Hewlett-Packard Splits in Two, In Sign of Changing Times for Hardware Giants

HP CEO Meg Whitman. Image: HP

Hewlett-Packard is splitting in two.

As the company announced on Monday, it will soon separate into two publicly traded companies. One company, Hewlett-Packard Enterprise, will focus on cloud computing services and other tools for businesses, while the second, HP Inc., will handle personal computers and printers.

In a statement on the split, CEO Meg Whitman, who joined the struggling tech giant in 2011, said that dividing the company in two will make both halves more agile, and therefore, stronger. “The decision to separate into two market-leading companies underscores our commitment to the turnaround plan,” said Whitman. When the split is completed in October 2015, she will become CEO the enterprise business, while Dion Weisler, who now leads the company’s printing operations, will become CEO of HP Inc.

This division is a sign of the times for some of the country’s most established hardware companies. Sales of PCs and printers have dwindled in recent years, due in part to the rise of smartphones and tablets. Meanwhile, the rise of cloud computing services such as Amazon Web Services—which let businesses rent computing power over the internet—has undermined the market for computer servers, data storage gear, and other data center hardware. As a result, the giants of the computer hardware business have been forced to rethink their strategies.

Late last year, Dell founder Michael Dell took the company private, hoping he could revive the business if relieved of the pressures of being a publicly traded company. Back in 2004, IBM sold off its PC business to Lenovo, and earlier this year, it sold off its low-end server business—again to Lenovo—in an effort to shed some of its reliance on hardware.

In splitting itself in two—and investing more heavily in its own cloud computing services—Hewlett-Packard is fighting much the same battle, as it seeks to retain its relevance in the face of competition from the likes of Amazon, Google, and others. Recently, HP acquired Eucalyptus, a startup that lets companies build cloud computing services in their own data centers. With Eucalyptus, companies can keep some of their data in private cloud services for security reasons or otherwise, while also using public cloud services to run their software applications. A reflection of its larger strategy, this is a move that HP hopes will help fuel its growth in the cloud computing space, which will be an explicit goal of its new enterprise business.

This is not the first time Hewlett-Packard has considered a split under Whitman’s watch, and yet, back in 2011, she rejected the idea of spinning off the company’s PC business, noting that the two parts bolstered each other. Now, it seems that Whitman, like others in the industry, has adopted the belief that the nimbler a company is, the stronger it will be. In other words, if the company isn’t saddled by its PC and printers businesses, it has more room to innovate and build new products and services for a new age.

In an interview with CNBC Monday, Whitman acknowledged the shift in her thinking, saying that the split was only possible because the turnaround Whitman architected has succeeded. “We had to gather ourselves as one H-P,” she said, “but now we’re in the position to take advantage of what’s going on in the marketplace and position these two companies for growth.”