HP Redefines its Core Business

Just two days ago, what was known as one of the most innovative firms in IT and computers, Hewlett Packard (HPQ), announced that it will be splitting into two components, HP enterprise and HP Inc. This recent act is based on the current CEO’s, Meg Whitman’s, many initiatives to ensure HP remains competitive.

For long, HP has been governed by less than stellar leaders who, in the last couple of years, have burned over $8.8 billion in write downs after the acquisition Autonomy Corp. and mired the firm in a spiral of lawsuits that persist even to this day. However, since Whitman’s inception as CEO in 2011, HP stocks have been steadily climbing, achieving almost double its stock price from 2012 in 2013. Her recent decision is a direct response to HP’s weakening business in the PC market: instead of continuing to invest in a dying venture, she believes HP’s future lies in enterprise support, in which she notes has been upscaling at a “lightning speed.”

With the split, HP’s current PC and printing division will become HP Inc. and be led by HP’s current VP, Dion Wiesler; its corporate hardware and service segment will become HP enterprise and be led by Whitman herself. Investors, however, are naturally skeptical about this. For instance, many doubt whether or not the $600 million used to finance the split will actually be a wise long term investment. In both of the new segments, each will have a very hard time standing on its own feet simply because of the harsh competitive landscape each is in. Currently, there are talks that a merger between HP Inc. and EMC, a storage computer manufacturer, may help HP reclaim declining market share in its computer segment, and likewise, there are similar suggestions of acquisitions for HP’s enterprise division in order to stay competitive with players, such as IBM and Oracle.

Honestly, this split is really not that surprising: HP’s core business has simply become outdated. The computer industry has become much more competitive than it has been in the past decade. Now, manufacturers are creating extremely customized devices that target just about every niche market, and continue to fight tooth and nail for any sizable market share. Within this tournament, HP has been left in the dust. Unlike Apple or Dell, HP computers have no unique features or differentiators that can attract neither generic nor niche consumers. Thereby, to ensure growth and profitability, Whitman has made the right decision to pursue a new venture in a rapidly growing market. The challenge, then, becomes how can HP become the next leader in the enterprise service industry?

-Yue Song