HP Divided In Hopes To Conquer

HP-LogoThe Great Depression scorched the 1930s like a wildfire, showing no bias and engulfing millions in the crippling flames of economic crisis. In 1939, as the Depression came to an end, a technology ingenue arose from the smog.On New Year’s Day in 1939, Bill Hewlett and Dave Packard founded Hewlett Packard inside a backyard garage. Now, after 76 years and periodic highs and lows, HP ceases to exist as the entity originally forged in Packard’s garage.

A company whose standard

was excellence – who staked a claim in Silicon Valley and grew into a multi-billion dollar corporation – just divided itself in two. On November 1, 2015, HP effectively split into two companies, trading separately on the market and with each having its own product focus. HP Enterprise (HPE) intends to sell commercial computer systems, software and tech services, while HP Inc (HPQ) will sell computers and printers, in the hope of rekindling success once again. The 21st century has been anything but kind to the former corporate icon. In the last fifteen years, HP has seen a succession of six CEO’s seated at the boardroom table, all eager to increase profits and restore HP’s rightful place as a tech giant.

HP: 1999-Today

Since its inception and even well into the 1990s, HP stood as one of the greatest companies the world had ever seen. HP remained one of the best, even when competing with the likes of Dell and Compaq. GOP Presidential Candidate Carly Fiorina, CEO from 1999-2005, saw a chance to secure HP’s title as Number One in 2001. HP acquired its competitor, Compaq, in 2001 for $25 billion, a move which aimed to drive stock prices through the roof and send profits into the same trajectory. In short, things failed to work out that way. Smartphones and tablets began hitting the market with increasing availability, a trend that has proven detrimental to computer companies to this day.

Fiorina was let go in 2005, following a 50% stock price dive. After a brief period with an interim CEO, HP found its new leader: NCR’s Mark Hurd. Unfortunately, if Hurd’s tenure at HP leaves anything for the history books, it will not be a good read. The rumor was that an HP top executive was leaking information to journalists. Rather than handle this quietly, HP had private investigators spy on its board members, eventually leading to the loss of jobs for its chairwoman and other staffers. Hurd resigned in 2010 due to his intimate relationship with actress Jodie Fisher, who also accused him of sexual assault. Finding himself caught in a string of lies, Hurd resigned. If only this was the worst of it. 

HP got less than a full year out of their next CEO, Leo Apotheker, who ruled from September 2010 until the following September. The highlight of Apotheker’s reign was HP’s acquisition of the British software company, Autonomy. Apotheker emptied the company’s pockets of roughly $11 billion, sealing what some call one of the worst deals in history. Autonomy withheld company information regarding profits and growth, although HP didn’t fuss too much about not receiving those reports. The entire board also failed to read the due diligence report from KPMG, which clearly advised them to rethink the deal. $11 billion later, HP had seen no increase in revenue. In another inappropriate move, Apotheker ended HP’s smartphone and tablet programs at a time when this area of tech was booming. Less than one year after his appointment as CEO, he was fired. The same day Apotheker was let go, a new CEO walked through HP’s revolving door. Meg Whitman would have her own shot to float the sinking HP ship.

Whitman joined eBay in 1998 and turned a company worth $4 million into one worth $8 billion in her ten years there as CEO. For HP in 2011, she looked like their savior. Some four years later, Whitman remains as CEO, providing much needed stability and calculated risk-taking. In her boldest move yet, Whitman divided the spoils of HP into two Fortune 50 companies, aiming to serve the enterprise market with HPE while also appealing to the consumer with HPQ. The split comes in an effort to simplify the company. Together, the two new companies strive for the twin goals that HP alone has long failed to attain: serve the corporate world while also accessing the mammoth consumer market and competing with the likes of Dell.

For The Investor

The first day the stocks were traded (Nov. 2, 2015), HPE closed down 1.6%. HPQ, though competing with Lexmark, was up over 12%. Both stocks are currently being traded well under $20, which should be appealing to investors. HPE seems to have big plans for the enterprise world, but consumer spending in HPQ allows investors to see profits return faster. HP has stability with Whitman, as she is there for the long haul. Each company looks to provide service to different consumers, and each will provide a different type of investment. HPE looks promising for long-term investment, while HPQ yields short-term upside, especially around the holiday seasons. Look for HPQ to get involved in the tablet and/or smartphone market in the next few years. Meanwhile, HPE is looking to stake a claim in the $1 trillion dollar IT/data world. Keep HPE and HPQ on your radar for fourth quarter profits, as well as being sound investment opportunities into 2016.