that those investments have been made in the PC business. To truly succeed as a company long-term, the new HP Inc. needs to stop trying to follow the trends in the device business and start making them.

When I wrote my first rant on the topic of HP’s PC business, I admitted to having an emotional connection to the company that went back decades. I am not an entirely impartial observer when it comes to HP, if only because I remember where the company has been. On the enterprise side, HP’s PCs have been more Volvo than GM—reliable, easy if not inexpensive to maintain, and solidly midstream in performance. But our relationship with our computing devices has changed over the past few years, and HP’s consumer products have not kept up.

It is my sincere hope that the breakup plan hatched by Whitman, Weisler, and HP's board pays off in more than a bump in stock valuation for the new Enterprise business. I hope that it's worth the thousands of employees shed and the loss of goodwill the company has suffered among many in the tech world—IT leaders who, as one told The Wall Street Journal, see the company as “at least two years behind in everything,” with products that have not evolved and product teams that have failed to involve customers. HP is three years late on this move, and there’s a lot of catching up to do.