Which com­pany is win­ning af­ter Hewlett-Packard’s split?

Houston Chronicle Sunday - - BUSINESS - By Brian Wo­mack

In 2015, in one of the big­gest cor­po­rate breakups in Sil­i­con Val­ley’s his­tory, the 75-year-old Hewlett-Packard cleaved it­self in half. Hewlett Packard En­ter­prise,or HP E, would han­dle data cen­ters, soft­ware and ser­vices. HP would take the runt of the lit­ter: print­ers and com­put­ers.

It was not a se­cret that HPE was the priv­i­leged off­spring of HP, a Cal­i­for­nia-based com­pany with a ma­jor Hous­ton pres­ence: HPE’s charge was to help cus­tomers nav­i­gate the lu­cra­tive tech­nol­ogy shifts around data, ap­pli­ca­tions and cloud com­put­ing. And in case any­one didn’t quite get the mes­sage, HP E would be led by its fa­mous chief ex­ec­u­tive, Meg Whit­man. While both com­pa­nies were un­der pres­sure, her busi­nesse­sheld more prom­ise.

“En­ter­prise is re­ally where a lot of the growth is ,” said Peter Whal­strom, then an an­a­lyst at Morn­ingstar, the day the deal was an­nounced in 2014. He’s now at Front Bar­nett As­so­ciates. “And then you’ ve got the PC print­ing busi­ness, which is a lit­tle bit more an an­nu­ity, a stable steady-ed­die.” Nearly two years af­ter the split, those as­sump­tions have been up­ended. It’s HP that has mo­men­tum: It has em­braced higher-end prod­ucts, ex­panded rev­enue de­spite lack­lus­ter spend­ing on PCs and print­ers, and en­joyed a 25 per­cent boost in its stock price since Jan­uary. HPE, mean­while, has failed to meet sales pro­jec­tions for four con­sec­u­tive quar­ters, while over 60 per­cent of Wall Street an­a­lysts don’t see enough to rec­om­mend buy­ing its shares. As both com­pa­nies pre­pare to an­nounce quar­terly earn­ings, HP’s shares have de­clined less than HPE’s since the last re­ports.

‘Sur­pris­ingly well’

“HP Inc. has done sur­pris­ingly well for be­ing in PCs and print­ers,” said David Heger, an an­a­lyst with Ed­ward Jones. “You’re not see­ing the re­sults out of HPE that you might have ex­pected. They kind of keep mud­dy­ing the wa­ters.” The last few quar­ters have been rough for Whit­man’s HPE. Amazon, along with oth­ers, has been a for­mi­da­ble cloud com­peti­tor, while ris­ing com­po­nent prices pres­sured prof­its and a ma­jor cus­tomer pulled back spend­ing. In the re­port for the three months that ended on April 30, sales in the com­pany’ s cru­cial En­ter­prise Group, which sells servers and stor­age gear, fell 7 per­cent — af­ter post­ing growth in the first few quar­ters af­ter the split.

‘Pres­sure from cloud’

“It’s not cut and dry yet as to what the com­pany will ul­ti­mately be,” said Shan­non Cross, an an­a­lyst with Cross Re­search, adding that ques­tions about Whit­man’s fu­ture at HPE has caused un­cer­tainty as well. “The pres­sure from cloud has been there, and it re­mains there.”

Af­ter ar­riv­ing at Hewlet­tPackard Co. in 2011, Whit­man ini­tially op­posed the split, but even­tu­ally changed her mind and be­came its cham­pion, ar­gu­ing it would al­low each side to be more nim­ble. She’s still ea­gerly whit­tling down HPE. In April, Whit­man com­pleted a “spin merge” of its ser­vices busi­ness, spin­nin­git off and form­ing a new com­pany, DXC Tech­nol­ogy. She’s slated to do some­thing sim­i­lar with key soft­ware busi­nesses next month, com­bin­ing forces with Mi­cro Fo­cus In­ter­na­tional, an­other provider in the same in­dus­try.

