On October 6, 2014, HP reported publicly that it was looking to split into two separate entities: Hewlett-Packard Enterprise, including the datacenter infrastructure hardware, software, cloud, and services businesses; and HP Inc., including the printing and personal system (PPS) group. The companies are set up by technology, and both will span SMB, public sector, and enterprise segments. In addition, HP Inc. will also serve the consumer market. The transition is expected to close by the end of HP's fiscal year 2015 (the end of October 2015). Dion Weisler, who currently leads the client devices and printing group, will be CEO of HP Inc. Meg Whitman, HP Corp. CEO, will head Hewlett-Packard Enterprise, which is expected to change its logo at the end of the transition. Stockholders will see their stocks equally split between the two companies. For an analysis of the global impact of this, see "One HP" Becomes Two — Hewlett-Packard Enterprise and HP Inc. For an analysis of the printing solution side, see HP Becomes Two — Is HP Inc.'s Print Business Better Off?

1. By: Giorgio Nebuloni; Chrystelle Labesque; Karine Paoli
From One to Two HPs — What Does It Mean
for EMEA?
October 08, 2014 - IDC Link
On October 6, 2014, HP reported publicly that it was looking to split into two separate entities: Hewlett-
Packard Enterprise, including the datacenter infrastructure hardware, software, cloud, and services
businesses; and HP Inc., including the printing and personal system (PPS) group. The companies are set
up by technology, and both will span SMB, public sector, and enterprise segments. In addition, HP Inc.
will also serve the consumer market.
The transition is expected to close by the end of HP's fiscal year 2015 (the end of October 2015). Dion
Weisler, who currently leads the client devices and printing group, will be CEO of HP Inc. Meg Whitman,
HP Corp. CEO, will head Hewlett-Packard Enterprise, which is expected to change its logo at the end of
the transition. Stockholders will see their stocks equally split between the two companies.
For an analysis of the global impact of this, see "One HP" Becomes Two — Hewlett-Packard Enterprise
and HP Inc. For an analysis of the printing solution side, see HP Becomes Two — Is HP Inc.'s Print
Business Better Off?
Why is HP doing this?
According to HP, the key reason for splitting the company into two is to have an increased focus, faster
decision-making process, and ultimately different long-term strategies and investment roadmaps for the
two business blocks. In the investor presentation, HP also hinted at how the two units will have diverging
strategies. HP Inc. is seen as a stable business with predictable returns and an organic growth focus;
Hewlett-Packard Enterprise, however, is set for organic investments combined with targeted M&A activity,
which will need more flexibility from an investment perspective. In other words, the enterprise side — the
one most closely aligned to IDC's 3rd Platform vision — is where IDC expects to see the most radical
changes in future.
While revenue has increased in the PPS group over the past nine months (up 3% globally, versus -3% for
the rest of the company), IDC believes that the underlying assumption among HP's leadership is that the
unit is set to come up against headwinds in the longer term, while the enterprise group could see significant
growth with the right investments.
What does this mean for EMEA customers and partners?
HP Corp. as a whole is currently the largest IT supplier in the EMEA region, with revenue of $41 billion in
the latest four fiscal quarters (FY4Q13–3Q14) on a total market opportunity of approximately $455 billion
(excluding phones, telecom services, and application software), according to recent IDC data. HP is
currently number 1 in hardcopy printers (18% revenue share in CY2Q14), servers (36% revenue share),
and PCs (22% revenue share), and number 2 in several other categories such as networking hardware
and external storage.
IDC believes the immediate impact of the announcement, from a business strategy perspective in the
region and in the individual countries in EMEA, will be limited, as the different HP divisions already operate
on compartmentalized basis, both regionally and in each country. HP didn't clarify it, but in the mid term
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2. we would expect that logistically the two companies will have to be hosted in different offices, with separate
back-end IT systems etc. Such practical steps can take time and can distract staff from day-to-day duties.
Opportunities are mostly strategic in the long term, and include:
• Executing a swifter culture change toward software and services on the enterprise side,
without being bound to the volume/product mentality of the broader HP corporation. As an
example, the company could push more quickly into cloud services, analytics, or software
— areas worth tens of billions of dollars in EMEA and areas where HP is underrepresented.
• Realizing the growth potential in specific enterprise elements for Wall Street to see —
improving stock performance for the enterprise part and potentially providing a deeper
money pool for investments and acquisitions.
• Greater flexibility in mergers and acquisitions. Both companies remain huge, each with a
$57 billion annual run rate, but "mergers of equals," divestitures, or acquisitions will be
slightly easier to digest than for a $100+ billion company.
• The opportunity to review staff set-ups in both business units and ensure that talent is
directed to the right tasks.
Challenges during the transition will tend to be tactical, mid term, and concentrated in the channel, volume,
and SMB space:
• HP lists the diverging competitor landscape in the client and printer versus the enterprise
areas as a reason for the split. IDC maintains that in EMEA this is only partly true. While
cloud players like AWS and Microsoft and pure enterprise suppliers like Cisco, EMC, and
IBM are not HP competitors in the client and printing space, two of the largest rivals in the
EMEA server space are also well engaged in the volume space on the PC side (Dell and
Lenovo). Working with two separate companies, HP will have extra work to do to align its
massive partner base between client/printing devices and low-end server and storage to
maintain a coherent approach to discounting and pricing, especially for SMB customers.
• It is too early to tell, but the market might read the split as a shift in the PC and printer
business into a defensive mode, in favor of an aggressive stance on enterprise. As
happened in 2011, IDC expects competitors such as Lenovo and Dell to try to leverage this,
especially to lure smaller resellers and distributors away with a "unity" message. On the
positive side, HP is in a much better organizational and financial shape these days and has
a clearer story for the market.
• HP's PC business, accounting for more than 30% of company revenue in EMEA, has
benefited from the recent commercial PC market rebound and has redesigned its consumer
products, posting improved results. Once the business cycle of renewal is over, HP would
have to rely on a strong consumer business. In the absence of a strong offer in mobile
devices, a strong image justifying a premium price or solid content offer (e.g., Google), the
battle for consumers will put increasing pressure on margin. Unless it makes acquisitions
or longer-term product investments, HP will face strong competition — especially from large
Asian players that are leveraging economies of scale in their supply chains.
• HP reported that it plans to keep the HP Financial Services arm in the Hewlett-Packard
Enterprise spin-off. In EMEA, financial services (especially in cash-flow bound segments of
the market such as small service providers and retail) are a strong weapon to sell printing
and client solutions. It will have to provide a clear path forward for PPS customers making
use of this option.
HP's biggest mergers and acquisitions (Compaq, EDS, Autonomy, etc.) have not always provided
additional value to shareholders and contributed to the creation of a huge company that has at times been
slow to adapt to the market. From that point of view, we believe the separation might give the two entities
more flexibility — and it is clear now more than ever that speed of execution and more aggressive "bets"
on 3rd Platform or even 4th Platform trends will be needed to lift the companies above the single-digit
growth rates.
At the same time, the transition could mean losing some or all the benefits of an integrated supply chain,
of sourcing large volumes across product lines, of integrated back-end systems for partners, and of having
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3. one contact person for customers. Much of this, however, will depend on how the two separate companies
operate with each other. In the two-tier EMEA channel in particular, having two HPs could go either way
— each supplier could have less weight and less presence, but they could also have more room to focus
and grow. In the mid term, we believe the split could end up being costly particularly to the volume side
of both houses — HP is clearly looking at the longer term, but a strong acceleration in the value-add
segments or in brand new markets (e.g., 3D printing) will be needed to make the move worthwhile.
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