Along the way, the new sep­a­ra­tions have led to dis­trac­tions from the day-to­day work in­side the com­pany, an­a­lysts said. On a quar­terly call for Wall Street in February, Whit­man ad­mit­tedthat in­ter­nal changes had cre­ated new chal­lenges.

“I prob­a­bly put more change into this or­ga­ni­za­tion in Q1 than I prob­a­bly should have ,” she said.

Craw­ford Del Prete, an an­a­lyst at IDC, pre­dicted that Whit­man’s strat­egy may pay off.

“I think, long-term, they’re set­ting them­selves up,” he said. “They will be smaller, but they can grow off thatb ase.”

Over at HP, CEO Dion Weisler has man­aged to stream­line oper­a­tions while iden­ti­fy­ing­mar­kets. On his last call with an­a­lysts, Weisler touted his quar­ter, call­ing it a “break­through.” The com­pany de­liv­ered growth in both sides of the busi­ness for the first time in more than five years.

“Clearly the sep­a­ra­tion has been pos­i­tive for us,” said En­rique Lores, pres­i­dent of HP’s Imag­ing, Print­ing and So­lu­tions busi­ness. “We have been able to do things that we would have never been able to.”

One ex­am­ple is Weisler’s de­ci­sion to spend $1 bil­lion on Sam­sung Elec­tron­ics Co.’s prin­ter busi­ness. The deal is the first ac­qui­si­tion to di­rectly ben­e­fit the oper­a­tions in more than a half decade—and should bol­ster the com­pany’s new push into the mar­ket for larger of­fice copiers that in­clude print­ing tech­nol­ogy. It’s ex­pected to close this year.

The com­pany has also taken a new ap­proach to prin­ter sup­plies, its big­gest profit engine. Weisler re­duced a glut of in­ven­tory, de­spite a fi­nan­cial hit — slash­ing in­ven­tory lev­els by more than $400 mil­lion over a cou­ple of quar­ters. And he changed how the prod­ucts were priced and sold to keep the unit health­ier long-term.

Three-di­men­sional

HP is also try­ing to in­crease adop­tion of what’s called three-di­men­sional print­ing for busi­nesses. The aim is to get man­u­fac­tur­ers to buy mas­sive — and ex­pen­sive — ma­chines that can “print” parts, quickly and ef­fi­ciently. Some early cus­tomers like the prod­ucts so much that they’ve re­turned to pur­chase more — which can cost about $200,000, ac­cord­ing to Stephen Ni­gro, the pres­i­dent of the 3- D print­ing busi­ness.

At the time of the breakup, HP kept a ma­jor­ity of the patents, and cru­cial parts of the 3D print­ing tech­nol­ogy came from HP’s own in­tel­lec­tual prop­erty, the com­pany said.

There are also some un­ex­pected and slow­er­mov­ing projects in the works. HP’s labs are tack­ling ar­ti­fi­cial in­tel­li­gence and ma­chine learn­ing, and re­searchers are do­ing work that could have ap­pli­ca­tions for health care, ac­cord­ing to Shane Wall, chief tech­nol­ogy of­fi­cer. Sur­pris­ingly, the PC busi­ness has also re­mained rel­e­vant. Dur­ing the past two quar­ters, rev­enue has jumped 10 per­cent — af­ter fall­ing by 5 per­cent las tfis­cal year.

The com­pany has fo­cused on souped-up ma­chines that can han­dle high pow­ered video games and vir­tual re­al­ity, and it’ s try­ing to change how PCs are sold. A novel “de­vice as a ser­vice” pro­gram, rolled out last year, lets busi­nesses pay on a monthly ba­sis, in­stead of shelling out money up front.

Then, the ma­chines au­to­mat­i­cally re­ceive the latest tech­nol­ogy and cus­tom­ized ser­vices and sup­port.

Bloomberg News file

Dion Weisler, chief ex­ec­u­tive of HP, and Meg Whit­man, chief ex­ec­u­tive of­fi­cer of Hewlett Packard En­ter­prise, have seen dif­fer­ent re­sults.

New York Times file

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